What is the Debt Arrangement Scheme?
A Debt Arrangement Scheme (DAS) is a formal debt solution introduced in Scotland in 2004. It allows you to apply for a programme that could allow you to pay off your debts without interest, fees, or charges. This is called a ‘Debt Payment Programme’ (DPP).
Your payments are lowered to become more affordable to suit your circumstances, but paid over a longer period of time. This can help you manage your debt as a lower amount allows you to manage your debts, and budget more effectively.
Similar to other debt solutions, such as a Protected Trust Deed, your creditors are legally bound to the programme once it is established. However, unlike a Trust Deed, none of your debts are written off. Under the DAS, only your interest, charges and fees are written off at the end of your programme.
How does it work?
Step One: Using a DAS approved money adviser, your DPP is put together and sent to all of your creditors, and they have 21 days to object. If there are no objections, your DPP is automatically approved.
If there are any objections, a DAS Administrator, an Accountant in Bankruptcy, can judge it to be ‘fair and reasonable’ and approve it regardless. Your money adviser is likely to charge you for one-off advice and a set-up fee.
Step Two: Once your DPP is accepted, you must adhere to the agreement. If your circumstances change, it is possible to vary the agreement to accommodate your situation. Your creditors cannot stop the amended programme being approved, as long as it is fair.
It is very important to keep up with your ongoing payments, such as your rent, mortgage or tax, as well as your DPP. It will also become more difficult to acquire credit as you must seek permission from your DAS Administrator before you apply for credit.
If your DPP is rejected, you can choose to appeal against the decision. However, approval is not guaranteed and the rejection may be a sign that you should review other debt solution options.
Step Three: Your agreement will last as long as it takes to pay off all of your debts, not including your interest, charges and fees. Normally, none of your debts are written off and this can result in DPPs that last around 10 years. It is likely that your money advisor will ask for a monthly fee throughout your agreement as payment for managing your programme.
Your Mortgage is not able to be included in your DPP. However, if you have any mortgage arrears, it may be possible to have them added to the agreement. Otherwise, your home is unaffected by the DAS. You must continue to make mortgage payments, but your equity is not required to be added as part of your DPP.
Similarly, your car is also unaffected. You must keep up with payments to any car finance agreements you have. However, this is independent of your DPP.
The Benefits of the DAS:
- As the DPP is a formal, legally-binding solution, your creditors must adhere to the programme once it is finalised
- You will have only one payment to make, which will be shared amongst your creditors. This will make managing debts, and budgeting, much easier
- Similarly, your creditors will not be able to take any action against you, providing you adhere to the arrangement
- Your assets will not be included in the arrangement, regardless of the amount of equity they hold
- Your interest, fees and charges are frozen from when your application is made, and they will be written off once the arrangement is complete
- You could set up a joint DPP, which include the sole and joint debts of two people
What are the risks?
- Your credit rating can be negatively affected
- Unlike other insolvency solutions, such as a Protected Trust Deed or IVA, none of your debt is written off. As such, your lower payments will result in a longer repayment process
- Although your creditors cannot take action against you while you adhere to the agreed programme, if you do not comply your creditors can take action and it is likely that your interest, fees and charges will be added back onto your debt
- Alongside a one-off fee for advice and a set-up fee, your money adviser may charge you a monthly fee for the management of your DPP. Whereas, in a Protected Trust Deed, your insolvency practitioner is paid using your affordable monthly payments.
Who can get apply to the DAS?
Because a DAS is a legal solution, you must meet a certain set of criteria to be eligible.
- You must reside in Scotland
- You must have at least two debts
- You must have money left over after meeting your essential expenditure.
- You must not be in another formal debt solution, notably a Protected Trust Deed, and you are not bankrupt, or subject to a bankruptcy restrictions order.
Ultimately, the DAS is best for people in Scotland who are struggling with a serious debt problem, but who have some funds available every month to pay their debts. It is advisable that these funds will allow you to pay off your debts in less than 4 years, as a Protected Trust Deed is a similar option which could allow you to have the remainder of your debts written off after 4 years.
It is possible to add joint debt to a DPP in order to have a joint DPP. However, the other party must be either:
- Your husband or wife, or living with you with the characteristics of a husband or wife, or
- Your Civil partner
If you do not have sufficient disposable income to manage regular payments towards your debts, you may wish to consider another solution, such as Sequestration or Bankruptcy. On the other hand, if you would prefer to enter into a similar, but non legally-binding debt solution, a Debt Management Plan (DMP) could be a better solution for you.