Debt Arrangement Scheme

Debt Arrangement Scheme

Personal debt and Debt Arrangement Scheme

The Debt Arrangement Scheme (“DAS”) is similar to a Debt Management Plan however, it is backed by the Scottish Government and is legislation lead. A DAS allows an individual to make one affordable monthly payment towards all unsecured debts included in the DAS until debts are paid in full.

Once the DAS is approved by creditors, all interest and charges are frozen during the term of the DAS. Any assets owned by the individual are not included in the DAS.

If breathing space is required to allow an individual to enter into a DAS, or obtain further advice, a Moratorium can be applied for. The Moratorium is registered on a public register, being the Register of Insolvencies, and stops creditors taking any action during the period being 6 months.

What is the Debt Arrangement Scheme process?

The DAS is a straightforward process which allows all debts to be paid in one affordable monthly payment via a Debt Payment Program (“DPP”). The DPP can last for any reasonable time.

The individual will receive initial advice and assessment of the monthly payment affordability. Once the DPP has been agreed, the proposal will be put to creditors.

Creditors have 21 days to agree to the DPP. If no response is received from creditors, it is deemed to be accepted. Should creditors of more than 10% in value lodge an objection to the DPP, it will not be approved. However, the DPP can be reviewed by the DAS Administrator, who is the Accountant in Bankruptcy. The DAS Administrator will complete a ‘fair and reasonable’ test and if the DPP passes this test then it is deemed to be approved and creditors are legally bound.

Once the DPP is approved, creditors will freeze all interest and charges, therefore, the balance due at the start of the DAS will not increase, irrespective of the term of the DPP. Creditors included in the DAS cannot raise legal action against the individual whilst the DAS is in place. The creditors will receive payment from the DPP on a monthly basis until the debt is paid in full.

Should the individual come into a windfall, the DAS term can be ended early if the payment clears the balance due.

All assets owned by the individual are not included DAS and are not at risk as long as re-payments are maintained to any relevant securities.

Sole traders also have a Business DAS available to them. The maximum period for a business DAS is 5 years.

The pros and cons of a Debt Arrangement Scheme (DAS)

The advantages

• A guarantee of legal protection against creditors.
• Interest & charges on debts will be frozen.
• Your possessions and property remain safe, regardless of equity value.
• Creditors who initially reject your proposal can be forced by an administrator to comply if the arrangement is deemed fair.
• Any legal actions taken against you regarding debt recovery will stop, including enforcement by bailiffs (Sheriff’s Officers).
• All future contact with creditors will be through a money adviser who will represent you in all communications throughout your DAS.

The disadvantages

• Limited access to future credit.
• Credit score will be affected.
• You will need to make regular payments throughout the period agreed for the DAS.
• There is no time limit for a DAS, so repaying your creditors may take many years.
• The terms of a DAS may lead to a period when repayments are not made against certain debts, such as loans. This could lead to the debtor falling into arrears or their arrears increasing. Where this possibility exists, the debtor will be told when payments will be made against these debts.
• Only some of your unsecured debts are included and any other remaining debts will still be outstanding. The following debts are excluded from a DAS and will continue to be payable in full:
  • Student loans
  • Legal debts
  • Secured loan payments
  • Ongoing mortgage payments

Advice on personal debt and Debt Arrangement Scheme

For more information on personal debt and the Debt Arrangement Scheme, we offer an initial free consultation to review the situation and make recommendations on the best way forward. If we think that the Debt Arrangement Scheme is the best route forward, our specialists can support the individual at every step of the way through the process.

Contact our Scottish Office on +44 (0) 141 648 2030 to arrange a no obligation and confidential call with one of our Partners.

For information on fees in relation to a Debt Arrangement Scheme, click here.