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About The Debt Arrangement Scheme

Advantages of DAS

 

• You’ll get protection from creditor legal action

• Your debts steadily reduce

• You don’t pay the admin fees (they’re a cost to your creditors)

• Current diligences (like a wage arrestment) aren't enforced

• Your creditors cannot make you bankrupt

• Interest costs (and other charges) will stop

• Your adviser deals with your creditors for you

• You make one regular payment

• You don’t have to pay your full disposable income

• The payment amount can change if your situation changes

• You have a budget for household bills and expenses

• It’s less likely than insolvency to affect employment

• Emergency payment breaks are available (with approval)

• It isn't personal insolvency (your assets aren’t involved)

 

Drawbacks Of DAS

 

• Debt does not get written off

• Your credit rating gets damaged

• Mortgages become harder to obtain

• You cannot get credit (above a limit) without permission

• Might be a long plan if your debts are large

• Could be a long plan if your regular payment is low

• You will fall into arrears (or your arrears will increase)

• Interest can get added back if your scheme fails

• Your personal details get added to a public register

• If your scheme fails, you will remain liable for your debt

• Your personal expenditure may be restricted

 

Qualifying Criteria for DAS in Scotland

 

Included And Excluded Debts

 

How Do You Apply?

 

Moratoriums

 

What if you’re at risk of enforcement action by your creditors?

 

You or your adviser can put a moratorium in place which protects you from creditor debt enforcement. Making this application gives you time and space to proceed with your DAS application.

 

Moratoriums originally lasted for six weeks and could only be used once per year, but this has changed temporarily at the moment.

 

The Scottish Government has introduced emergency legislation as a result of the COVID-19 financial crisis. Currently a moratorium protects you for six months and can be used more than once per year.

 

A moratorium could help you if:

 

• You need more time to think about your options

• Your creditors are making legal threats

• The threat of legal action is affecting your health or wellbeing

 

Drawbacks associated with moratoriums include:

 

• Your credit rating may be negatively affected

• Your personal details are added to a public register

• Your debt level may increase as a result of interest and charges

 

Conditions

 

You must meet certain conditions during your Debt Arrangement Scheme. These conditions include:

 

• Paying your continuing liabilities (like rent and council tax) on time

• Not applying for credit without permission

• Making the agreed payments into your Debt Payment Programme

• Promptly notifying your Administrator if your situation changes

 

If you breach the conditions, your DAS could get revoked (cancelled).

 

Fees

 

You don’t pay a fee for using a Debt Arrangement Scheme.

 

A “payment distributor” receives your regular payment. 22% of it is kept to cover various fees and 78% is sent to your creditors.

 

Your creditors must reduce your debt balance by 100% of your full payment, so they’re effectively covering the admin costs of this debt solution.

 

Example: You pay £100 into your DPP. £22 is kept to cover fees/costs, £78 is sent to your creditors, but your total debt owed reduces by £100.

 

This fee information doesn’t apply if you started DAS before 4th November 2019. If you previously agreed to pay fees, the fees will continue to apply.

 

There’s no risk-free way to stop paying these fees. You could request that your current DAS gets revoked so that you can reapply. The risks are that interest gets re-added to your debts, or that your new application gets rejected.

 

Business DAS

 

The Debt Arrangement Scheme is also available to some businesses including partnerships, trusts, and unincorporated bodies.

 

It is not available to a limited company or a public company, or to businesses that trade outside Scotland.

 

Business Debt Arrangement Schemes are arranged by a DAS approved insolvency practitioner. The Debt Payment Programme (DPP) must run for five years or less.

 

A business is protected from its creditors if their scheme gets approved.

 

Who Uses the Debt Arrangement Scheme?

 

Many homeowners use DAS because (unlike trust deeds and bankruptcy) no account is taken of equity in your home. DAS also takes no account of other assets like vehicles.

 

This option may be suitable if your debts aren’t huge. Freezing interest and charges means your debt can be repaid sooner.

 

Payments in trust deeds (or bankruptcy) last for four years and some people can repay their debt sooner via DAS.

 

You may prefer DAS if you’re determined to repay your debts in full. Trust deeds and bankruptcy typically result in debt write-off, while a Debt Payment Programme results in your creditors getting most of their money back.

 

Some workers have insolvency restrictions in their employment contracts. DAS isn't insolvency and it provides legal protection (which might be important to your employer as well as to you).

 

Do you expect to receive a lump sum (or property) in the future? In DAS you can use this money or asset as you choose, but in bankruptcy or a trust deed you must hand it over.

 

Alternative 1 - Debt Management Plan

 

Many Scottish residents use debt management plans which work quite similarly to DAS.

 

You pay back the amount that you can afford until your debts are fully repaid. A debt management plan (DMP) has three major weaknesses in comparison:

 

• No formal legal protection from creditors

• No guarantee that interest and charges will stop

• No power to deal with an objecting creditor

 

Potential advantages of debt management plans compared to DAS:

 

• No entry on a public register

• Expenditure restrictions may be less rigid

• Greater flexibility

 

There are some valid reasons for preferring to use a DMP. Most people will however benefit from choosing DAS in the first place, or from switching to DAS from an existing debt management plan.

 

Alternative 2 - Protected Trust Deed

 

A Scottish trust deed offers two major potential advantages compared to DAS:

 

• You may become debt-free sooner

• Some of your debt may be written-off

 

There are also disadvantages to consider:

 

• Your assets will be taken into account

• Personal insolvency may damage your credit rating more

• Some types of employment may be affected

 

If you’re currently using the Debt Arrangement Scheme, you are allowed to switch to a protected trust deed. This may be especially attractive if your DAS is a long arrangement (some run for ten years or longer).

 

Your Debt Arrangement Scheme is automatically cancelled if you start a trust deed in Scotland.

 

Alternative 3 - Bankruptcy

 

Becoming bankrupt also offers potential advantages compared to DAS:

 

• No monthly payment if you cannot afford it

• You may become debt-free sooner

• Some of your debt may be written off

 

Some potential disadvantages include:

 

• Your assets will be taken into account

• Personal insolvency may damage your credit rating more

• Some types of employment may be affected

 

If you’re currently using the Debt Arrangement Scheme, you are allowed to switch to bankruptcy. This may be especially attractive if your arrangement is very long, you own few assets, or if your ability to pay into your DAS has reduced.

 

Using bankruptcy (also know as “sequestration” in Scotland) will result in the automatic cancellation of your DAS.

 

Get Debt Advice

 

For expert advice about the Debt Arrangement Scheme (and other debt solutions) please contact us. Our friendly expert advisers will guide you through your options.

 

We can also help if you’re considering switching from a DMP to DAS, or switching from DAS to a protected trust deed or bankruptcy.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Trust-Deed.co.uk Founder

 

Page Last Updated: 22/05/2020

 

 

(c) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.

 

(c) Channel Active Limited. Company Number: 06412452. Data Protection Registration: Z1332750.

Telephone calls may be monitored or recorded. Authorised and regulated by the Financial Conduct Authority.

Trust-Deed.co.uk, Clyde Offices, 2nd Floor, 48 West George Street, Glasgow, G2 1BP. Tel: 0141 2490416.