What is a Debt Arrangement Scheme?
The Debt Arrangement Scheme is a debt management tool only available in Scotland. It lets you apply for a debt payment programme (DPP) which helps you repay your debts by making affordable monthly payments.
The total duration of your debt payment plan depends on the amount of debt that you have and how much of it you can manage to repay. Your creditors will continue receiving the monthly payments you agreed on with them.
It can last for any reasonable length of time and, if approved, will freeze all interest, fees and charges on the debts included, resulting in them being waived if you fully complete the programme.
Once you have a debt arrangement scheme in place, you will only be required to make one monthly payment into the debt payment programme. The paid sum of money is then divided between your creditors. You can apply for a DAS, regardless of the amount of money you owe.
Once you and your creditors have agreed on a DAS, your lenders cannot pursue legal action against you. All interest, penalties, fees and charges on your debt will also be frozen.
Benefits
The DAS is designed to be a flexible debt solution so you pay one monthly payment that you can afford to your creditors.
Interest rates are frozen and creditors are not allowed to add extra charges to your debts. This means your debts won’t increase while you are in a DAS and you will be able to pay off your debts quicker.
Once you have entered into a DAS, and providing you continue to follow your agreement, your creditors will not be able to take any legal action against you.
Normally, your assets are not taken into consideration so unlike debt solutions like sequestration your home and car are protected.
It may be possible to amend your payment if you have a change in circumstances and if you have a temporary reduction of income you may be able to take a payment break of up to 6 months.
If you have a debt in joint names with someone else, this can be included in the DAS. However, your creditors may still chase the other person for all of the debt.
Unlike Trust Deed and Sequestration it is not classed as formal insolvency.
How does a Debt Arrangement Scheme work?
When your application has been successful, you make affordable payments into your DPP. These payments are then shared out on a fair basis between the different creditors that you owe money to.
Your DPP is set up and managed by an accredited ‘continuing money advisor’, and your payments are taken and passed onto your creditors by a ‘payments distributor’.
How long does a DPP last?
This will depend on how much debt you owe and how much money you have left over (surplus) each month to pay the debt. You’ll only be able to set up a DPP if you can repay what you owe in a reasonable amount of time. This may be up to 20 years, although it’s rare for DPPs to last this long.
If you can’t repay your debt in a reasonable amount of time you may be more suited to a form of insolvency like sequestration.
Your DPP ends when you’ve made all the payments you agreed to make and the debts have been cleared, or if you clear the debts with a lump sum payment.
Things to consider:
Residence: A DAS is only available for residents of Scotland.
The DAS will appear on your credit file for 6 years from when it commences, or until it completes if that’s longer than 6 years. Your DAS will also be recorded on a public register.
If you miss two payments and a third is due, it’s possible that your DAS will fail. This is unless a payment break has been granted. This means your creditors can apply interest and charges, take legal action or even petition for your bankruptcy.
Because you are reducing your repayments, it could take you longer to pay off your debts.
It is normally a condition of your DAS that you cannot obtain any further credit. As your credit rating will be affected, it is also unlikely that you will be able to obtain credit without paying a higher than average interest rate.
Only debts that were included in the original DAS would be discharged at the end of the period, so if you had taken out any further debts these won’t be included, and you’d still have to repay them.
You can apply for debt write-off if you have been in a DPP for 12 years and paid back 70% of your debts. However, compared with a Trust Deed, Sequestration or MAP, the write-off time is a lot longer.