Debt Arrangement Scheme

What is a debt arrangement scheme (DAS)?

A Debt Arrangement Scheme will allow you to pay off debts over an extended amount of time, while protecting you from any further action from companies that are trying to recover the money they’re owed. This is called a Debt Payment Programme (DPP).

A DAS is an alternative to a Trust Deed or sequestration in Scotland, and IVAs or bankruptcy in England. Like those solutions, it allows you to freeze the interest and charges on your debt and repay it over a period that suits you.

A DAS is managed by a DAS administrator, and its duration depends on factors like how much debt you’re in, as well as how much you can comfortably afford to pay towards it each month.

There is no minimum or maximum level of debt needed to be able to enter into a DAS. Any companies you are in debt to who are included in the scheme will receive regular payments towards the balance owed under legally binding terms you agree to at the beginning if your DAS.

How does a Debt Arrangement Scheme work?

By entering a DAS, you commit to making one affordable monthly payment into a Debt Payment Programme, which is based on all the companies you owe money to being paid regularly.

It must be managed by an approved money adviser. That person will represent you in all dealings with the people you owe money to (your creditors), meaning you will not have to communicate with them for the duration of your DAS.

You can employ a money adviser though free advice companies such as your local Citizens Advice Bureau or your local authority’s money advice team.

Alternatively, an insolvency practitioner (or a suitably qualified member of their team) can act as a money adviser for your DAS.

Following the introduction of new legislation in November 2019, it no longer costs anything to set up or manage a DAS in Scotland.

Am I eligible for a Debt Arrangement Scheme?

Because the Debt Arrangement Scheme is a Government programme, there are strict criteria you have to meet before you can qualify.

You will qualify for a DAS if you:

• Live in Scotland
• Have one or more debts
• Have a reasonable amount of money left after your outgoings that can be put towards repaying those debts
• Are not bankrupt, subject to a bankruptcy restriction order, undertaking, or in a protected Trust Deed

How long does a Debt Arrangement Scheme take to set up?

A DAS can be set up in around 6 to 8 weeks under normal circumstances. The length of time it takes to get a DAS up and running depends on how long it takes you deal with the following:

• Requesting up to date balances from creditors
• Preparing a proposal to send to creditors
• Handling any objections to your DAS from creditors

The approval, or rejection, of your DAS is ultimately decided by the DAS administrator, a civil servant appointed by the Scottish Government. The administrator has the power to overrule any objections to your DPP as long as they see it as ‘fair and reasonable’.

What’s the process of entering a Debt Arrangement Scheme?

There is a simple process that will be followed by your adviser to include each company you’re in debt to in the proposal. Here’s how setting up a DAS works:

• DAS proposals are sent to every company you owe money to. They’re given 21 days to respond if they object.
• If there are no objections, the DPP is automatically approved.
• If one or more companies do object, the DPP can still be approved if it is judged as fair by the administrator (Accountant in Bankruptcy).
• If you need to produce an alternative Debt Payment Programme for approval, the money adviser will help you produce a new DPP based on your current situation and send this to your creditors.
• As long as the revised proposal is fair, the creditors will not be able to stop the DPP being approved.

If your alternative DPP is rejected, you have the right to appeal against the decision after the review process has been fully exhausted. In the event that your appeal fails, you may need to look at other debt solutions, like a protected Trust Deed or bankruptcy.

If your circumstances change while you’re repaying your debts under a DAS, the Debt Payment Programme may be varied without charge, allowing you to pay more, or less, towards the plan as your circumstances require.

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What debts can be included in a Debt Arrangement Scheme?

One of the benefits of a DAS over other debt solutions is that it allows a wider range of debts to be included.

You can bring any unsecured debt under your DAS, including:

• Credit card debts
• Catalogue debts
• Payday loans
• Personal debts
• Store cards
• Overdrafts
• Council tax arrears
• Utility bill arrears

Most secured debts cannot be included in your DAS. Examples of secured debts that will be excluded are:

• Ongoing mortgage payments
• Secured loan payments
• Student loans
• Legal debts

For any secured debts not covered by the plan, you must continue to make the usual payments beyond your DPP.

How long does a Debt Arrangement Scheme last?

There is no fixed length for a Debt Arrangement Scheme. The amount of time you spend paying towards you DAS will vary depending on your circumstances.

That said, according to data from the Accountant in Bankruptcy, the average length of a DAS is six and a half years.

It’s unusual for a DPP to take longer than ten years. If you feel you would be unable to repay the money you owe in ten years or less, it could be worth investigating a Trust Deed as an alternative to a DAS. Trust Deeds come with the benefit of allowing you to write off some of the debt.

Can I pay off my Debt Arrangement Scheme early?

It’s common for a person’s financial circumstances to change when they have already signed up to the terms of their DAS.

If your financial circumstances change at any point during your DAS, you should contact your DAS-approved adviser for guidance in the first instance.

If, for whatever reason, you come into money during the course of your DAS, it is possible to pay the scheme off early by using the lump sum to clear your balance.

How long does a Debt Arrangement Scheme stay on your credit file?

Unfortunately, any debt relief solution you use is highly likely to have a negative effect on your credit score.

The fact that you’re using a DAS will send a signal to lenders that you have struggled to pay back what you owe in the past, and may make them reluctant to offer you credit in the future.

Evidence of your Debt Payment Plan will remain on your credit file for a minimum of six years.

This is because your credit file contains the last six years of your credit history, and your DAS will usually last around six and a half years on average – meaning it is likely to be covered in your credit file.

Your credit file will show that you made reduced payments towards your debts throughout the course of your DPP, so the length of time your credit score will remain affected depends on how long it takes you to settle your payment plan.

What are the advantages of a Debt Arrangement Scheme?

There are several advantages to using a DAS as a means of repaying what you owe:

• You will only make a single monthly payment, based on what you can afford
• An approved adviser will arrange payments to the companies you are in debt to, so you don’t have to.
• A DAS will protect you from companies issuing demands or threatening court action.
• The DAS is guaranteed to freeze all interest and charges on the debts included once approved.
• It also guarantees legal protection from the creditors included once approved.
• You can apply for a payment holiday of up to six months if for any reason you find it difficult to keep up payments towards your DAS.
• A DAS is flexible, so if your circumstances change you could be able to vary your payment amount to make it more affordable – or to pay it off quicker if your situation allows.
• Any wage arrestments that are already in place are stopped.
• Valuable possessions you own will be unaffected, including your home, even if there’s substantial equity in it.
• Creditors who don’t accept the proposals can be forced to comply with the arrangement if it’s deemed to be ‘fair’ by the administrator.

What are the disadvantages of a Debt Arrangement Scheme?

While there are many advantages, there are some drawbacks to using a Debt Arrangement Schemes:

• Your credit rating may be badly affected.
• If you don’t comply with the conditions of the Debt Payment Programme, your DAS could be revoked – this means companies are free to pursue legal action against you, and reapply any interest, fees, and charges to what you owe.
• A DAS doesn’t allow you to write off any of your debt – you will only get relief from further interest, fees, and charges.
• A DAS could take longer to pay off than other debt solutions.

Is a Debt Arrangement Scheme a good idea?

If you’re struggling with debt and looking for a way out, choosing a debt solution can be difficult. There are a range of options, and you always want to make sure you’re getting the best deal.

The best debt solution for you is ultimately the one that best reflects your circumstances.

That said, if you fit the criteria for a Debt Arrangement Scheme, there’s every chance it’s the best way forward for you.

If you’re considering a DAS and want to know if it’s the right fit, check if you qualify here.