What is the Debt Arrangement Scheme?

 

If you live in Scotland you can choose between two types of debt management plan.

 

The Debt Arrangement Scheme (also known as DAS) reduces your monthly debt repayment to an amount you can afford. This single payment is made into your “Debt Payment Programme”.

 

An expert debt adviser sets up your DAS and deals with your creditors on your behalf.

 

DAS provides legal protection from your creditors and interest is stopped. These two major benefits aren’t guaranteed if you select an informal debt management plan instead.

 

For personal advice about effective debt solutions, please get in touch with our expert advisers.

 

Benefits of Debt Arrangement Schemes

 

  • Legal protection from your creditors
  • Repay your debts at a rate you can afford
  • The DAS admin fees are funded by your creditors
  • Stops some types of legal recovery action
  • Interest and charges stop being added
  • An expert adviser handles contact with creditors
  • Make one consolidated payment each month
  • Flexibility in the monthly payment amount
  • Fair budgets for household bills and expenses
  • Less likely than insolvency to affect employment
  • Payment breaks for financial emergencies
  • Assets like your house or car aren’t included

 

Disadvantages of Debt Arrangement Schemes

 

  • No debt write-off
  • Negative effect on credit rating
  • Restrictions on new credit use
  • Could be long if your debt total is high
  • Could be long if your payment amount is low
  • You will go into arrears (or your arrears will increase)
  • Re-added interest if your DAS later fails
  • Personal information added to a public register
  • Limited personal expenditure may be necessary

 

Do I Qualify For DAS?

 

You can only use this debt management solution if you can afford to pay something towards your debts. This means that you have surplus income after paying your household bills and other expenses.

 

The amount you can pay each month must enable you to clear your debts within a reasonable period of time. In this context the word “reasonable” isn’t tightly defined, but a repayment term that’s longer than twelve years might be considered unreasonable.

 

Creditor support is needed (and very often received) at the arrangement stage. If some of your creditors object to your DAS it could still go ahead as a result of a “fair and reasonable test” being used by the DAS Administrator.

 

You’re excluded from applying for DAS if you’re currently subject to a:

 

  • Bankruptcy
  • Protected trust deed
  • Bankruptcy restriction order
  • Bankruptcy restriction undertaking

 

Qualifying Debt Types

 

Most debts qualify for inclusion in a Debt Arrangement Scheme such as:

 

 

You can include guarantor loans but this may cause problems for your guarantor.

 

You can also include joint debts but this might cause problems for the other borrower.

 

Joint Debt Arrangement Schemes and joint debt management plans are both available to couples. For joint DAS the other party must be your spouse, civil partner, or a co-habiting partner. There’s no requirement to have any joint debts in order to use joint DAS.

 

If your debts built up because of gambling you might have to demonstrate that gambling activity has stopped.

 

Some debts can be included in DAS but it might make sense to exclude them. Get direct personal debt advice if you have debts related to:

 

  • Mortgage arrears
  • Hire purchase arrears
  • Rent arrears

 

The following types of debt cannot be included in DAS and you should continue to pay them in full:

 

  • Child support or maintenance arrears
  • Student loans
  • Current hire purchase costs
  • Current mortgage costs

 

The DAS Application Process

 

The first stage is to obtain expert debt advice. You’ll confirm which debt management solutions you qualify for and the pros and cons of each.

 

Only an Approved Money Adviser can actually arrange a Debt Arrangement Scheme for you. Firms that don’t deliver this service directly will refer you to organisations that can.

 

You will be asked to provide documentation such as bank statements, payslips, and information about your creditors. This verifies the details that your adviser uses to complete your application and contact your creditors.

 

It’s likely that you’ll be advised to open a new bank account before submitting the application.

 

Moratorium Protection

 

A “moratorium” provides legal protection from creditors while you arrange a debt solution. This is important if creditor enforcement action has begun (or seems imminent).

 

Standard moratoriums provide six weeks of legal protection and can only be used once per annum.

 

At the time of writing a moratorium provides six months of legal protection and can be used more than once per annum. This is a temporary change under the Scottish government’s emergency Covid-19 legislation.

 

Moratoriums can be helpful to:

 

• Provide time to get expert debt advice

• Provide time to consider debt management solutions

• Prevent the stress and cost of creditor legal action

 

Using a moratorium also has some disadvantages:

 

• Damaged credit rating

• Public register of users

• Increased debt (interest and charges continue)

 

Ongoing Requirements

 

While benefiting from a Debt Arrangement Scheme you must continue to meet financial conduct standards including:

 

• Payment of household liabilities (like rent or utilities)

• Only applying for credit with prior permission

• Making your regular DAS payments

• Telling your DAS Administrator about financial changes

 

Breaching these standards could result in your arrangement getting cancelled (revoked).

 

DAS Fees and Costs

 

From a user’s perspective this debt management solution is free. The fees and costs are covered at the expense of your creditors.

 

Each time you pay into your DAS debt payment programme 78% of the money goes to your creditors. 22% is retained to cover admin costs.

 

While your creditors only receive 78% of your payment, 100% of your payment is credited towards reducing your debt.

 

For example, if you pay £200 per month into your DAS your debt total will reduce by £200 every month. In reality your creditors only receive £156 but the difference for fees (£44) is at their expense rather than yours.

 

Business Debt Arrangement Schemes

 

Partnerships, trusts, and unincorporated bodies can also use DAS. It’s not available to limited or public companies or to a firm trading outside Scotland.

 

Business DAS is arranged by specially approved insolvency practitioners. It’s only available if the business can repay the full debt within five years.

 

Businesses get legal protection from creditors when using business DAS.

 

Who is DAS Suitable For?

 

Unlike insolvency (which includes bankruptcy and trust deeds) the Debt Arrangement Scheme takes no account of your assets. This makes it attractive to many homeowners.

 

It’s also suitable when the expected repayment term is shorter than the standard four years term of protected trust deeds and bankruptcy.

 

Some people feel that they have a moral obligation to repay their creditors. A completed DAS returns 78% of the money owed to creditors, which is a higher percentage than most trust deeds and bankruptcies produce.

 

DAS is also less likely to affect employment than personal insolvency, though you might still be required to disclose it to your employer or regulator. This issue is relevant to police officers, solicitors, financial services staff, company directors, and members of the armed forces (amongst others).

 

If you expect to receive a lump sum in the next few years you may wish to consider DAS. Common examples include inheritances, pension lump sums, or the sale of property. You’ll retain control of the lump sum (which is not the case with personal insolvency).

 

Alternative Debt Solutions

 

There are a number of different debt solutions available to residents of Scotland…

 

Debt Management Plan

 

An informal debt management plan works in a similar way to DAS; you pay what you can afford until the debts have been fully repaid.

 

An informal debt management plan does not guarantee:

 

• Legal protection from creditors

• Cessation of interest and charges

 

A debt management plan is more flexible than DAS and your personal information isn’t recorded on a public register.

 

Scottish Trust Deed

 

The potential benefits of a Scottish trust deed in comparison to DAS are:

 

• Debt write-off

• Possibility of a shorter repayment term

 

Trust deed disadvantages include:

 

• Takes account of assets like a house or car

• Greater impact on your credit rating

• Affects more types of employment

 

Bankruptcy

 

Some advantages of bankruptcy in Scotland in comparison to DAS include:

 

• No monthly payment if unaffordable

• Possibility of a shorter repayment term

• Debt write-off

 

Some possible drawbacks include:

 

• Takes account of assets like a house or car

• Greater impact on your credit rating

• Affects more types of employment

 

Get Expert Debt Management Advice

 

For expert advice on Scottish debt management solutions please contact us.

 

Our advisers are experienced, friendly, and professionally qualified to assist you. We’re based near Cardiff and can help arrange DAS for you in partnership with Wylie & Bisset LLP in Glasgow.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 20/07/2020

 

 

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