The Debt Arrangement Scheme
The Debt Arrangement Scheme is a Scottish Government Scheme which allows those in debt to repay their debt in an organised manner.
It is a formal remedy, provided for by legislation and regulated by a Senior Civil Servant, known as the Debt Arrangement Scheme Administrator.
Who is the Debt Arrangement Scheme suitable for?
The Debt Arrangement Scheme is suitable for people who live in Scotland and cannot pay their debts as they fall due. This normally means, pay even the minimum payments.
It is not the only formal remedy available, there are others, such as protected trust deeds and bankruptcy, which is also known as sequestration.
The Debt Arrangement Scheme, however, is for people who are in a position to repay their debts within a reasonable timeframe, normally less than 10 years.
It is also for debtors who have assets that may be placed at risk were they to use a trust deed or bankruptcy.
How does it work?
To apply for the Debt Arrangement Scheme you must apply to the Debt Arrangement Scheme Administrator and notify your creditors of your proposals to repay your debts.
This is done by first seeking the advice of an approved money adviser or insolvency practitioner. They assist you by working out what you can afford to pay, then making a proposal to your creditors.
Your creditors then get three weeks to consider your proposals.
If no-one responds in those three weeks, they are considered to have agreed to your proposal. They are treated as if they agreed and your Debt Arrangement Scheme is approved.
The only exception to this rule is where you only have one debt.
If any object, it is for the Debt Arrangement Scheme Administrator to decide whether your plan is fair and reasonable.
If he believes it is, your plan is approved.
What are the benefits of the Debt Arrangement Scheme?
The key benefits of the Debt Arrangement Scheme are:
- it freezes all interest, charges, penalties and fees on your debts
- you are protected from creditors continuing to harass you or taking legal enforcement action using sheriff officers
- your creditors are also not allowed to change their mind later and decide the plan has to be reviewed or you need to pay more.
What happens if you cannot maintain your payments?
If you lose your job or suffer a drop in income, you may struggle to maintain your payments. If you do nothing and missed payments, your Debt Arrangement Scheme could be revoked. This means all the interest and charges can be reapplied to your debt.
There is a solution to this, however.
First where you can still afford to pay something, you could apply for a variation to reduce the amount you are paying each month; or you could ask for a payment break when you are not able to maintain your payments.
Payment breaks are allowed for up to 6 months if you can show your disposable income each month has dropped by more than 50% – this does not mean your total income has to have dropped by 50%, only that which you can afford to pay towards your debts.
What are the alternatives to the Debt Arrangement Scheme?
There are alternatives to the Debt Arrangement Scheme:
You may be able to refinance, for example, or it may be an informal repayment plan is your better option.
As a last resort, however, you may have to consider granting a trust deed or applying for your own bankruptcy.
To decide what is the best option, its best first to speak with an Approved Money Adviser.