The Scottish Debt Advice Landscape

The Scottish Debt Advice Landscape

A presentation I delivered recently at the AMI Financial Solutions Ltd Xmas Lunch and Learn for Free Sector Money Advisers. The presentation focused on the provision of free debt advice services in Scotland.

Many of the figures come from an Improvement Service report which will be published in full in January 2018.

The presentation was delivered to an audience of money advisers working in Scotland’s free advice sector, and focused on the funding challenges that local authority debt advice services are facing, with anticipated funding cuts for the financial year 2018-19.

It examined possible ways of introducing transformational changes into how debt advice services in Scotland are delivered. This included possible changes to the Debt Arrangement Scheme and the use of open banking technology.

Time to Rethink the Common Financial Tool

Time to Rethink the Common Financial Tool

In the first year of implementation of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADAS), the number of sequestrations in Scotland dropped by 44%; Debt Payment Programmes dropped by 50%; and although protected trust deeds fell only by 6%, they had dropped the previous year by 33%, with the implementation of trust deed regulations.

Two years on, those numbers have barely improved, with sequestrations still down 32%, trust deeds down 23% and debt payment programmes down 46%.

There is plenty of evidence to suggest this decline is substantially linked to changes introduced by the BADAS Act and not to falling levels of personal debt, which again are reaching pre-credit crunch levels.

There is also reason to believe,if changes are not made, the consequence of the current regime will be a build-up of personal debt over the next few years, as happened between the abolition of poinding and warrant sales in 2003 and 2008, before the introduction of low income, low asset bankruptcies led to a 140% increase in the number of sequestrations.

This time, however, it’s the introduction of the Common Financial Tool in Scotland and a proposed change from the Common Financial Statement (CFS) to the Standard Financial Statement (SFS) that threatens another blockage in the system.

What is the CFS and the SFS?

The CFS is a financial statement, which since being incorporated into Scots Law has been used to determine how much a debtor can pay in a bankruptcy, whether a trust deed should be protected or what debtors pay in debt payment programmes.

It adopts a similar approach to the Standard Financial Statement, which is now produced by the Money Advice Service and is what the Scottish Government are proposing should replace the Common Financial Statement.

Neither are tools for public use and although spending guideline are available to advisers, creditors, and the Accountant in Bankruptcy, they are not available to debtors. A bizarre situation and one where the legality of incorporating them into law must be questioned? Where else do we have secret rules in legislation? The situation is so bad, many advisers who are currently being consulted on the figures by the Accountant in Bankruptcy, have not yet seen them.

Both utilise trigger figures for certain categories of expenditure, such as food and housekeeping and stipulate these trigger figures must be used as spending limits. These limits can be exceeded, but where they are, additional evidence must be produced, showing good reason for any breaches.

Methodology for reaching trigger figures?

The methodology for determining the trigger figures takes the Living Costs and Food Survey produced by the Office for National Statistics, and looks at what is being spent by the group in the lowest 20%. It takes an average of what is spent by this group and these are how the trigger figures are arrived at. The fact this group is made up of many people dependant on mean tested benefits and whose spending levels are determined by their low level of income, rather than their needs, apparently has been overlooked. The survey only shows what people are spending, not what they need to maintain a reasonable standard of living.

A standard of living which, David Hilferty of Money Advice Scotland has said, if you use the methodology of the Standard Financial Statement, is not socially acceptable.

Consumer harm will rise

Money Advice Scotland has already voiced its concerns and research it has carried out shows the level of trigger figure breaches rise under the Standard Financial Statement,from one in nine under the Common Financial Statement, to one in four under the SFS.

The Scottish Government’s own research shows in thirteen percent of cases, people pay more under the SFS than they do under the CFS.

In conclusion

We are walking into a cycle of interest rate hikes, likely to begin in the next few weeks, and levels of inflation, likely to remain at 3% for the near future, still higher than anticipated wage level increases. There is evidence that a switch from the Common Financial Tool to the Standard Financial Statement will only further tighten access for consumers to debt solutions.

When the BADAS Bill was first announced, the policy objective behind it was to rebalance the law between debtors and creditors, the implication being the law had previously weighed more heavily in favour of debtors than creditors.

If the results of the implementation of the Act are to be judged, then they can only be considered a success if it was agreed too many debtors had in the past been accessing solutions; if this is not the case, then it can only be considered a failure, as substantially less consumers are now accessing remedies. People with no disposable income, people fearing for the future and people who live with the stress and pressure of unmanageable debts.

This cannot be correct. The Scottish Government has laid out the fundamental principles for their new social security system as being dignity and respect. These are admirable aims. Where is the dignity and respect, however, for debtors who are being forced to live at a standard, which for many people, is only possible if they are in receipt of income based benefits.

Instead there are other ways. There are consensual, open, and transparent budgeting tools, such as the Minimum Income Standard, produced by the Joseph Rowntree foundation and recently endorsed by the Supreme Court in the landmark decision on Employment Tribunal Fees. There is also the Reasonable Living Expenses model, created by the Insolvency Service of Ireland and based on a model created by the Vincentian Partnership for Social Justice.

It is time for the Economy, Jobs, and Fair Wok Committee, of the Scottish Parliament, to pull in the Common Financial Tool for review, before any further decisions are taken which may result in harm. A considered, evidence led review by the Committee could avoid months of preparatory work being undertaken to draft new regulations, which may then have to be rejected. Evidence should be taken from consumers who live under these budgeting limits and should be taken from advisers working with the common financial tool and from The Joseph Rowntree Foundation on Minimum Income Standards.

Scotland should adopt a Common Financial Tool model, which is open and transparent and like the Irish Reasonable Living Expenses, does not set a maximum spending limit, but a minimum standard of living which must be protected.

A reasonable standard of living which the Irish Reasonable Living Expenses states:

“…is one which meets a person’s physical, psychological and social needs…it does not mean a person should live at…luxury level, but neither does it mean…a person should…live at subsistence level. A debtor should be able to participate in the life of the community, as other citizens do…to eat nutritious food, to have clothes for different weather and situations, to keep the home clean and tidy [and] to have furniture and equipment at home for rest and recreation”

The Scottish Government’s consultation on the Future of Scotland’s Common Financial Tool is open to the 27th October and can be accessed here.

Stepchange call for Reform of Debt Arrangement Scheme

Stepchange call for Reform of Debt Arrangement Scheme

UK debt charity Stepchange has called for the Scottish Government to reform and extend the Debt Arrangement Scheme to make it more available to hard pressed Scottish families.

Following on from my report into the Debt Arrangement Scheme last week, a Stepchange spokesperson speaking in The Herald said:

 “Expanding the DAS would give people time to get back on their feet without the worry of their debts spiralling out of control. By extending DAS, the Scottish Government would give people the best chance of getting themselves back into a position where they can start making payments on their debts.”

However, as I showed in my report, last year Stepchange only set up 424 debt payment programmes under the Debt Arrangement Scheme in 2015/16, down from the 632 they set up in 2014/15.

The Debt Arrangement Scheme has seen a substantial reduction in the number of cases proposed and approved since April 2015 after the Scottish Government introduced new rules that calculated how much people had to pay towards their debts in the Scheme.

In the first year after the rules were introduced, 2015/16, the number of cases reduced by 51%, and only increased in 2016/17 by 9%, meaning the numbers are still down by 46% from the 2014/15 figures.

In my report I called for the Scheme to be extended and reformed by:

  • reforming how the Common Financial Tool is applied to debtors entering into a Debt Payment Programme;
  • removing the requirement all debts had to be included, to allow priority debts like mortgage and rent arrears to be dealt with differently; and
  • by allowing more firms to become payment distributors as part of the Scheme
DAS: is it broken?

DAS: is it broken?

A new report (see here) produced by myself shows that the Scottish Government’s flagship personal debt remedy, the Debt Arrangement Scheme, is in trouble, with the numbers accessing it having fallen by over 50% in the last two years.

The report follows on from a recent high profile, public awareness campaign that was launched by the Scottish Government to raise awareness of the Scheme.

It reveals that the number of consumers accessing the Scheme through private sector firms have fallen by 64%; whilst those accessing it through free providers, like Citizen Advice Bureaux have fallen by 38%.

It lays the blame for the decline, not on a lack of awareness, but on changes that were introduced by the Debt Arrangement Scheme (Scotland) Amendment Regulations 2014, which introduced a new way of calculating how much people have to pay each month towards their debts. It meant debtors entering the Scheme had to pay as much as they would if they entered a personal insolvency remedy like bankruptcy or a protected trust deed.

Writing in the introduction, I state:

When the Debt Arrangement Scheme was introduced in 2004, it heralded “… a change in how Scots Law dealt with debt: no longer the land of poinding and warrant sales, but a country that took an enlightened and progressive view of how to help struggling consumers manage their debts, whilst still being able to maintain a reasonable standard of living.

“To now witness the numbers of consumers accessing it falling by 50% is disappointing. Particularly as all the evidence suggests with increasing levels of unmanageable debt, the need for it is as great as before.”

“The reasons for the reduction are complex, but speaking simply when emphasis moved away from creating sustainable repayment plans and onto plans that would recover money quicker for creditors, the benefits of the Scheme were eroded for many consumers.”

“What underpinned that policy change was a belief that consumers were getting their debt management too cheap. The truth is that despite the lip service often paid to understanding the reasons for debt and the causes of debt, there remains deeply engrained in the Scottish political psyche a deep suspicion that many debtors are not “can’t pays”, but “won’t pays”.

I call in the report for the Scottish Government to make a number of changes to the Debt Arrangement Scheme, amongst others to:

  • Introduce a different financial tool for the Debt Arrangement Scheme than that used in personal insolvency; and
  • To end the current practice of tendering out the role of payment distributor and to allow other providers to enter the market, allowing for more competition and take up of the Scheme.

This report has been written with the view the Debt Arrangement Scheme remains an excellent solution for many consumers, but is currently at risk of withering and going into irreversible decline.  It is hoped that decline can be arrested and reversed, but argues some key changes will be necessary.

It was produced using data provided by the Accountant in Bankruptcy after a freedom of information request was submitted. That data can be accessed here.

DAS ist gut (for business)?

DAS ist gut (for business)?

Scottish businesses in financial difficulty now have the option of a Business Debt Arrangement Scheme service if they are unable to take part in formal company insolvency arrangements. (This article first appeared in the January 2015 edition of The Journal of The Law Society of Scotland).

Scottish businesses currently unable to access formal rescue measures like administration and company voluntary arrangements are now able to access a new formal debt rescue remedy known as business DAS, as a result of the Debt Arrangement Scheme (Scotland) Amendment Regulations 2014.

The new provisions, which came into force on 11 December 2014, amend the Debt Arrangement Scheme (Scotland) Regulations 2011 and extend access to the scheme to a number of different legal persons.

Who can apply?

The types of persons that can access the new scheme are partnerships, limited partnerships within the meaning of the Limited Partnership Act 1907, corporate bodies (other than bodies registered under the Companies Act 2006), trusts and unincorporated bodies of persons.

Sole traders are not covered by the new provisions, but are still able to apply under the existing scheme as individuals.

Where applications are made by partnerships, the agreement of all partners will be required; where a limited partnership applies, all general partners will have to consent to the application, as will limited partners where they have at any time been involved in the management of the business.

Only a majority of trustees will be required to consent to an application for a trust to apply, and in the case of corporate and unincorporated bodies, applications will be made by a nominated person authorised to act on behalf of the body.

Like the existing scheme, all applications will need to be made by a money adviser, but the definition of who constitutes a money adviser will be limited to a licensed insolvency practitioner, who in making any proposals will have to make a declaration of viability for the business.

Approval of programmes

Proposals under the scheme will operate like current proposals under the existing scheme, but applications will only be possible where businesses have more than one debt, and will have to be completed within five years.

The option of using the current intimation procedure will also be available, providing businesses with a six week moratorium period during which creditors will not be able to execute diligence or raise petitions for the sequestration of the business.

The benefit of using the scheme will be to provide distressed businesses with a vital breathing space, during which they can explore the viability of any programme before making an application. Where petitions for sequestration have been raised, sheriffs will also have the option of not making an award immediately, to allow an application for a business DAS to proceed.

It will also be possible to compel creditors to participate in any programme, where they object, if the Debt Arrangement Scheme administrator finds the proposals fair and reasonable, with all interest, charges, penalties and other fees on debts being frozen from the point the application is made.

Once approved, programmes will provide for payments to be made through a payment distributor, with the cost of the payment distribution being a cost creditors will have to bear.

Benefits of the scheme

The primary benefit of extending the Debt Arrangement Scheme to now include businesses is that it closes a gap in Scots law that allows a number of different legal persons to be subject to creditor petitions for sequestration and diligence, but does not provide them with the same protection that is available to individuals, limited liability partnerships and companies registered under the Companies Act 2006.

It further extends these protections to individuals involved in the business, where they are also liable for the business’s debts, in that one of the effects of a proposal being approved is that the protections will also cover them for their liability.

Business DAS is a rescue procedure that will provide businesses with a lifeline where they are at the latter stages of creditors taking recovery action through the courts and demanding ransom payments; but importantly tempers that protection by ensuring it is only available to those businesses that are viable and can remedy their distress within five years.

It may even provide a lifeline to so-called zombie or walking dead businesses, which are only able to pay interest on debts, in that programmes will freeze interest and write it off on the successful completion of a programme, whilst the capital amounts are paid off.

Bankruptcy Policies Unravelling

Bankruptcy Policies Unravelling

Fergus Ewing has acknowledged that he got his decision to increase the application fee for bankruptcy wrong. Speaking in response to the third quarter insolvency statistics for 2013-14, he has said “Scotland’s bankruptcy legislation has to do more to provide a safety net for vulnerable, low-income debtors and their families.”

However, despite this, with the new Bankruptcy and Debt Advice (Scotland) Bill 2013, lessons are still not being learned

For the fourth quarter in a row, Low Income, Low Asset bankruptcies (LILA) in Scotland have increased as an overall percentage of all bankruptcies, now representing 39.6% of all bankruptcy awards in Scotland.

The increase, reported in the Accountant in Bankruptcy’s (AIB) third quarter insolvency statistics for 2013-14, show that LILA bankruptcies as a total percentage of all sequestrations are now returning to their pre-first quarter levels for 2012-13, when the application fee was increased by 100% from £100 to £200, which reduced LILA awards by 60%.

However, although as a proportion of all bankruptcies the numbers of LILA awards continue to increase, LILA numbers themselves remain significantly reduced from their pre-fee increase levels, with many organisations such as Citizen Advice Scotland and Money Advice Scotland, claiming many debtors are still being priced out of any formal remedy for dealing with their debts.

In acknowledgement that they got it wrong, the Scottish Government in the Bankruptcy and Debt Advice (Scotland) Bill 2013 are now proposing a new Minimum Asset Procedure (MAP) to replace the LILA route into bankruptcy.

This new type of bankruptcy it is anticipated will reduce fees to £100 or less, but it is anticipated will only be available to 75% of all current LILA applicants with debtors only being able to apply if they have debts of less than £17,000, whereas under the current LILA route, there is no debt level cap.

For those debtors unable to apply using the new route, they will have to apply for normal bankruptcy and pay the full application fee, which is likely to be significantly more.

Although it is to be welcomed that the Scottish Government are now beginning to accept that for most bankrupts the purpose of bankruptcy legislation is to provide a social safety net, with more than eighty percent of all applications being debtor applications, and more than three quarters being unable to make a contribution from their income to their bankruptcy, more needs to be done.

This includes looking again at their decision in the new bill to increase contribution periods from 36 to 48 months against overwhelming evidence from debt charity NGOs, regulatory professional bodies and even creditor organisations that such a policy is wrong. They also need to reconsider their decision to replace the Low Income, Low Asset route into bankruptcy with a more restrictive type of bankruptcy which will exclude rather than include more debtors.

They also need to ask themselves, although it is commendable that they have accepted in sequestration and protected trust deeds it is wrong (and illegal) for debtors to make contributions from social security benefits, why is it correct for those debtors to have to use those same social security benefits to apply for bankruptcy, when prior to 2008 (and the SNP minority Government) they would have been covered by a fee waiver.

Debt Arrangement Scheme

The other revealing figures from the third quarter statistics relate to the Scottish Debt Arrangement Scheme.

Although still very much the little brother of all Scotland’s formal statutory debt remedies (representing 26.1% of all remedies used), the Scottish Government have wrongly reported in their press statements that applications have increase by 20.9% on the same period last year.

The actual increase is only 10.7% (applications 3rd quarter 2012-13: 1,067; applications 3rdquarter 2013-14: 1,181).

On the last quarter, the increase is less than 1%, confirming the view of many that, allowing for occasional seasonal variations, take up of the Scheme has now plateaued.

What is increasingly of concern, however, is the number of Schemes being revoked. Although the Minister has claimed only 3% of Debt Payment Programmes under administration are being revoked quarterly, some research by others in the insolvency industry suggests this amounts to 13.9% per annum and the cumulative effect of which will mean over 50% of all average length programmes (6.8 years) will fail.

Evidence of this can be seen in the figures for 2013-14, which show although 3,551 programmes were approved by the end of the third quarter, 1,064 have been revoked.

There are clearly a significant number of debtors entering the Debt Arrangement Scheme for whom the Scheme is not suitable and for whom it is failing to provide a sustainable, lasting solution.

There was always a danger with the Debt Arrangement Scheme that it would be seen, for political reasons, as a panacea for all debtor’s debt problems, but it has never been more than just another tool in the toolbox: suitable for some, but not others.

As the fee increase for bankruptcy has shown, policy decisions in this area without supporting evidence from those at the coal face or other empirical evidence risks unintended consequences. The danger now is we will see more of those unintended consequences if the Scottish Government continues with its policy of trying to make bankrupts pay more in sequestration, whilst hailing the Debt Arrangement Scheme as a one size fits all solution for all debtors, whilst failing to research why, for so many debtors, it continues to fail to provide solutions for their problems.

Wolves in Sheep’s Clothing

Wolves in Sheep’s Clothing

As the Scottish Government continue its Help out of the Hole campaign, raising awareness of the Debt Arrangement Scheme, some providers of the Scheme are behaving like wolves in sheep’s clothing, plunging consumers further into the hole of debt.

Ever since its launch the Scottish Government have taken a “broad church” approach to the Debt Arrangement Scheme.   This has been so successful that the 3 main providers of the Debt Arrangement Scheme are now all private sector firms, albeit it can also be accessed free through Citizen Advice Bureaux and local authorities.

To offset the risk that this would result in some consumers paying for services that they couldn’t afford, Regulation 12(2) of the Debt Arrangement Scheme (Scotland) Regulations 2011 required fee chargers to advise consumers  that they could access services for free and where they could access them.

In practice where a consumer disputes this has been done, the Debt Arrangement Scheme Administrator requires written proof showing such advice has been given.

Where it hasn’t, all fees have to be repaid to the consumer.

However, it would appear Scottish Government protection of consumers  is not going far enough.

Some firms are now including clauses that mean should the consumer leave their Debt Payment Programmes (DPPs) or transfer them to other providers, all fees that would have been due during the programme becoming instantly payable. Alternatively, other firms it is believed, instead of charging monthly fees, charge a one off high fee, but then allow the consumers to repay it by monthly instalments, to the same effect.

This means in reality there are likely to be cases where a consumers circumstances change and they are no longer able to pay their DPP. Their DAS provider, the very person supposed to be helping them, then serves an all sums due notice, further indebting them.

It also means where consumers wish to transfer to another provider, because their fees are cheaper, they are obstructed from doing so with the fear they will incur further debts.

It is impossible to say whether such clauses are unfair under consumer contract regulations without examining the individual clauses, but clearly standard term contracts that bind consumers into paying for services that may last years, at times when they may be distressed and vulnerable, are reprehensible. This is more so the case where such contracts prevent competition in the market and the ability of consumers to switch to obtain better services for both themselves and their creditors.

I am aware of cases where such contracts have been used and where the DAS provider has turned into a raging bull, conducting themselves in a manner you would expect of debt collectors. This includes employing the threat of pursuing the debtor to prevent them from switching to other remedies or providers.

The Scottish Government is currently progressing regulations through the Scottish Parliament to change the way Trustee’s in Protected Trust Deeds charge their fees; I would urge the Minister Fergus Ewing to consider similar regulations in relation to the Debt Arrangement Scheme and for the DAS Administrator, Rosemary Winter Scott, to consider whether such providers are fit to do so.

Still Digging: Help Out Of The Hole

Still Digging: Help Out Of The Hole

In my last blog I looked at the Scottish Government’s new “Help out of the Hole” campaign to promote the Debt Arrangement Scheme. In particularly I looked at the wisdom of directing all offline traffic from their six week TV campaign to a new online landing page, rather than to their site.

Since then, to help people out of the hole of trying to find their new landing page, the Scottish Government has launched a pay per click campaign to promote their adverts for the site every time someone searches on Google.

This would appear sensible, as there is no point launching a six week TV campaign if no-one can find the landing page that you are directing them to, particularly as the site is no longer organically ranking first on Google for the term “Help out the Hole.”

That place has now been occupied by an imitation site, as I predicted it would last week.

What is more worrying, however, is the decision to now extend the pay per click campaign to compete for terms like “Debt Arrangement Scheme”.


Well whereas “Help out of the hole” is unlikely to cost them more than a couple of pence per click, as no-one else is running such a campaign and it is a low traffic search term; “Debt Arrangement Scheme” is in contrast a high traffic search term and the Scottish Government could be paying anything from £6 to £20 per click.

The reasons for this is their quality score on Google for that term using their new landing page is likely to be quite low; whereas in contrast their score for the same term using their site is likely to quite high, so they would pay less.

It appears clear the marketing strategy for the new campaign is to drive traffic to their new landing page, which is being used to measure the success of the campaign based on the number of visitors to the page. However, considering the page re-diverts visitors back to the site and a pay per click campaign for that site would cost less, it must be wondered whether the campaign objectives to promote the Debt Arrangement Scheme have been hijacked by the need to show the original strategy was in fact the correct one.

Considering this will come at a cost to the public purse, would it not be wiser to admit the original strategy of directing traffic to an obscure landing page was wrong?

It also has to be questioned whether the Scottish Government running a pay per click for high search traffic terms can be justified in the first place.

Most private firms can do this as they are prepared to incur the costs in the hope conversions from applications will justify the marketing costs. The Scottish Government cannot do this and actually their objectives are different as the purpose behind their campaign is to raise public awareness of the Debt Arrangement Scheme. One must wonder whether their money would have been better spent advertising on channels like Facebook, which in Scotland has over 3 million accounts registered and the cost of diverting traffic to a new landing page from there would have been dramatically less than it will be using their pay per click campaign. Also diverting traffic from an online channel to another is significantly easier than it is diverting them from an offline channel (TV) to an online one, as it just involves one click.

My view of this campaign is I fully support the strategy of using a public information campaign to promote the Debt Arrangement Scheme. I believe, however, the tactic of diverting offline traffic from a TV campaign to an obscure online landing page was wrong, particularly as there was already a well-established government site that could have been used.

I support the use of a pay per click campaigns for the new landing page, but believe extending the campaign to bid for high traffic search terms like Debt Arrangement Scheme is fundamentally ill-conceived and will come at a cost to the public purse; even more regrettable as if the established site had been used, the costs would likely be less to the public purse. This to me is indicative that the campaign strategy is now to drive more traffic to the new landing page and shore up the flailing Help out of the Hole campaign.

I also fundamentally must question the logic behind a public information campaign becoming involved in pay per click campaigns for high traffic search terms. The Scottish Government campaign, using such tactics, can never create any more than a ripple as it is time and budget limited, whereas their competitors will be there for the rest of the year. The Scottish Government would have been wiser investing more of their marketing budget on social media channels like Facebook, which are significantly less expensive and would drive more traffic to their landing page at a lesser cost to the public purse. They would also be more effective at helping realise the objectives of the campaign, which was to raise public awareness of the Debt Arrangement Scheme.

Scottish Government: Stop digging!

Scottish Government: Stop digging!

In launching its new campaign for the Debt Arrangement Scheme, it has to be wondered whether the Scottish Government has dug itself a hole, rather than helping debtors out of one.

The Campaign, which directs debtors to a new website called appears marketing madness, but will be supported by a six week TV campaign on STV, Channel 4 and Channel 5.

It directs people to the new website, which with its long URL address took me three or four attempts and a number of double checks before I got it correct: was it “help out the hole”, “get out the hole” or as Google suggested “help out of the hole of no hope”. It certainly felt like the latter.

Eventually a direct link from the Accountant in Bankruptcy’s website got me there.

Even trying a word search of Google was no help, unless of course I was looking for Australian miners stuck in a hole, someone called Rebecca who was unfortunately also in a hole or I was wanting to help find an instrument of vocaloid song, none of which I did.

The strategy behind this marketing campaign is hard to understand. It could be by directing debtors to a campaign specific site, the success of the campaign could be measured by the number of visitors to the site, but then surely a more memorable and relevant URL address could have been found. Equally, how effective is such a strategy if few find their way there.

If the strategy was to direct more Scots to a site where they could  get relevant and reliable debt advice, then why not make the call to action: google “Debt Arrangement Scheme” or “Das Scotland”, where most of those searching would have found after four or five sponsored ads, the Scottish Government’s ranks organically number one.

Alternatively, if the idea was to direct debtors away from those types of keywords, which are heavily bid for by private debt management companies, then any benefit is likely to be fleeting.

If it becomes clear heavy amounts of traffic are being directed towards the hole, then pay per click campaigns will be re-diverted and those remaining variations of the URL, that weren’t bought up by the Scottish Government on the 5th of August, will soon be taken.

It’s inexplicable, to me anyway, why the Scottish Government didn’t just direct visitors to its already established DAS website, which is highly ranked on search engines for Debt Arrangement Scheme related keywords, if not first and benefits from the authority of a domain name.

I suspect the campaign has been set up to measure its success by directing debtors to a specific site. The problem is because that site is hard to find and doesn’t capitalise on the search engine history of the official site, one must wonder whether success is being forsaken to measure success.

Maybe the Scottish Government need to heed the advice often given to debtors and stop digging.

A Debt Lifeline?

A Debt Lifeline?

Recent changes to the Debt Arrangement Scheme have increased its usefulness to debtors, while providing a means for creditors often to obtain more than they would in an insolvency

There is a common misconception that in times of economic hardship the use of formal debt remedies increases. This isn’t necessarily true. It is true to say that in such times there is a greater demand for such remedies, but what determines whether they are used or not is the legislative conditions that exist at the time.

For the Scottish Debt Arrangement Scheme the correct legislative conditions for increased use of this remedy were created with the introduction of the Debt Arrangement Scheme (Scotland) Regulations 2011. The Scheme has existed since 2004, but prior to the 2011 Regulations it had been plagued with problems such as not offering sufficient protection to debtors, and access to the Scheme being a postcode lottery.

The 2011 Regulations dealt with these problems by widening the gateway into the Scheme, and increasing protections for debtors. Since then, numbers have increased by 73%, from 1,910 programmes in 2010-11 to 3,319 in 2011-12.

How does the Scheme work?

The Debt Arrangement Scheme is a statutory repayment plan for debtors, not a type of personal insolvency. It was introduced with the Debt Arrangement and Attachment (Scotland) Act 2002 and provides a number of benefits for debtors who enter into debt payment programmes under the Scheme. These include not only protecting those in programmes from diligence and sequestration, but also freezing interest, fees and charges on the debts that are included.

Those creditors whose debts are included into programmes do have a say, much like they do in protected trust deeds, but where they fail to respond within the statutory notification period of three weeks, they are deemed to consent. Where they object, the proposals are then considered under a “fair and reasonable” test by the Accountant in Bankruptcy, in her role as the Debt Arrangement Scheme administrator. If she finds that a proposal is fair and reasonable she can set aside the objections and approve a programme.

Once in a programme, debtors are provided with a payment distribution service, which administers the payment and distribution of monies towards their debts for them. In addition to this, if during the programme a debtor suffers an income shock and loses over 50% of their income, they can obtain a payment break for up to six months whilst remaining in the programme.

Where a debtor has not applied to the Scheme, but fears they may be in imminent danger of enforcement action or someone raising a petition for their sequestration, they can intimate an intention to apply to the Scheme, in which case they receive up to six weeks’ interim protection.

The benefits of the Scheme do not stop there, however. Where a creditor’s petition for bankruptcy is being heard, it is possible for a sheriff to allow a continuation to allow an application to be considered, with sheriffs not being limited in the amount of time they allow for such continuations.

How is the Scheme being used?

As was intended, the Scheme is now primarily being used to deal with multiple consumer debt problems, and particularly to protect those debtors who have assets they wish to protect from sequestration and diligence, such as cars and family homes.

It is also increasingly being used by debtors trapped in the vicious cycle of payday loans, as a means of freezing interest and stopping the dangerous practice of having to continually roll over such loans.

However, it has also become an extremely useful tool for assisting debtors who have had petitions for their sequestration raised and are in court facing bankruptcy. How successful it has been in such cases is hard to quantify, but it can be said that the number of bankruptcies being awarded on the strength of creditor petitions was down in 2011-12 by 25% on the previous year, despite bankruptcies themselves only being down by 3%.

The Scheme is also increasingly being used to deal with business debts. In one recent case, we helped a large commercial property owner facing sequestration to protect not only his commercial assets, but also his personal assets from business creditors intent on sequestrating him. In another, we were able to put the owner of a small haulage firm into the Scheme, protecting not only his trucks, but his home and business and also the jobs of his six employees. Other programmes have been used to assist landlords and property developers where they have been sole traders.

Another emerging use for the Scheme is to provide protection to company directors who have provided personal guarantees for corporate debts. As was observed by Eric Baijal (“No guarantee of easy recovery”, Journal, April 2012, online exclusive), the use of such securities is on the increase by lenders, and correspondingly we are also seeing an increase in the number of debtors coming to us with liabilities they have acquired as a result of such guarantees.

What we find is crucial to such programmes being approved is ensuring that we work with both debtors and creditors to draw up plans that are credible and sustainable. We do have the benefit of being able to say to creditors that even in the longest running programmes, they will normally receive back within the first three years almost double what on average is received under a protected trust deed, with the prospect of more thereafter.

However, we are also finding that, through qualifying proposals by including discretionary conditions, access to the Scheme is being widened, especially where the repayment of debts would take longer than the maximum 10 years normally allowed.

Such qualifications can take the form of offering to increase payments at later dates where circumstances allow, and offering where other assets are available, to realise those assets within a timeframe that avoids distressed selling.

Future outlook

Going forward, the Scheme is now a key part of the Scottish Government’s strategy for dealing with the problem of personal overindebtedness, and has been heavily promoted with road shows and TV commercials, which is unprecedented in relation to other formal debt remedies.

The Government is also now committed to finding more ways to improve the Scheme and make it more effective, and in all likelihood it will become a remedy that will continue to grow in popularity, providing not only an alternative to personal insolvency for many debtors, but also a more measured and appropriate remedy in these difficult economic conditions.

First Published in The Journal Online, the journal of the Law Society of Scotland.