The Debt Arrangement Scheme (DAS) is a statutory repayment plan for those in debt that freezes interest and charges. It also protects consumers from Sheriff Officers trying to recover debts.
If you enter the Debt Arrangement Scheme you repay your debts in full.
The Scheme has many other benefits.
Background to the Debt Arrangement Scheme
The Scottish Government introduced the Debt Arrangement Scheme in 2004.
It was the first scheme of it’s type in the UK and offers many benefits for those who enter the Scheme.
- Protection from debt recovery processes, such as those carried out by Sheriff Officers;
- The freezing of interest, fees, charges and penalties on debts; and
- It can help those who want to avoid bankruptcy.
Who is the Debt Arrangement Scheme suitable for?
The Scheme is suitable for people who live in Scotland and cannot pay their debts as they fall due. This normally means people who cannot make their minimum payments.
It is not the only formal debt remedy available, there are others, such as protected trust deeds and bankruptcy. However, the Debt Arrangement Scheme is for people who can repay their debts and just need more time.
It is also for debtors who have assets, such as a home. The DAS does not put these at risk like forms of personal insolvency do.
Do you have to include all your debts?
When you apply for a Debt Payment Programme (DPP) you can decide whether to include all your debts or leave them out. The type of debts you can leave out are rent and mortgage arrears.
As a DPP does not stop a court granting a repossession or eviction order, it may be advisable to leave these debts out.
However, your mortgage provider or landlord may prefer you include them as they will get regular re-payments. Alternatively, they may prefer you leave them out, as they can get priority and more money each month.
If you do include mortgage or rent arrears in your DPP, it is ultimately for the Sheriff to decide whether or not a order to evict or repossess your home is granted. The sheriff should consider whether your repayments are reasonable.
Can creditors stop you entering the Debt Arrangement Scheme?
Creditors are allowed a say when you propose that their debts are included into a DPP. They are notified you are making a proposal and they receive three weeks notice to respond.
If Creditors don’t respond, they are treated as having consented to the proposal.
When creditors object, the proposals is then considered under a “fair and reasonable” test that is administered by the Debt Arrangement Scheme Administrator.
If he finds that a proposal is fair and reasonable he can set aside the objections and approve the programme.
Other Benefits of the Debt Arrangement scheme
In addition to the benefits listed above, if during a programme a debtor suffers a drop in income and loses over 50% of their income, they can obtain a payment break for up to six months and remain in the programme.
Where their circumstances permanently change for the better or worse, they can apply for a variation to change what they are paying.
Another benefit of the Debt arrangement Scheme is debtors are able to apply for Statutory Moratoriums.
This is a legal process that protects a consumer from Sheriff Officers or creditors who are trying to make them bankrupt.
When someone believes they may be in imminent danger of a creditor taking enforcement action or someone raising a petition for their bankruptcy, they can intimate to the DAS Administrator an intention to apply to the Scheme.
They can only do this once every 12 months, but where the process is used, they receive 6 weeks protection that allows them to submit an application for a DPP.
However, the benefits of the Scheme do not stop there.
Where a creditor is trying to make a debtor bankrupt and raises an application in the Court, the debtor can ask the sheriff to continue this hearing.
This puts the bankruptcy hearing on hold and allows an application for a DPP to be made.
If the Debt Payment Programme is approved, the debtor cannot be made bankrupt.
Another benefit of a DPP, is where a creditor has arrested a debtor’s wages, if the DPP is approved, the wage arrestment stops.
How do you apply to enter the Debt Arrangement Scheme?
You cannot apply for the Debt Arrangement Scheme yourself.
Applications must be made by an Approved Money Adviser or a licensed Insolvency Practitioner.
They must advise the debtor on the suitability of the Scheme and must draft a financial statement with the debtor to see what they can afford to pay.
However, if they believe the DAS would be appropriate they can then confirm what the balances are that are owed and submit an application to the DAS Administrator.
The creditors then get three weeks to consider the proposals. There can be two outcomes:
- First, the Creditors don’t respond in those three weeks. If this occurs then they are considered to have agreed to the proposal.
- Second, some creditors object. The DAS Administrator then has to decide whether the plan meets the fair and reasonable test.
If he believes it does meet the test, your plan is approved.
When a DPP is approved?
Once a Debt Payment Programme is approved, you are then allocated a Payment Distributor.
These are companies who administer the money you pay and make the payments as instructed to your creditors.
They are allowed to charge a fee of up to 8%. This is to pay for the provision of the service.
Legally the fee is charged to your creditors, not you, which means the service is free for you.
The Debt Arrangement Scheme Administrator also charges a fee of 2%, but again this is paid by your creditors.
Once a Programme is approved you have 42 days to make your first payment to the payment distributor. After that, you continue making your payments at regular intervals until your debt is paid off.
Each year your Adviser will contact you to review your circumstances and ensure the DAS is still the correct option.
More on The Debt Arrangement Scheme
If you cannot pay your Debt Arrangement Scheme
Payment holidays in the Debt Arrangement Scheme?
Where you cannot maintain your payments, because you have experienced a change in circumstances, you may be able to apply for a variation, which could allow you to reduce your payments. Alternatively, you may want to apply for a payment break, which can be allowed for up to 6 months in certain circumstances. Payment breaks are allowed providing you can show your disposable income has dropped by more than 50%.
Business Debt Arrangement Scheme
Certain types of Scottish businesses that are struggling with debt have the option of now applying for a Debt Payment Programme under the Business Debt Arrangement Scheme.
Who can apply to the Business Debt Arrangement Scheme?
The types of persons that can access the Business Debt Arrangement 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 able to apply to the Business Debt Arrangement Scheme, but can apply to the normal Debt Arrangement Scheme as individuals.
Where applications are made by partnerships, all partners must agree to the application; where it is a limited partnership that applies, all general partners will have to consent, 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 Debt Arrangement Scheme for individuals, all applications need to be made by a money adviser, but the definition of who constitutes a money adviser is limited to a licensed insolvency practitioner, who in making any proposals, has to make a declaration of viability for the business.
Benefits of the Business Debt Arrangement Scheme
The primary benefit of the Business Debt Arrangement Scheme is that it closes a gap in Scots law that allows a number of different legal persons to be subject to creditor petitions for bankruptcy 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 the 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 business debt liability.
Business DAS is a rescue procedure and provides 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 also tempers that protection by ensuring it is only available to those businesses that are viable and can remedy their distress within five years.
It even provides a lifeline to businesses that 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 repaid.
Approval of Business Debt Payment Programmes
Proposals under the scheme operate like current proposals under the existing scheme, but applications are only possible where the business can complete the proposed repayment plan within five years.
Businesses are also able to use the Statutory Moratorium procedure that gives them six week protection from their creditors, during which period, creditors are not able to execute diligence or raise petitions for the sequestration of the business.
The benefit of Statutory Moratoriums is it provides 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 to the Business Debt Arrangement Scheme to proceed.
It is also possible to compel creditors to participate in a programme: even where they object, if the Debt Arrangement Scheme administrator finds the proposals fair and reasonable, all interest, charges, penalties and other fees on debts are 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 for the creditors.