- What is The Debt Arrangement Scheme?
- What is the background to the Scheme?
The Debt Arrangement Scheme (DAS) is a statutory repayment plan for those in debt. This means if you cannot make your monthly payments to your debts and need more time to repay them, then the DAS may be suitable for you.
It freezes interest and charges and protects you from Sheriff Officers trying to recover debts.
Where a Wage Arrestment has been executed on your wages, it can stop it.
The Debt Arrangement Scheme is for people that want to repay their debts in full.
It 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;
- It can stop an Earning Arrestment;
- 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.
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 if those objecting have less than 10% of your total debt, the case is automatically approved.
If those that object have more than 10% of your total debt, then your application is 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 crisis, they can request a crisis break from their money adviser. Up to two one-month payment breaks are allowed in any 12 month rolling period.
If someone has a more long-term drop in income and loses over 50% of their income, they can obtain a payment break for up to six month, whilst still remaining in their 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
How will the DAS affect my Credit Score?
How else can the Debt Arrangement Scheme affect my ability to obtain credit?The DAS can affect your ability to obtain credit in other ways too. As mentioned above, once you go into the Scheme your name is added to a public register and lenders can check if you are on it before they lend to you. Also, when you are in the Debt Arrangement Scheme, you are obliged to inform creditors if you borrow more than £2,000. Or where you have already borrowed £1,000, when you try and borrow any amount.
Can my Credit Score improve whilst I am in the Debt Arrangement Scheme?Your Credit Score can improve whilst your in the Debt Arrangement Scheme. Your accounts will, however, still show as being in arrears throughout your Programme until they are paid off. After they are paid off they will show as being as settled. This means your debts have been paid off in full. However, six years after your accounts go into default, they will disappear off your Credit Reference Files. Your Credit Score may, therefore, improve during your Debt Payment Programme where it lasts longer than six years.
When will my account go into default on my credit file?When accounts go into default it is for lenders to notify the credit reference agencies. Some firms may report your account in default after three months of missed payments, whilst others may wait six months. It depends on their own rules. Some may also serve a formal Default Notice under the Consumer Credit Act 1974. It may be possible to argue with your lender that the default date should be backdated to the date that your Debt Payment Programme was approved, as arguably at that point you formally indicated you were no longer able to meet your obligations under your agreement. This argument may be stronger where the creditor agreed to the Debt Payment Programme. If possible, this would mean any record of your Debt Payment Programme, or the accounts you defaulted on, should disappear off your credit reference file six years after you enter into the Debt Payment Programme.
What is the Debt Arrangement Scheme Register?
The Debt Arrangement Scheme Register (DAS Register) is an official register that contains information about Debt Payment Programmes under the Debt Arrangement Scheme.
You can access the Register here.
It is publicly available to search: however, to search the Debt Arrangement Scheme Register, you must know the full name and date of birth of the person you are searching for. This is to prevent people trawling the DAS Register for name s without having a legitimate purpose.
The DAS Register contains a variety of different types of information:
- The name and address and who are in the Scheme;
- Who has applied for a Debt Payment Programme under the DAS;
- Whose Debt Payment Programme has been approved;
- Whose Debt Payment Programme has been revoked;
- Whether a Debt Payment Programme has been varied;
- Who is requesting a review or appeal of the decision to revoke their Debt Payment Programme;
Can you keep your name off the Debt Arrangement Scheme Register?
It many be possible, in certain circumstances, to keep your name off the DAS Register, if the Debt Arrangement Scheme Administrator believes including you on it could put you at risk of violence or endanger your welfare or security, or that of anyone else.
However, it must be borne in mind there are two primary reasons why your name is included on the Register:
- First it protects you from Sheriff Officers who may want to take recovery action against you, as they can search the Register before doing so; and
- Two, It also protects lenders, as they can see whether you are on the Register before they lend to you;
Retention of Information on the DAS Register
The Debt Arrangement Scheme Administrator manages the information kept on the DAS Register in accordance with the Accountant in Bankruptcy policies on how that information should be used.
- Completed Debt Payment Programmes are deleted from the DAS Register the day after they are completed;
- Rejected Debt Payment Programme proposals are deleted from the DAS Register on the 15th day following the date of decision being made (this is because you have 14 days to decide if you want to appeal the decision to reject your application);
- Revoked Debt Payment Programmes are deleted from the DAS Register on the 15th day from the decision being made, unless a request for a review has been received within 14 days of the decision being made;
- If a review has been requested, 15 days after the review decision has been made, unless there is an appeal submitted to the Court;
- If a case is appealed to the Court and the Court upholds the original decision to revoke the Debt Payment Programme,
What happens if you cannot pay your Debt Arrangement Scheme?
What if you cannot pay your Debt Arrangement Scheme (DAS)? This may happen If you lose your job or suffer an income drop. You may then struggle to maintain payments to your programme.
If this does happen, the last thing you want to do is ignore it. It is understood that when in a repayment programme, it is possible you will experience changes in your circumstances and, either temporarily or permanently, you may not be able to maintain the original payments you proposed.
The Debt Arrangement Scheme offers two options that can help in this situation and may help you having your Debt Payment Programme (DPP) revoked. The first of these is a formal payment break and the second is applying for a formal variation of your scheme.
If you do miss payments and don’t have the approval of the Debt Arrrangement Scheme Administrator, this can have severe consequences for you. Either the DAS Administrator or one of your creditors can apply for your DPP to be revoked. If a creditor or the DAS Administrator is proposing your DPP is revoked, you will be notified and allowed to submit your reasons why it shouldn’t be.
If you DPP is revoked, not only do you lose all the protections of the Scheme, but creditors can reapply any interest, charges, fees and penalties. This means you will have lost the benefits of the Scheme for the time you have been in it. If you reapply, the fact you had a DPP that was revoked can be held against you.
Return to the main Debt Arrangement Scheme Homepage…
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%.
What is the 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.