The Debt Arrangement Scheme (DAS) is a statutory repayment plan for those in debt. It is not a type of personal insolvency like a Protected Trust Deed or Sequestration. This means if you enter the Debt Arrangement Scheme you repay your debts in full, although the Scheme does have many other benefits.
The 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 United Kingdom and provides many benefits for those who enter Programmes (DPPs) under the Scheme. This includes:
- Protecting them from legal debt recovery processes, such as creditors instructing Sheriff Officers to execute earning arrestments, bank arrestments or attachments.
- It also protects consumers once they are in a Programme, in that creditors cannot the raise a petition to have them declared bankrupt in court.
- It also freezes interest on the debts that are included in Debt Payment Programmes once they are approved.
Who is the Debt Arrangement Scheme suitable for?
The Debt Arrangement Scheme is suitable for people who live in Scotland who cannot pay their debts as they fall due. This normally means people who cannot make the minimum payments due.
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 within a reasonable period, normally less than 10 years.
It is also for debtors who have assets, such as a home, which may be placed at risk were they to use a trust deed or bankruptcy.
Do you have to include all your debts?
When you apply for a Debt Payment Programme you can choose whether to include all your debts into your plan, or leave some out. The only debts you can leave out are rent and mortgage arrears.
However, as the Debt Arrangement Scheme does not protect you from having your home repossessed or from being evicted, it may be you would prefer to offer your mortgage provider or landlord more money than they would get in the Debt Arrangement Scheme to pay that debt off quicker. This should be discussed with your adviser, as it may be your landlord or mortgage provider are happy for you to include their debts into the Debt Arrangement Scheme.
It is also not a forgone conclusion if you do include your rent or mortgage arrears in a plan without your landlord or mortgage provider’s permission, that a sheriff would necessarily grant an order to evict you or repossess your home. The sheriff should consider first whether your repayments are reasonable.
Can creditors stop you entering the Debt Arrangement Scheme?
Those creditors whose debts are included into programmes do have a say, but where they fail to respond within the notification period of three weeks, they are treated as if they agreed to the programme. Where they object, the proposals are then considered under a “fair and reasonable” test by the Debt Arrangement Scheme Administrator.
If he finds that a proposal is fair and reasonable he can set aside the objections and approve a 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 their income and loses over 50% of their income, they can obtain a payment break for up to six months whilst remaining in the programme. Where their circumstances permanently change for the better or worse, they can apply for a variation to change the amount they are paying.
Another benefit of the Scheme is debtors are able to apply for a statutory moratorium. 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 Debt Arrangement Scheme 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 to allow them to submit an application to the Debt Arrangement Scheme.The benefits of the Scheme do not stop there, however. Where a creditor is trying to make a debtor bankrupt, and a statutory moratorium has not been used, it is possible for a sheriff to continue a court hearing to allow an application for a Debt Payment Programme to be considered, before deciding whether to order the debtor’s bankruptcy. If the Debt Payment Programme is approved, the debtor cannot be made bankrupt.Another benefit of a Debt Payment Programme, is where a creditor has arrested a debtor’s earnings, if a DPP is successfully approved, the DPP lifts the arrestment.
How do you apply to enter the Debt Arrangement Scheme?
To apply for the Debt Arrangement Scheme you cannot do this yourself.Applications must be made via an Approved Money Adviser or a licensed Insolvency Practitioner. The first 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. If they believe the DAS would be appropriate they must then confirm the balances owed to the creditors before submitting an application to the creditors. The creditors then get three weeks to consider the proposals.If no-one responds in those three weeks, they are considered to have agreed to the proposal. If any object, it is for the Debt Arrangement Scheme Administrator to decide whether the plan is fair and reasonable. If he believes it is, your plan is approved.
What happens once the Programme is approved?
Once a programme is approved, you are allocated a Payment Distributor. These are companies which administers the money you pay each month towards your debts, and then make the payments they are instructed to make, to your creditors.They are allowed to charge a fee of up to 8% of what you pay towards your debts for providing this service; however, legally the fee is charged to your creditors, not you, which means the service is essentially free for you. The Debt Arrangement Scheme Administrator also charges a fee of 2%, but again it is not you that pays this, but your creditors.Once a Programme is approved you have 42 days to make your first payment to your payment distributor. After that you continue making your payments at the agreed intervals until your debt is paid off, although each year your Approved Money Adviser should contact you to review your circumstances to ensure the Scheme is still the correct option for you.
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.