What is the Debt Arrangement Scheme?
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 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 and attachments. It also protects consumers once they are in a Programme, in that creditors cannot then 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, which may be placed at risk were they to use a trust deed or bankruptcy. When you apply for a Debt Payment Programme, however, you must include all your debts in to the Scheme. This means you cannot leave out any, such as catalogue or a credit card debts. It also means if you have rent arrears or mortgage arrears, these must be included. Where you do have rent or mortgage arrears you should discuss this with an Approved Money Adviser first, as it may be necessary to get permission from your landlord or mortgage provider first, as although DPPs provide you with a lot of protection, they do not prevent landlords or mortgage providers from raising eviction or repossession action. This is not to say if they do, that they will be successful. Ultimately it will be for the sheriff to consider whether it is reasonable or not to fepossess in the case of a mortgage or where you are a tenant, where your landlord is a registered social landlord, whether it is reasonable to evict. Where you landlord is a private landlord, his permission will likely be necessary.
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. This is the case even where you are including mortgage or rent arrears into a Debt Payment Programme, however, as the Debt Arrangement Scheme does not prevent your landlord or mortgage provider raising an action for eviction or repossession, these types of creditors must be treated differently.
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 there 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.