The Debt Arrangement Scheme in Scotland
Coronavirus - more protection from action by creditors
If you're worried about creditors taking enforcement action against you or you are thinking of applying for Bankruptcy (sequestration), a Protected Trust Deed or the Debt Arrangement Scheme (DAS) you can apply for a moratorium, which prevents creditors taking action whilst you seek advice. The moratorium protects you for six months but it does not stop interest or charges building and may impact on your credit rating.
If you are worried remember that creditors and sheriff officers should be reacting sympathetically to Covid 19 related financial hardship and you should ask them to treat you fairly as per the Financial Conduct Authority’s rules. If this does not work and your creditor has sent you a document called a “Charge for Payment for Money” giving you 14 days to pay your debt in full, then you should apply for a moratorium.
You can apply for a moratorium yourself but it is recommended you only do this after getting advice. Once you have applied for a moratorium bear in mind that if you do not get advice within 6 months, and make an application for either DAS, protected trust deed or bankruptcy, then it will expire and your creditors can take action again. Read more about protection from action by creditors on the Accountant in Bankruptcy website.
The Low and Grow short term Debt Arrangement Scheme
If you are experiencing short-term financial challenges, but don’t need a full DAS because your financial difficulty may only be temporary, for example, you know you can get back to a good position in employment, there is a new scheme that might help. This has been named a 'low and grow' scheme and it offers the same protections from creditors and interest that the full DAS provides. There are more details about the low and grow scheme on the Accountant in Bankruptcy website .
You should get advice from an experienced money adviser.
If you have a Debt Arrangement Scheme and you can't afford a payment
If you have a Debt Arrangement Scheme (DAS) and you can't afford a payment, speak to your money adviser. They can arrange a payment break for you. Your DAS won't be revoked if the AiB knows that you can't make payments due to coronavirus.
Review of DAS with missed payments
From January 2021, the AiB is writing to people with a DAS who have missed more than three payments due to coronavirus. You are being asked to contact your money adviser for a review of your DAS. It might be possible to change the DAS to make it easier for you to carry on with, for example by reducing the payment amount. Alternatively, the DAS might not be the best option for you anymore.
Read more about the review of DAS missed payments on the AIB website.
What is the Debt Arrangement Scheme in Scotland
The Debt Arrangement Scheme (DAS) is a scheme set up by the Scottish Government to help people pay back their debts in a manageable way without the threat of court action from the people they owe money to (creditors).
Under DAS you can set up a debt payment programme (DPP) and make one regular payment into the DPP which is then divided up and sent to your creditors.
You can apply for a DPP with any amount of debt.
You can also apply for a DPP with your spouse, civil partner or cohabiting partner if you are both liable for at least one debt.
DAS is just one option for dealing with your debts. You will need to get advice from a money adviser if you are thinking about setting up a DPP. If you decide to go ahead with a DPP, a money adviser needs to make the application for you. You can find your nearest money adviser on the 'find an adviser' page on Scotland's Financial Health Service (SFHS) website.
When the Debt Arrangement Scheme might be an option for you
The Debt Arrangement Scheme (DAS) might be an option for you if the following are true:
- enough money to make regular payments - you have enough money to be able to pay back your debt in a reasonable time. For example, you have a stable job and you have some money left every month after paying for your bills and for essentials
- you don't want to have to sell your home - you are a homeowner with a high level of equity and you don’t want to have to sell your home. The equity is the amount of money that you would get after selling your home and paying off the mortgage. In some other debt options, such as a protected trust deed or bankruptcy, your home may be at risk and you may have to sell your home to release the equity
- your job might be affected by other debt options - you are employed in certain jobs which would be affected by other debt options, such as a protected trust deed or bankruptcy. For example if you work in the financial sector, you are likely to be dismissed if you become bankrupt. Becoming bankrupt or setting up a protected trust deed also prevents you from standing for public office or acting as a company director.
Advantages of the Debt Arrangement Scheme
The advantages of the Debt Arrangement Scheme (DAS) are:
- belongings and property – you will not have to sell off any belongings and property such as your home or your car (also called assets) as you might have to do with a trust deed or bankruptcy. Although you can decide to sell off your home if you want to. This might mean you could pay off your debts more quickly than by making regular monthly payments
- no more enforcement action – if you are thinking of setting up a debt payment programme (DPP) under DAS, you can apply to the Accountant in Bankruptcy to stop your creditors taking any steps to recover the money you owe them. This is called a 'moratorium' and it lasts for 6 weeks (it has been temporarily extended to 6 months because of coronavirus). This will mean that your creditors can no longer take steps such as arresting your bank account. You can also apply for a moratorium if you are thinking of applying for bankruptcy or setting up a trust deed. You can only set up one moratorium in any one 12 month period (this restriction has been lifted temporarily because of coronavirus)
- interest and debt charges - interest and debt charges are suspended during the DPP and then cancelled when it is complete. This means that you will have cleared your debts by the end of your DPP
- employment – if you set up a DPP, this will not prevent you from working in certain jobs or taking up public office. Some other debt options, such as trust deeds or bankruptcy do restrict the kind of work you can do.
Disadvantages of the Debt Arrangement Scheme
The disadvantages of the Debt Arrangement Scheme (DAS) are:
- paying regular contributions – you may have to pay contributions for a long time to repay your entire debt. Some other debt options such as trust deeds or bankruptcy lead to people being discharged from their debts sooner, although they also have other implications
- credit rating – setting up a debt payment programme (DPP) will affect your credit rating for as long as you're in the DPP. This can make it harder to get credit like a mortgage or a loan in the future
- borrowing money – you can only borrow a limited amount of money (obtain credit) during your DPP under DAS. In practice, it may be hard to borrow any money during your DPP
- your home – if you set up a DPP, it doesn't automatically prevent a lender or a landlord taking steps to recover possession of your home if you have mortgage or rent arrears. Although it is likely that you will be able to negotiate with your landlord to stop this happening as you can show that you are taking steps to repay the arrears by setting up a DPP.
Other things to consider about the Debt Arrangement Scheme
There are a number of other things to think about when considering setting up a debt payment programme (DPP) under DAS, such as the length of time you will have to pay contributions and the costs of setting up a DPP.
How long will I have to pay contributions
One of the main reasons for setting up a debt payment programme (DPP) under DAS is that you have enough money to pay off your debts in a reasonable time. There is no definition of what a reasonable time is. Ultimately the Accountant in Bankruptcy will decide whether the proposed length of time for payments is reasonable when he considers your application for a DPP. As a general rule, more than 10 years might be unlikely to be reasonable unless all your creditors are happy with this.
If your circumstances change during the lifetime of your DPP, you can apply to change the amount of contribution that you are making.
Also if you have a temporary drop in income, for example because you have lost your job or you are ill, you can apply for a payment break for up to six months. The period of time that you are unable to make payments for is added on to the end of your DPP.
You can also apply for a one month crisis payment break if you have an emergency that means you can't make a payment. You can have up to two crisis payment breaks in a 12 month period.
How much does the Debt Arrangement Scheme cost
It is free for an individual to set up a debt payment programme (DPP) under DAS. Money advisers are no longer allowed to charge you a fee for helping you to apply for a DPP under DAS.
You don't have to pay an administration fee for the running of the DPP. Your creditors do have to pay this fee though.
A debt payment programme (DPP) under DAS is not the only option to help you sort out your problems with debt. Other options include:
- bankruptcy (called sequestration in Scotland) – this may suit you if your financial situation has become intolerable because you can’t pay your debts as they fall due. You can apply for standard bankruptcy if you have debts of £3,000 or more. Alternatively you can apply for 'Minimal Assets Process' (MAP) bankruptcy if you have debts of £1,500 or more and you have no disposable income or belongings or property that can be sold to raise money. Find out more about bankruptcy
- a protected trust deed – this is similar to bankruptcy in that your assets and property are transferred to a trustee who will manage your affairs for the benefit of your creditors. You will have to pay contributions towards your debts for 4 years. It is only likely to be an option for you if you have enough money to make a regular contribution towards your debts or you have belongings that can be sold. You must have debts of £5,000 or more. Having a protected trust deed will not prevent you working in as many types of jobs as bankruptcy. Find out more about trust deeds
- voluntary agreement direct with your creditors – this is where you set up an informal repayment schedule with your creditors. It means that you are in control of your finances but it does also mean that you have to negotiate with all your creditors and if you aren’t able to keep to your repayment plan there is nothing to stop them taking action to recover the money you owe them
- debt consolidation – this is where you borrow money to pay off existing debts. This is also called re-financing. It may mean that you pay back interest at a higher rate and for a longer time than for some of the other options. You must take independent financial advice if you are thinking of doing this. Find out more about debt consolidation on options for dealing with debt.
If you are considering any of these options, you should get advice from a money adviser. You can find your nearest money adviser on the 'find an adviser' page on Scotland's Financial Health Service (SFHS) website.
There are free sources of advice, such as Citizens Advice Bureaux and money advice centres and law centres. There are also freephone helplines such as the National Debtline and the StepChange Debt Charity helpline.
Find out more about DAS on the Accountant in Bankruptcy website and in its Debtor Information Booklet.