Debt Arrangement Scheme
(Available in Scotland Only)
Debt Management Plan Scotland
Thousands of residents of Scotland are believed to currently be using debt management plans. A debt management plan may well be an effective debt solution for many people in Scotland, but residents have a similar option available to them. This is known as the Debt Arrangement Scheme (or DAS).
The Debt Arrangement Scheme offers a number of significant benefits when compared to a traditional informal debt management plan. You can read about it in greater detail via our sister website Trust-Deed.co.uk.
Debt Arrangement Scheme Advantages
The Debt Arrangement Scheme was established by the Scottish Government to provide a formal debt management plan (Scotland) that overcomes some of the weaknesses often associated with an informal debt management plan (available throughout the UK).
One weakness associated with a debt management plan in Scotland can be the disruption that often occurs when a debtor stops paying their creditors directly and starts to pay a debt management charity or company instead. It takes creditors some time to update their systems and process debt management proposals. During this intervening period the debt collection processes at some creditors go into overdrive. The debtor can find themselves bombarded with calls, texts and letters. The Debt Arrangement Scheme overcomes this by creating the potential for a formal period of relief during which creditors cannot proceed with legal actions against the debtor. This allows breathing space for the debtor and their advisor to get the DAS scheme established.
Another debt management plan weakness is that creditors are not forced to suspend interest charges or cease applying penalty fees. In reality, most creditors will agree to freeze interest and stop charges but it’s not guaranteed and it’s not typically immediate. Once the Debt Arrangement Scheme has been accepted, no creditor can add interest or other charges provided that the DAS scheme payment is maintained as agreed.
The Debt Arrangement Scheme prevents creditors from starting legal action. This can be reassuring for a debtor who is working hard to repay what they owe.
You will not pay a fee for DAS. 22% of your payments get retained to cover the running costs. However, 100% of your payment gets allocated towards reducing your debt.
The Debt Arrangement Scheme is “formal” and therefore may take a little longer to set up than a debt management plan. In some ways the DAS scheme is also less flexible than a DMP. However, the benefits of DAS compared to a debt management plan are substantial and should be very carefully considered.
Emergency payment breaks are available with the approval of the Money Adviser.
Can you switch to the Debt Arrangement Scheme?
If you live in Scotland and currently have a debt management plan it is highly likely that you will be able to switch from your DMP to the DAS scheme. It would be appropriate to exercise some caution in the timing of cancelling the debt management plan; this should be tied to some reassurance that the Debt Arrangement Scheme will actually be available to you and effective to deal with your needs.
The Role of a DAS Approved Money Adviser
Only a DAS Approved Money Adviser can set up the Debt Arrangement Scheme for you. They are specially qualified and registered to provide this service.
Money Scotland (on their website) provides a tool to help you search for DAS Approved Money Advisers that operate in your area.
Disadvantages Of The Debt Arrangement Scheme
Creditors have the option to object to the establishment of your Debt Arrangement Scheme. If this were to occur, your case would be assessed by the AIB using a “fair and reasonable” test to determine whether it can proceed or not.
A mortgage obtained during a Debt Arrangement Scheme (if you can obtain one) is likely to be on less favourable terms than might otherwise be achieved (for example the interest rates may be higher).
A public register of Debt Arrangement Schemes is kept.
When you cease paying your creditors directly you are likely to fall into arrears, or further arrears, on your accounts.
Your expenditure during a DAS scheme will be restricted to enable a fair payment to be made towards your debts. Should your Debt Arrangement Scheme fail it is possible that interest and charges will once again be added to your accounts.
DAS will have a significant effect on your credit record. It might also need to be declared on mortgage applications after your Debt Arrangement Scheme is completed (even if it is no longer visible on a credit record) depending upon the view taken by any particular mortgage lender.