What is a Debt Arrangement Scheme (DAS)?
DAS was created to help individuals, couples and businesses repay their debts whilst providing protection from court actions by creditors. It combines all your unsecured personal debts into one and does not require any declaration of insolvency.
Debt Arrangement Schemes are really only a viable option for people who are working and have enough money left over each month to make a monthly payment. DAS is essentially a Debt Payment Program (DPP) which is available to individuals and couples or as Business DAS to Partnerships, Trusts and unincorporated bodies.
DAS is an alternative to the other two formal debt solutions;
both of which will write off large portions (or all) of your unsecured debts but can put assets you own at risk, for example your home or property may have to be sold.
DAS on the other hand usually allows all your assets to remain your own whilst putting a stop to all the creditors chasing you. All interest and fees on your debts are frozen and you become locked into a monthly payment plan that you can afford to pay.
There are two main considerations you should be aware of;
- Debt Arrangement Schemes can run on for several years, basically they will run until your debt is fully paid off (normally 10 years is the Maximum) or (5 years Maximum for Business DAS)
- Secondly, obtaining credit whilst the program is running is very limited and your credit rating will be affected.
Who can apply for a DAS?
The scheme is available to individuals, couples and businesses. Business types are restricted to partnerships, trusts and unincorporated bodies.
DAS is not available to limited companies.
To be eligible for a personal DAS you must;
- have one or more debts
- be a resident in Scotland
- speak with a qualified adviser to ensure you are making the correct decision
- have a reasonable level of disposable income after deducting living expenses
What debts can be included in a DAS?
A DAS can include most ‘unsecured debts’ which are debts that have not been secured against the asset.
Examples of debts that can be included are:
- Credit cards
- Store cards
- Payday Loans
- Personal loans
- Council Tax Arrears
- Utility Bill Arrears
- Shopping catalogues
What debts cannot be included in a DAS?
All debts must be recorded in your application when you apply for the DAS but not all will make it into the payment plan.
The following are excluded from a DAS;
- Child support arrears – You will need to arrange to pay child support arrears as part of your essential spending.
- Student loans – From the 27 June 2015 student loans cannot be included in a debt payment programme.
- Hire purchase – If you have hire-purchase or conditional sale arrears, then you can only add the arrears into your DAS, the normal payments would remain your responsibility.
What information does my adviser need to get started?
The primary role of any adviser is to make sure you know all your options so you can make an informed decision. For them to be able to advise you properly you will need to tell them about your current financial situation.
The information they will be looking for is;
- Your income
- Your essential outgoings
- List of all your debts/debtors
- Any property or assets you have
- How much money you have left after all essential bills are paid
With this information the adviser is able to work out what you can and cannot afford and advise you of all your options
What are the Advantages of a Debt Arrangement Scheme?
- Legal action by creditors is stopped.
- Interest, fees & charges are frozen immediately and are written off on successful completion of the payment plan.
- A qualified adviser will deal with your creditors, removing all the stress from you.
- Your home should not be at risk as long as you continue to make monthly payments.
- Payment breaks can be used to help with unforeseen events.
- You only pay what you can afford.
- If you are a Sole Traders you may be able to use a Business DAS which has repayments capped at 5 years.
What are the disadvantages of a Debt Arrangement Scheme?
- Repayments can last for up to 10 years
- You will repay 100% of your debt
- Your credit rating will be affected
- You cannot apply for or obtain credit over and above the allowed amount unless permitted by the DAS Administrator
DAS is not a decision to be taken lightly. Make sure and get all the facts and be fully informed by your adviser before committing yourself. Debt Arrangement Schemes help thousands of people beat their debts every year in Scotland and the process is designed to help both the debtor and creditor. However, it is not for everyone and careful consideration of all the personal insolvency options should be made.
How much does a Debt Arrangement Scheme cost?
You will pay back 100% of the money you owe with no extra charges. The creditors keep 90% and use the other 10% to cover their fees. This 10% is capped by legislation and ensures that no more than 2% will be charged for the application fee and no more than 8% for the payment distributor’s fees.
Even though a portion of your monthly payment is going towards covering these fees every month it is actually coming out of the 10% that the creditors have set aside for this purpose.
You can see why Debt Arrangements Schemes are often looked on favourably by creditors as they will receive 90% of their money back compared to a vastly reduced amount or even nothing at all through a Protected Trust Deed or Sequestration.
How long will I have to pay contributions?
There is an unofficial maximum payment period of 10 years as any longer than this may be difficult to get creditors to accept.
One of the conditions of using a DAS is that you are able to pay off your debts in what is termed a ‘reasonable time’. However, there is no set definition of what is considered a reasonable time. In the end, the Accountant in Bankruptcy will decide once they have looked at your finances and what you can actually afford to pay. Creditors will have to agree to the terms set.
Can I get credit whilst the DAS is running?
Yes, up to £2,000 but some things could stop that. For example, if you entered the DAS with some other debts which were unable to be included in your actual DAS then this could prevent you obtaining further credit.
There are some exceptions where credit can be arranged, some examples are;
- You need credit for emergency repairs to your home.
- You need credit for funeral expenses.
- The DAS Administrator approves your credit.
- You incur a trade debt in the ordinary course of business.
What happens if I fail to pay my monthly payments?
If your circumstances change during the term of the payment plan, for example you lose your job or become ill, you would contact your trustee and request a payment break to give you the breathing space to get things back on track. Your Trustee would then update your creditors with your new circumstances and look to get your payments paused for up to 6 months. This can actually be done more than once and the additional time will be added onto the end of your payment plan.
If however, you simply fail to pay and do not update your trustee with a valid reason why then you may force the agreement to be terminated. Once you reach three missed payments you are at risk of your DAS being revoked. You really want to avoid this from happening as it allows your creditors to start charging fees and interest again on top of what you owe.
As with any insolvency process acting quickly and with proper guidance is key. If you have any problems or fear you may not be able to make payments contact your Trustee immediately so they can guide you through your options. There are solutions to every problem.
Can I pay off the DAS earlier than agreed?
- Business DAS – No
- Personal DAS – Yes
If you find yourself in a position where you have more disposable income and want to become debt free sooner then contact your adviser who will be able to request a change to your payments which is called a ‘variation’.
In the fourth quarter of 2018-19, 657 applications to ‘vary’ a DPP under DAS were approved and only 35 were rejected. These numbers clearly show that it is possible to change your DAS and that a good adviser will be able to instruct you on what terms will be accepted.
What is the DAS Register?
The DAS Register is a free public register that anyone can look at and it contains details of all the people applying for, and who have been granted a DAS. It will contain your name, age, address and details of your money adviser.
If you need your home address details to be hidden on the register then this is possible as long as you can show a valid reason why. For example, if you feel your safety or welfare could be put at risk if your details are made public. You should mention this to your adviser at the beginning so they can submit the appropriate documentation.
What are the differences with a Business DAS?
Business DAS is only available to certain businesses. These include;
- a legal person (sole trader)
- a partnership
- a limited partnership within the meaning of the Limited Partnerships Act 1907(7)
- a corporate body other than a company registered under the Companies Act 2006(8)
- a trust
- an unincorporated body of persons
Limited companies and LLP’s do not qualify for the Business DAS.
Points to note;
- Your business must be in Scotland or have been formed under Scots Law.
- Business DAS requires that an Insolvency Practitioner is used rather than a money adviser.
- Repayment period capped at 5 Years.
- No payment breaks are allowed.
- No offer of composition (early settlement) can be made.
- Business DAS requires proper consent from company members, such as partners or trustees, whoever has authority to run the company.
- Your business will receive a review every 12 months to ensure it is still financially viable and able to complete the Business DAS.
- A declaration of viability must be submitted with the initial Business DAS application.
- Your business will be recorded on the DAS register which is open to the public.