29/08/2019

Debt Arrangement Scheme success for more than half of arrangements

29/08/2019

Debt Arrangement Scheme success for more than half of arrangements

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New statistics produced by the Scottish Insolvency Service, The Accountant in Bankruptcy, show that sixty per cent of all Scotland’s Debt Arrangement Schemes are still successfully running after five years or have been successfully completed.

The figures are good news, as they demonstrate the Debt Arrangement Scheme, Scotland’s formal debt repayment plan, is working for thousands of consumers each year.

The statistics also show that in 2017-18, eighty-four per cent of Debt Payment Programmes were still running after their first year; and for those cases entered into in 2013-14, fifty-nine per cent were still being maintained by consumers.

What is the Debt Arrangement Scheme?

The Debt Arrangement Scheme is a formal debt repayment plan.

It allows people struggling with their debts to use a Scottish Government Scheme to pay only what they can afford to their creditors, whilst being protected from sheriff officers and debt collectors.

However, prior to the new figures being released, there was a concern that the Debt Arrangement Scheme may be failing many people, as it requires them to pay all their debts back, unlike Bankruptcy and Protected Trust Deeds, which write some of their debts off.

The reason for the concern was that as people have to pay for longer, they struggle to keep up the payments.

However, what the figures show is that of those cases signed between 2011 and 2015, approximately forty per cent have failed, usually as people did not maintain their payments.

When cases are revoked the person in the Scheme has to repay their debts themselves, and their lenders can reapply interest and charges.

Why Advice is Important

Speaking about the statistics Graeme MacLeod, Head of Operations for Carrington Dean, said:

“What these statistics show is that the Debt Arrangement Scheme is an extremely useful tool for dealing with problem debts, particularly if you own your own home.”

“Unlike Bankruptcy and Protected Trust Deeds, your home is not at risk, providing you maintain your payments to your mortgage.  The people you owe money to cannot make you bankrupt, arrest your wages or freeze your bank account. They must also freeze all interest and charges, so your debts don’t increase.”

“However, what the new figures from the Accountant in Bankruptcy also show is there is a real danger the solution may not work for many people, particularly if they don’t get the correct advice first.”

“It also demonstrates that for some people, Bankruptcy and Protected Trust Deeds may be a better solution.”

Carrington Dean is now one of the largest providers of the Debt Arrangement Scheme in Scotland and also the Scheme’s largest payment distributor, managing tens of thousands of payments each month, for not only its own cases, but also those of Citizen Advice Bureaux, local authority money advice services and independent advice agencies.

Graeme Macleod continued:

“The important thing about the Debt Arrangement Scheme is it’s important to ensure what people are asked to pay back to their debts is affordable.  If you don’t do this, the danger of people missing payments is real and can cause unnecessary delays for people in becoming debt free.”

“If you don’t make provisions for people’s essential expenditure, like food and clothing, then the danger is people have low resilience to unexpected financial emergencies and this leads to missed payments and a default.”

Ensuring Clients Receive Best Advice

Carrington Dean believes in providing people with advice on all their options, including the Debt Arrangement Scheme, Minimum Asset Bankruptcies and Protected Trust Deeds.

It does this by taking a holistic approach and using information that is provided by the clients, credit reference agencies and creditors.

Income and expenditures are drafted using wage slips and where income fluctuates from month to month, averages are taken over a 3 month period, to get a realistic picture of what people can afford.

Advisors also discuss with clients their family circumstances and whether they are anticipating any changes to their circumstances. This allows realistic discussions to take place as to what the correct option for the client is.

If it is known that a client may lose their job in six months’ time, then this has to be planned for. It doesn’t mean the Debt Arrangement Scheme will not be suitable, as payment breaks can be applied for, but if the person is not expecting to return to work, proposing a seven year repayment plan is unlikely to be the correct solution.

Where clients will not be able to sustain payments over a long period of time, then other options, like Bankruptcy and Protected Trust Deeds will be discussed to see if applying for debt relief would be a more appropriate solution.

If you want to discuss your debts with a Carrington Dean Money Advisor, call us on 0808 2085 195 for a free, confidential advice.

 

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