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How Does a Debt Arrangement Scheme (DAS) Work?
A Debt Arrangement Scheme is a formal Scottish debt solution which allows you to create a repayment plan for your debts. It is comparable to a Debt Management Plan, which is an informal solution, as well as a Trust Deed or Sequestration, which are alternative formal Scottish debt solutions.
If you are eligible for a DAS and decide to pursue it as the solution to your debts, a Debt Payment Programme (DPP) is created. This DPP is a plan based on your realistic income and expenditure which calculates how much you can afford to give your creditors each month. This amount is shared amongst your creditors every month until your debts are fully repaid, although in some circumstances your repayments can end after a ‘reasonable length of time’. This is often interpreted as around 10 or 12 years.
As your DPP should allow you to repay your full debts, there is no need for you to sell or re-mortgage your car, home or any other assets you own. This is a key difference between Sequestration, a Trust Deed and a Debt Arrangement Scheme.
Crucially, the repayment of these assets, known as secured loans, is not included in the DPP as a debt, so you must keep up with your mortgage or hire purchase agreement independently. But, the cost of these repayments is factored into your DPP as expenditure, allowing you to manage them alongside the DPP.
Arrears on a secured loan, such as a mortgage or HP agreement, could be included in your DPP as a debt, but it is not guaranteed. Regardless, your arrears will considered in the DPP, either as a debt or an expenditure.
A DPP must be approved by your creditors and can only be submitted by a qualified money adviser. The adviser then manages the DPP while you pay your affordable monthly payments. Here is a helpful step-by-step guide to help you understand and visualise the entire process.
- Your information is gathered. You work with a qualified money adviser to start your application. This means you might need to provide documentation such as wage slips to demonstrate your income, expenditure and debts.
- Your DPP is created. An affordable monthly payment is determined from your real income and expenditure, and the length of time it would take to fully repay your current total debts is calculated.
- Your DPP is sent to all your creditors. They have the right to object and have 21 days to do this. This waiting period can make the entire DAS process take between 6 to 8 weeks.
- Objections are considered. If any creditors do object, the DAS administrator can overrule them if the DPP is considered ‘fair and reasonable’.
- Your DPP is approved. If no creditors object, or the DAS administrator overrules their objection, then your DPP is approved. Your money advisor will manage your DPP and your debt will be effectively frozen until your DPP has ended. You will have only one payment to make and should have less contact and pressure from your creditors.
- You continue to communicate with your advisor. As your circumstances can change, it is possible for your DPP to accommodate these changes without approval from your creditors as long as they are still reasonable and fair.
- You complete your DPP. Once you have fulfilled all the terms of your DPP, you will be debt free other than any secured debts, such as your mortgage, that you may be continuing to pay into separately. Usually, you continue payments until your total debt at the time of the DPP is paid off, but if your DPP has a time limit that ends before your debts are completely paid off, your remaining debts may be written off.
- Breaking your DPP. If you do not pay the affordable monthly payments, you may be liable for any interest that had previously been frozen as well as the entirety of your debt. Your creditors will also start contacting you once again to pay them.
- Appealing your rejection. If your DPP is refused, you can appeal against the decision, but you may still be rejected.
If you break your agreement or are rejected, you can reapply in 12 months. You may only apply once a year for a DAS. This is done as the DAS is often taken as a solution when people are facing court proceedings as the DAS can halt court proceedings while it is being reviewed. If there wasn’t a 12 month limitation, the DAS could be used to halt proceedings almost indefinitely.
An Example of a DAS
Paul works as a plumber. He got into problem debt after breaking his leg, making him unable to work for a few weeks. Now that he is back on his feet, his monthly income is £2,300 and he spends £1,500 on his mortgage, £400 on food, £200 on bills, and £100 on clothes and other living expenses. His debts are £3,000 of mortgage arrears after missing 2 months when he was out of action, as well as £2,000 on credit cards and a £5,000 loan.
His monetary advisor helps him put together a DPP which shows that:
- He earns £2,300 and spends £2,200 every month
- This means he has £100 spare every month to pay back his debts
- Therefore, if he sticks to this repayment plan, his £10,000 debt can be repaid in 8 years and 4 months when he will be debt free