How Much Does a Debt Arrangement Scheme (DAS) Cost?
A Debt Arrangement Scheme (DAS) is a debt solution available in Scotland which proposes a Debt Payment Programme (DPP) to your creditors. A DPP allows for a legal reduction of your monthly payments based on your genuine income and expenditure so that they become more affordable. Your interest and fees are usually frozen and you continue to pay monthly payments until your entire debt is paid.
Paying Your Money Adviser
Your DPP must be advised and maintained by a DAS approved money adviser. Regardless of who you go to, your adviser must be paid for their work. This is done in two different fees. The first is an application fee, and the other is a fee for distributing your monthly payment among your creditors.
The application fee is legally set at 2% of your total debts, and the payment distribution fee cannot be greater than a further 8%. In essence, this means that your adviser earns a value of up to 10% of your total debt amount.
For example, if you seek a DAS for a debt amount of £10,000:
- your adviser earns up to £1,000
- £200 is their application fee
- £100-800 is their payment distribution fee
The good news is that most DAS suppliers, both charities and private companies, take their fees from your payments, rather than expecting you to afford additional payment. This does mean that your creditors are in essence paying for your DAS and will then only receive 90% of what they are owed. So if you have debts of £10,000, your creditors get £9,000, and your adviser gets £1,000, rather than you having to pay an additional £1,000.
While not having to pay any fees from your own pocket is an advantage of the DAS, it is important to note that your DPP must be approved by your creditors. Some creditors may not be happy to receive only 90% of their debts. This might not be a problem as creditors who object can be overruled by the DAS administrator, providing that they view the proposed DPP as ‘fair and reasonable’. Regardless, it is worth considering a very experienced DAS provider as they usually know which creditors are happy with a DAS, and which usually object to them.
Some advisers, however, do charge you the fee, rather than your creditors, or may have other additional fees. It is important that you ask about fees before you enter into any agreement. Make sure you know how their services are being paid for and what effect this could have on your DAS.
It is worth noting that DPP applications can be rejected, which could make you liable for the 2% application fee. Different organisations might deal with this in different ways as you will no longer be making any payments. While payment distributors always charge for their services, it is quite common for money advisers not to charge for their advice and application. As many money advisers do both jobs, being rejected can mean you don’t have a fee to pay. This is another aspect you should discuss with your adviser before agreeing to anything. Ask your adviser who pays for the application fee if you are rejected, so that you feel sure that you won’t end up in further debt.
Generally, it is recommended to go with an experienced company or charity who only charge for a successful DPP application and who take these fees from your affordable monthly payments. This means that they will have experience working with a variety of creditors and are incentivised to give you the best advice. If they believe that you will be denied, they will tell you honestly as your rejection will also result in them not being paid.
Alternative Debt Solutions
The good news is that the fees associated with a Trust Deed, another popular formal Scottish debt solution, are similarly calculated and organised. Most Trustees take their payment from the monthly payments that are going to your creditors. All Trustees, whether from charities or private companies, need to be paid, but most should take this from your payments. As with a DAS, it is a good idea to ask to make sure know what you are agreeing to.
Unfortunately, sequestration, or bankruptcy, does require a fee and you should take this into consideration when you are deciding which debt solution is best for you. Depending on its form, sequestration can cost you £90 or £200. The difference in fee depends on the total amount of your debt and the value of your assets. Debtors with a debt smaller than £17,000 who don’t have assets that total over £2,000 could be eligible for a form of sequestration called Minimum Assets Process (MAP).