Arguably there are three key formal debt solutions available in Scotland: Trust Deeds, Sequestration and the Debt Arrangement Scheme (DAS). They all require you to seek professional advice as only a qualified advisor or Trustee can administer them. The DAS is no different as it involves creating a Debt Payment Programme (DPP) with a money advisor.
Your DPP calculates your surplus income using your real monthly income and essential expenditure and offers this to your creditors. But what is this process, and how do you organise and put forward this application?
Starting Your Application
Before you start your application, you must research a variety of debt solutions to ensure you are undertaking the solution which is best for you. There is a lot of information available online, but you might want to consider consulting an adviser at this stage if you have any questions about how each solution would work.
Once you are certain that a DAS is ideal for your situation, you can start working on your application
Finding Your Money Adviser
As you need the help of a qualified money advisor the first step is finding someone you trust to work with. There is no formula for finding the right money advisor for you as everyone is different. Do you want an efficient adviser who will get the job done quickly? Or do you want a sensitive adviser who will hold your hand and carefully explain each stage to you?
Regardless of their personality, here are some key discussions you should have with your adviser before you commit to working with them:
- How they are getting paid, particularly if your application is rejected. You don’t want to be stuck with an unexpected fee.
- Your reason for pursuing a DAS, especially highlighting what is most important to you. For example, is your priority to protect your assets, to be able to take out further credit, or to become debt-free as fast as possible?
- If you have mortgage arrears, how they would they suggest that you handle them. Occasionally, they can be added to a DPP, but it might not always be the best option.
- Their experience with DPPs, creditors and rejection. The more experience an advisor has, the more convincing your DPP will be. Some creditors have a policy of rejecting certain debt solutions on principle and an experienced advisor will be able to warn you of this.
- Their advice on your situation. While you might firmly know which debt solution is right for you, hearing a professional opinion may highlight a new perspective for you. You can always politely disagree with them.
Preparing Your Documentation
Your creditors aren’t going to just take your word for it that you don’t have the funds to pay them on their terms. You need to provide them with proof of your income and expenditure and be able to justify them. There is also crucial DPP documentation that you must sign and submit. Therefore, your adviser might ask you for:
- A signed DPP declaration or mandate
- Wage slips
- Pension Payments
- Proof of any other income
- Recent Creditor Statements
- Lease or Mortgage Contracts
- Council Tax
- Hire Purchase Agreements
- Life Insurance Agreements
- Utility Bills
- Proof of any other essential expenditure
Calculating Your Surplus Income and Length of DPP
Although you may have already calculated a rough estimate of your DPP before gathering your documentation, your formal calculation will be based on your real financial situation. All your debts, regardless of whether they are considered part of your payment or expenditure, must be found and so your adviser may do a soft credit search. Once the documentation is confirmed, your money adviser will do this calculation:
Surplus Income = Total Income per month – Total Expenditure per month
Your surplus income then becomes the affordable monthly payment which you will offer to your creditors. Once this is calculated, you can work out how long you will be paying this amount.
Length of your DPP in Months = Total Debt ÷ Surplus Income
For example, if Lucy earns £700 a month and spends £500, her surplus income is £200. As her total debt is £16,800, paying £200 a month to be distributed among her creditors will mean her debt is completely repaid in 84 months, or 7 years.
Submitting Your Application
The final task is simply submitting your DPP to be reviewed by your creditors. Your adviser will do this but be aware, this might be your last chance to change the DPP so make sure you are confident that you can pay the suggested monthly payment and that you are aware of the terms, conditions and consequences of the DAS.
The Application Process
Once your application has been created and submitted, it is given to your creditors and the DAS Administrator before it is approved or rejected. This process is likely to take several weeks, so you may need to be patient. The average DAS takes approximately 6 to 8 weeks to process.
Your Application is Considered
Your Creditors are given 21 days to object to the DPP. For many DPPs, this is a formality, but occasionally creditors object to insolvency solutions on principle and some creditors take issue with your proposed payments. If they think that you could pay more, or that you are in a position to honour your original loan, they will object
The DAS Administrator Approves or Denies Your DPP
Fortunately, the final word is given to the DAS Administrator. If none of your creditors objects, your DAS is approved, but if they do object, their objections can be overruled. The DAS Administrator overrules an objection when they review your DPP as ‘fair and reasonable’. Understanding their interpretation of a ‘fair and reasonable’ DPP is why working with an experienced adviser is vital.
