A DAS, on the other hand, offers a structured repayment plan without debt write-off, allowing debtors to repay their debts in full at an affordable rate. In this guide, we’ll explore both debt solutions and help you understand the key differences between the two, so you can make an informed decision on which is best for your situation.
What is a Trust Deed?
A Trust Deed is a legally binding debt solution available in Scotland for people facing unmanageable unsecured debt. With a Trust Deed, you agree to make affordable monthly payments to an Insolvency Practitioner (IP), who then distributes these funds among creditors.
The arrangement typically lasts for four years. Once the Trust Deed proposal is approved by creditors representing at least 67% of the total debt, you will be protected from further creditor actions, and interest and charges on included debts will be frozen.
After completing the agreed-upon term and meeting your payment obligations, any remaining included debt is usually written off. While a Trust Deed offers a structured path towards financial stability, it will also affect your credit rating and your ability to access credit in the future.
Are you considering a DAS?
What is the Debt Arrangement Scheme (DAS)?
The Debt Arrangement Scheme (DAS) is a government-supported repayment plan in Scotland designed to help people struggling with multiple debts.
Under a DAS, you work with an approved money adviser to create a Debt Payment Programme (DPP) which outlines affordable monthly payments you will make, based on your financial circumstances.
If creditors representing over half of the included debt agree to the plan that’s been proposed, the plan then becomes legally binding, and offers the benefit of protection from legal action by creditors.
As part of the arrangement, you will make payments to a DAS administrator, who will then distribute funds to creditors. Unlike a Trust Deed, a DAS has no fixed duration. The plan will last as long as it takes for included debts to be repaid, and will be subject to periodic reviews to ensure it remains manageable.
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What’s the difference between a Trust Deed and DAS?
While both Trust Deeds and the Debt Arrangement Scheme are geared towards helping people in Scotland deal with their unsecured debt, there are important differences between the two solutions in areas like eligibility, length of arrangement, and the ability to write off debt.
We’ve outlined some of the key differences between Trust Deeds and DAS below.
Eligibility
Trust Deed
A Trust Deed is available in Scotland for people struggling with unsecured debts. To be eligible for a Trust Deed, you must meet the following requirements:
- Unsecured debts of over £5,000.
- Resident in Scotland
- Enough disposable income to make a regal payment towards your debts
There’s no specific requirement regarding the amount of disposable income you need, as long as you have sufficient means to make a payment towards your debts each month.
Debt Arrangement Scheme (DAS)
The Debt Arrangement Scheme is open to people in Scotland facing multiple debts, regardless of the total debt amount. Eligibility hinges more on disposable income rather than a specific debt threshold.
Applicants must work with an approved money adviser to assess their financial situation and develop a repayment plan (Debt Payment Programme, or DPP). Unlike Trust Deeds, DAS does not involve making payments via an Insolvency Practitioner; payments are made directly to creditors through a DAS Administrator.
Length of arrangement
Trust Deed
A Trust Deed typically lasts four years, although variations are possible based on individual circumstances. Throughout this four-year period, you will be expected to make regular payments towards your debts as outlined in the Trust Deed proposal.
The Trust Deed is legally binding once approved by creditors. During the four-year payment term, you will be protected from creditor actions, like legal proceedings or wage garnishments relating to unpaid debts.
Once you successfully complete a Trust Deed, any remaining unsecured debt included in the agreement is usually written off. It’s important to note that failure to adhere to the terms of the Trust Deed may result in it being terminated. When this happens, you once again become responsible for all included debts.
Debt Arrangement Scheme (DAS)
There is no fixed term when it comes to a DAS. The length of a Debt Arrangement Scheme varies depending on individual circumstances and the repayment plan outlined in the Debt Payment Programme (DPP).
A DPP can technically last as long as twelve years (although they’re often completed before this) with periodic reviews to assess your financial situation and ensure the plan remains viable.
Unlike Trust Deeds, DAS does not impose a fixed timeframe for debt repayment, focusing instead on your ability to make affordable monthly payments based on disposable income.
The Debt Payment Programme will officially end when all debts included in the arrangement are repaid in full, offering you a path to financial stability while making sure your financial obligations remain manageable.
Debt write-off
Trust Deed
In a Trust Deed, any renaming debt that hasn’t been covered by monthly payments is typically written off upon successful completion.
This means anybody who fulfills their payment arrangement under the Trust Deed will be relieved of their responsibility for included debts after four years, allowing them to begin rebuilding their finances,
It’s important to note that not all debts are written off if you complete a Trust Deed. Only debts included in the arrangement can be written off, so ineligible debts like mortgages and other secure debts will remain your responsibility to pay.
Debt Arrangement Scheme (DAS)
Under the Debt Arrangement Scheme (DAS), there is no automatic debt write-off when you complete the repayment plan. Instead, you will be committed to repaying your debts in full over the course of the arrangement.
While enrolled in DAS, you will benefit from legal protection against creditor action, and the flexibility to adjust the Debt Repayment Programme (DPP) if your financial circumstances change.
Unlike debt solutions like Trust Deeds, however, there is no debt forgiveness aspect to a DAS. You will be able to repay the included debts at a rate you can afford, but you will have to repay those debts in full.
Legal protection
Trust Deed
A Trust Deed is a formal debt solution, so when your Trust Deed proposal is approved by a large enough proportion of your creditors, it officially becomes ‘Protected’. A Protected Trust Deed becomes legally binding for or parties involved, meaning both you and your creditors will have to adhere to its terms.
This legal protections will:
- Prevent creditors from taking legal action against you
- Stop creditors from targeting your wages
- Freeze interest and charges on included debts
Creditors should also cease contacting you, and instead deal directly with your Insolvency Practitioner, once their systems have updated to show that you have entered into a Protected Trust Deed.
This legal safeguard means you will be given the time and the opportunity to focus on fulfilling your repayment obligations without the threat of creditor action.
Debt Arrangement Scheme (DAS)
Similarly, the Debt Arrangement Scheme (DAS) offers legal protection to people facing multiple debts in Scotland. Once a Debt Payment Programme (DPP) is approved and becomes legally binding, debtors benefit from protection against creditor actions, similar to Trust Deeds.
This protection prevents creditors from taking legal action to recover debts included in the DPP. A DAS also stops creditors from imposing interest and charges on included debts.
With a DAS, any legal protection is dependent on adhering to the terms of the agreed-upon repayment plan. Failure to meet the obligations outlined in the Debt Payment Programme may result in the loss of legal protection, allowing creditors to resume legal action.
Assets
Trust Deed
In a Trust Deed, you may be asked to transfer certain assets to the Insolvency Practitioner or Trustee, who will then use those assets to pay towards your debts. These assets could include valuable possessions like your home or car.
If you are a homeowner, the level of equity in your property will be worked out as part of creating your proposal. If you have a significant amount of equity, it will be released to your Trustee, who will then distribute it among your creditors.
While every Trust Deed is dependent on individual circumstances, it’s highly likely that property like your home or car will have to be released towards the arrangement if you hold significant equity.
Debt Arrangement Scheme (DAS)
Unlike Trust Deeds, the Debt Arrangement Scheme (DAS) does not require debtors to transfer assets to a Trustee or Insolvency Practitioner.
Because a DAS focuses on creating a manageable repayment plan based on the debtor’s disposable income, there is no requirement to sell off assets if you can afford to pay off your debts without releasing them towards the arrangement.
Impact on credit rating
Trust Deed
Entering into a Trust Deed will have a significant impact on your credit rating. The arrangement is recorded on your credit file, and remains visible to creditors and lenders for a specified period, usually six years from the date the Trust Deed is granted.
During this time, the Trust Deed may be viewed negatively by potential lenders, as it shows you have had difficulty repaying credit in the past. This can make it more challenging for you to access credit cards, loans, and other financial products.
That said, successfully completing a Trust Deed and demonstrating responsible financial behaviour afterwards can send a positive signal to lenders and help you improve your credit rating over time.
Debt Arrangement Scheme (DAS)
Participating in the Debt Arrangement Scheme (DAS) also has implications for your credit rating, although the impact may be less severe when compared to Trust Deeds.
Once you enter a DAS, it is recorded on your credit file, which will potentially have an affect on your creditworthiness. However, A DAS allows you to repay your debts in full over time, which may be viewed more favourably by lenders than arrangements which involve writing off a portion of your debt.
A DAS provides you with a structured framework to manage their debts responsibly, potentially mitigating the negative impact on their credit rating, but you should be aware that there’s a possibility a DAS will make it harder for you to access credit during the repayment period.
What happens when you complete your Debt Payment Programme?
Successfully completing your Debt Payment Programme (DPP) under the Debt Arrangement Scheme (DAS) in Scotland is a significant milestone.
Throughout the DPP, you’ve been making a regular monthly payment towards your debts, as outlined in the repayment plan you agreed to. Once you complete your DPP, you’ve effectively fulfilled your obligations to the arrangement.
This means that you’ve repaid the entirety of the debts included in your DPP, allowing you to work your way towards being debt-free. You can celebrate your accomplishment and begin focusing on building a more secure financial future.
Will my home be impacted if I owe money in unpaid debts?
In the Debt Arrangement Scheme (DAS) in Scotland, unpaid debts like mortgage or rent arrears can still jeopardise your home.
Given that a DAS only takes care of unsecured debts like credit cards and personal loans, you will still be expected to keep up payments towards any secured debts you hold. While a DAS offers legal protection against creditor actions, these only apply to included debts; failing to address your secured debts can result in serious consequences.
Mortgage and rent arrears can negatively affect your credit score, reducing your future financial options and making it harder to do things like secure a mortgage or obtain a loan. In the most serious cases, repeatedly failing to repay housing debts could eventually result in repossession.
