Being in a formal debt solution can provide you with a means to deal with your unaffordable debt over a set period without creditor contact or legal action.
However, many people don’t know what happens when their payments come to an end and how their financial situation can continue to be impacted after this time.
What is a Debt Arrangement Scheme?
A Debt Arrangement Scheme (DAS) is a legally binding agreement from the Scottish Government that allows you to repay your unmanageable debt through a series of smaller monthly payments.
Under a DAS, you’ll work with a DAS-approved money adviser to create a Debt Payment Plan or Debt Payment Programme (DPP), which is a payment schedule that outlines to your creditors (the people you owe money to) how you plan to repay your debt.
DAS-approved money advisers are money advisers that have been authorised by the Accountant in Bankruptcy (AiB) – the government department responsible for administering personal insolvency solutions.
Typically, a DAS is best suited to those who have debts they’re struggling to afford and have enough money for debt repayment and essential living costs each month.
Are you considering a DAS?
How do I apply for a Debt Arrangement Scheme?
There are certain steps involved in a DAS and knowing what to expect beforehand can help you prepare. We’ve summarised the application process below:
Contact a DAS-approved money adviser
The DAS journey begins by reaching out to an approved money adviser who will provide expert advice and guidance tailored to your financial situation and administer your DAS.
There is no set process for finding a money adviser and not all money advisers are DAS-approved so it’s your responsibility to check this when you contact them.
Once you’ve found a money adviser, they will review your income and expenses and determine how much money you have left over after your essential living costs each month. This figure will be proposed to your creditors as the amount you can comfortably afford to pay towards your DAS each month.
Create a Debt Payment Programme (DPP)
The next step in the DAS application process is working with your money advisor to create a Debt Payment Programme (DPP). Debt Payment Programmes can only be administered by DAS-approved money advisers.
The DPP will form the basis of your DAS and help your creditors see how much you can afford to pay and how they can expect to receive payment.
Before your DPP is sent to your creditors for approval, you must ensure you have thoroughly reviewed the terms and are happy with the payment schedule suggested as this will be your final chance to make any amendments.
Obtain creditor approval
Once your creditors have received your DPP, they will have 21 days to accept or reject the proposal.
This is merely a formality but in rare cases, a creditor may reject your DPP if they believe you’re in a position to pay more than you’re suggesting.
However, even if your DPP is rejected by one or more of your creditors, the AiB can overrule their decision using something called a ‘fair and reasonable test’, which is a set of criteria used to determine if you’re a worthy candidate for a DAS.
Start your DAS
Once all parties have approved your DPP, your DAS will begin and your first payment will be due within 42 days.
From the date your DAS is approved, all interest and charges on the debt will be frozen and you’ll be protected from creditor contact and legal action.
The length of your payment schedule will be clearly outlined in your DPP so you know how long your DAS will last in advance.
How long do Debt Arrangement Schemes last?
One of the most common questions among those considering a particular debt solution is how long it lasts.
However, because you’ll be expected to repay 100% of your debt with a DAS, the length of your payment schedule will depend on how much debt you have and how much you can afford to pay towards it each month.
This means that, if you have significant debt and little disposable income, your DAS could last up to 12 years.
However, the AiB reports that the average DAS lasts six and a half years and your money adviser will usually suggest an alternative debt solution if they think your DAS is likely to last longer than a decade.
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What happens at the end of a DAS?
Whether you’ve just entered a DAS or are still considering it, you’re probably curious about what happens after you’ve made your final payment. For a DAS to end, all the payments listed in your DPP must be fully repaid.
Here are some of the things that will happen at the end of your DAS:
Your debts will be settled
Once your DAS ends, you can relax safe in the knowledge that your debts are fully repaid and you don’t owe your creditors a penny more.
This can allow you to move on from your financial problems and look forward to a future free from debt.
All interest and charges will be waived
During a DAS, all interest and charges on the debt will be frozen, meaning your balance will decrease with each monthly payment.
This also means that, once you’ve made your final payment, you’ll have cleared your total debt including interest and charges and the extra fees that were frozen during your DAS will be written off.
Your credit score will improve
Completing a DAS indicates that you have repaid your debt and stuck to a repayment schedule for a set period.
Because of this, your credit score will gradually improve and you’ll find it easier to access further credit over time if you feel like you need it.
Can I leave a DAS early?
The main aim of a DAS is to allow you to repay your total debt over a reasonable period without the threat of creditor contact or legal action. This is one of the many reasons why so many people choose a DAS over another debt solution.
However, there are some situations in which you may be able to leave a DAS early. We’ve covered them below:
You make a lump sum payment
Receiving a lump sum payment (e.g. lottery win, inheritance, or bonus) at some point during your DAS may allow you to clear your outstanding balance and exit your arrangement early.
However, this is usually only possible if your money adviser agrees and the cash injection is equal to or more than your remaining debt.
You make an offer of composition
Sometimes, your creditors will be willing to accept less than what they’re owed if you’ve repaid a certain percentage of the debt and have made payments for a set period.
This is called making an ‘offer of composition’ and will be considered if you’ve repaid over 70% of your total debt and have been making payments for at least 12 years.
Your DPP is revoked
Failure to stick to the terms of your DPP or missing payments without approval will lead to your arrangement being revoked (cancelled) by the AiB.
When this happens, all protections will be lifted and you’ll become liable for the debt again. This may also cause problems if you decide to apply for another DAS or alternative debt solution in the future to help you deal with your debt.
How can I rebuild my credit rating after a DAS?
Entering into a formal debt solution will temporarily affect your credit, but there are steps you can take to rebuild your finances after a DAS.
Here are just some of the things you can do to improve your credit rating after you’ve made your final DAS payment:
Check your credit file for errors
One of the easiest ways to boost your credit score after a DAS is to regularly check your credit file for errors (e.g. at least once a year).
Some people make the mistake of assuming their credit score is automatically correct because it’s been compiled by credit reference agencies.
However, this isn’t always the case and something as simple as a misspelled surname or former address could be unfairly affecting your credit score.
Make payments as they’re due
Proving to lenders that you’re capable of making payments in full and on time is crucial to highlighting your creditworthiness as a borrower.
From your utility bill to your phone bill, the fewer missed payments or defaults you have, the healthier your credit score is likely to be.
Several elements make up a credit score, but payment history is arguably the most important and accounts for the largest percentage.
Register to vote
One of the quickest and easiest ways to boost your credit score after a DAS is having your details recorded on the electoral roll.
Registering to vote at your current address – if you haven’t already – can allow lenders to confirm your address and verify you are who you are claiming to be.
This will immediately rule out the possibility of identity fraud and your credit score will increase as a result.
Avoid new debt
Generally, you should avoid making credit applications for as long as possible after you leave a DAS.
By steering clear of credit unless you absolutely need it, you can avoid a situation where you’re dealing with unaffordable debt and reliant on debt help again.
Accruing debt after a DAS can also damage your debt-to-income ratio (the amount of income spent on debt repayment) and this can directly impact your credit score.
Consider a credit builder card
Applying for a credit card after a DAS may seem counterintuitive, but some credit cards are designed for people looking to rebuild their credit after a period of financial difficulty.
Typically, credit builder cards have lower credit limits, higher interest rates, and more flexible acceptance criteria than standard credit cards.
By paying off the balance on a credit builder card each month, your credit score should gradually improve over a period of around four to six months.
Can a DAS be extended?
Before you start a DAS, you’ll be informed of how long your payment schedule is likely to last.
However, if something happens during your DAS that means your total debt hasn’t been repaid by the time your payment schedule ends (e.g. a job loss or a divorce), it may be extended to allow you to make up for the missed payments.
For example, if your circumstances change and you need a temporary payment holiday, you’ll be expected to continue where you left off when this period comes to an end. Put simply, your DAS will be extended by the length of any payment break you take.
Conclusion
When your DAS comes to an end, several things will happen in addition to you being released from your debts.
Some of the most noteworthy things to remember, however, are that frozen interest and charges will be written off and your credit score will gradually start to improve.
Completing a DAS is a significant milestone worth celebrating and knowing what happens after you make your final payment can help you go into the process confident and prepared.
