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New Rules for the Debt Arrangement Scheme
The Scottish Debt Arrangement Scheme is changing.
The changes which are being introduced by the Scottish Government have been laid before the Scottish Parliament in the form of regulations, and are due to come into force on the 29th October.
The Scottish Debt Arrangement Scheme (DAS) is the Scottish Government’s flagship debt remedy, and is unique across the UK. It is the only formal debt repayment plan that provides consumers with legal protection from their creditors, whilst protecting their homes.
Plans for a similar scheme are now being developed across the UK, with a formal breathing space procedure, under the Financial Claims and Guidance Act 2018, which will means consumers across the UK will also soon be able to enjoy the protections that Scottish debtors have been enjoying since 2004, when experiencing financial hardship.
The new rules being brought forward by the Scottish Government are intended to make it easier and more attractive for people to apply to the Debt Arrangement Scheme, and to avoid using a form of personal insolvency, like a protected trust deed or sequestration (bankruptcy), where it is not appropriate.
What is changing?
The first change will mean it will no longer be necessary for those applying to the Scheme to have to include all their debts into debt payment programmes under the Debt Arrangement Scheme and if they should so choose allow them to leave out any rent or mortgage arrears. The reason for this change is although the Debt Arrangement Scheme protects participants from enforcement action like earning or bank arrestments, it does not prevent creditors from raising court action to evict a tenant or repossess a home, where there are mortgage arrears.
Although in practice, most judges in Scotland will not authorise repossessions where the home owner is paying their mortgage arrears through the Debt Arrangement Scheme, there may be circumstances in which the consumer will prefer to leave the mortgage arrears out of their Debt Payment Programme and come to a separate agreement with their mortgage provider.
This means, where it appropriate, consumers will now be able to offer more to their mortgage provider than they would, had they included the debt in the Debt Arrangement Scheme. It may also mean where the DAS may be planned to last 7-8 years, consumer will be able to give priority to their mortgage or rent arrears and propose paying them off sooner.
The other change being introduced under the new rules is debtors applying for a programme will no longer be required to offer all their spare income to creditors. So where someone has £200 left each month to pay to their creditors, after paying their bills, they will now be able to offer just part of that to their debts each month, rather than the full amount.
The hope is, where repayment plans are expected to last for 7-8 years, consumers will no longer have to live on tight budgets each month and instead will be able to put aside some money for social activities and unforeseen emergencies. The hope is this will make it easier for consumers to remain in the Debt Arrangement Scheme and less likely miss to any of their monthly payments.
Speaking about the changes Stephanie Chapman, Managing Director of Carrington Dean has welcomed them, but also cautioned that care will need to be exercised when drafting proposals to creditors.
“We need to welcome any changes that make the Debt Arrangement Scheme more accessible to consumers” Stephanie said, “but, we also need to remember that the purpose of the Debt Arrangement Scheme is to help people repay their debts. So although it may be attractive to leave debts out and also not pay all your available income over to your creditors each month, we need to remember that the less people pay, the longer it will be before they can become debt free again and get on with their lives”.
“What will be crucial for these changes to be effective is that they are used prudently and with proper advice. There will be times when it is appropriate for mortgage and rent arrears to be excluded from a debt payment programme, but there will also be times when it is entirely appropriate to include them and this is something sheriffs will consider: the reasonability of a payment plan”.
Payment Programmes under the Debt Arrangement Scheme freeze all interest, penalties and charges on debts that are included in them and protect consumers from further action from sheriff officers. Programmes can be approved even where creditors object by the Scottish Debt Arrangement Scheme Administrator, who is a senior civil servant.
If you are struggling with your debts and would like to explore whether the Debt Arrangement Scheme is an appropriate remedy for you, call 0141 326 0391 to speak with a trained Carrington Dean adviser.