What is the Debt Arrangement Scheme?
The Debt Arrangement Scheme is a formal scheme run by the Scottish Government to help you if you are struggling with paying your debts. Under the Debt Arrangement and Attachment (Scotland) Act 2002 and the Debt Arrangement (Scotland) Regulations 2011, both as amended, you can enter into an arrangement whereby numerous creditors will be paid from a monthly payment which is paid and distributed amongst your creditors though a “Debt Payment Plan (“DPP”)”.
Does entering into a Debt Arrangement Scheme mean I am insolvent?
No. Your debts are essentially paid in full and you are not classed as being an insolvent individual. This is an important consideration when thinking of entering into a DPP, as, for example in some professions if a formal insolvency process is entered into, there may be restrictions upon or an impact on one’s employment.
What is the criteria for applying to the DAS for a DPP?
You require to be an individual who stays in Scotland. If you are subject to any Bankruptcy Restriction Order or Undertaking or a Protected Trust Deed you cannot participate in the scheme.
You must have sufficient surplus monthly income to allow repayment to be made to your creditors. The surplus income will be assessed by a money adviser using a calculation tool, which allows for certain expenditures, called the ‘Common Financial Tool’.
If you have joint debts with your partner you can apply jointly and if you have business debts you may be able to take part in a business DAS.
How does it work?
You will first need to take money advice from an approved money adviser who will carry out calculations and confirm if the scheme is the best option for you. You must include all debts outstanding, including outstanding rent or mortgage. A proposal is then sent to all your creditors and they are given 21 days to respond confirming if they are agreeable to the proposal or not. Even if your creditors do not agree to the proposal, there are some occasions whereby the proposal and DPP will be confirmed to be binding upon all you your creditors.
The Accountant in Bankrupt acts as the administrator for the DAS and has the ultimate decision as to whether a DPP should be approved or rejected by applying the ‘fair and reasonable’ test.
During the period the DPP is in place, your creditors will not be able to take court action or enforce diligence against you in respect of debts incurred prior to entering into the DPP.
What are my responsibilities during the scheme?
You must make payment of the approved monthly payments when they are due and continue to make payments towards your ongoing liabilities e.g. continued rent or mortgage payments. You must not make any other payments to creditors included in the DPP as this could constitute an unfair prejudice. You need to keep the administrator updated with any change of circumstances or address.
How long will it take me to pay my debts back?
The amount of time in which you pay back your debts would be discussed and agreed with creditors. A DPP can last for a number of years. The length of the DPP will be determined by the DAS administrator looking at all factors, including level of debts, objections, monthly payments and so on, and applying the fair and reasonable test if required.
Do I need to pay back interest?
No – you will only be liable to pay the principal debt in full as long as you make all the payments due in terms of the DPP.
Does it cost me?
Money advice can be obtained free from various services. A charge for the collection and distribution of payments can be deducted from the amount that you pay. This is limited by law to 22% meaning your creditors will receive 78% of the debt owed to them. If you complete all the payments due under the scheme you won’t be liable for this 22%. Whilst this might not sound attractive to creditors, they will generally get much more than they would under formal insolvency processes such as sequestration or a protected trust deed.
Can the DPP be terminated?
Yes. If you do not make payments for more than three months the scheme can be revoked meaning you are back in the position you were prior to applying to the scheme. This means you may have to then pay cover interest and penalty costs to your creditors.
Is my having a DPP in terms of the scheme a matter of public record?
Yes. The Accountant in Bankruptcy publishes a public register which records all DPPs which have been applied for, whether they are accepted or not.
For information and help on any of the matters raised in this article please speak to a member of the Blackadders Dispute Resolution Team.
Susan Currie, Solicitor
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