A debt arrangement scheme is a legal debt management scheme introduced by the Scottish Government to facilitate individuals, couples and businesses in repaying their outstanding debt. DAS also offers some measure of protection against lender-initiated court action and additional fees.
Under debt arrangement scheme regulations, you can apply for a Debt Payment Programme (DPP) through which you can repay all your debts in full over a reasonable period of time.
A debt payment plan will enable you to do that by reducing your principle borrowing into affordable monthly installations. Once you have a debt arrangement scheme in place, you will only be required to make one monthly payment into the debt payment. The paid sum of money is then divided between your creditors.
You can apply for a DAS, regardless of the amount of money you owe. Once you and your creditors have agreed on a DAS, your lenders cannot pursue legal action against you to pressurise you into paying. All interest, penalties, fees and charges on your debt will also be frozen.
However, if you are unable to pay the monthly amount that you agreed on with your creditors, they are not obliged to freeze interest, penalties and fee charges. This may cause your debt to increase.
Before any debt agreement is prepared under a debt arrangement scheme, a professional money advisor will take into account your disposable income and expenditure.
The monthly repayments will be determined on the basis of your disposable salary.
The total duration of your debt payment plan depends on the amount of debt that you have accumulated and how much of it you can manage to repay. Your creditors will continue receiving the monthly payments you agreed on with them.
Using a debt arrangement scheme to formulate a debt payment plan has the following benefits:
Your monthly payments under a DPP are based on your disposable salary which means that you will still have money to cover utility bills, basic household expenditure and living costs. If you stick to your DPP, all the interest and additional charges on your debt will be frozen. You will receive no further correspondence from your creditors DAS extends legal protection to you; your creditors can no longer take legal action against you.
If your circumstances change during the duration of a debt arrangement scheme, you can apply to alter your payments or obtain a six-month repayment break.
After your DPP is over, all your outstanding debts will be written off DPP has no effect on the employment opportunities open to you. Unlike some other debt options like bankruptcy or trust deeds, DAS is not a form insolvency. This means that you will not be required to sell your belongings or property.
A debt payment plan, negotiated under DAS, has the following drawbacks:
The contractual agreement you set up with your creditors through a money advisor may require you to make monthly installations over a long period of time. You will have to pay a monthly fee to your Payment Distributor
You can only apply for DAS through a professional money advisorSetting up a debt payment plan would influence your credit rating as long as you are in the DPP.
Typically, a DPP shows on your credit file for six years. This may make it harder for you to obtain a loan or mortgage in the future. There are restrictions on the amount of money you can borrow during your DPP. You can apply for a debt arrangement scheme only once in a year so if your application is rejected, you will have to review other debt solutions or reapply after a year. 22% of the customer’s monthly payment is taken as a fee, 20% goes to the payment distributor and 2% to the AIB.
This fee is deducted from the customer’s overall debt level as determined at the start of the DPP, therefore the creditors receive 78% of the balances and the rest is written off. There is no upfront cost for setting up a DPP.