Debt Arrangement Scheme
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The Debt Arrangement Scheme, established by the Scottish Government allows eligible individuals with debts to repay their debts back to their creditors, whilst still ensuring they have enough money left for household costs.
The money is repaid through an interest-free government loan that covers all administration fees. This repayment scheme is called a Debt Payment Programme (DPP).
Read our comprehensive help guide as we talk you through what a Debt Arrangement Scheme is, the benefits of taking out a Debt Payment Programme and what you need to do to get one. Shall we begin?
You Could Write Off Your Unaffordable Debt
What is a Debt Arrangement Scheme?
The Debt Arrangement Scheme is one of the main debt solutions used by people in Scotland. Introduced in 2004, it is managed by an independent financial advisor and controlled by the Scottish Government.
If you live in Scotland and are having trouble paying back your debts, then a Debt Arrangement Scheme could be the right solution to your debt problems.
A Debt Arrangement Scheme can help by allowing you to pay off your debts over time without the pressure of creditors calling or taking legal action against you. Its primary objective is to try and find an affordable way for you to deal with your debt problem.
Who is a Debt Arrangement Scheme designed to help?
A Debt Arrangement Scheme will work for anybody who has a little extra cash after their necessary living costs. Debt Arrangement Scheme could be a good plan for you if you’re looking to get a better hold of your current financial situation.
Protected Trust Deed or Sequestration are alternative Scottish debt solutions. These debt plans may be a better option for people unable to resolve their debts in full. You can read more about Trust Deed and Sequestration in our comprehensive help guides.
What are the advantages of A Debt Arrangement Scheme?
Using a Debt Arrangement Scheme to formulate a Debt Payment Plan (DPP) 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.
- Debt Arrangement Scheme 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, you are no longer liable for any payments towards the included debts.
- DPP has no effect on the employment opportunities open to you.
- Unlike some other debt options like Bankruptcy or Trust Deeds, Debt Arrangement Scheme is not a form of insolvency. This means that you will not be required to sell your belongings or property.
- There is an application fee legally set at 2% of the total debts.
What are the disadvantages of a Debt Arrangement Scheme?
A debt payment plan, negotiated under Debt Arrangement Scheme, has the following drawbacks:
- The contractual agreement you set up with your creditors through a financial advisor may require you to make monthly installations over a long period of time.
- You can only apply for Debt Arrangement Scheme through a professional financial advisor.
- Setting up a debt payment plan would influence your credit rating during the time that you are in the DPP. Typically, a DPP shows on your credit file for six years. However, you will show on the Debt Arrangement Scheme register until the Debt Arrangement Scheme is completed which could make it harder for you to obtain a loan or mortgage until then.
- There are restrictions on the amount of money you can borrow during your DPP.
- You can apply for a debt arrangement scheme only once a year so if your application is rejected, you will have to review other debt solutions or reapply after a year.
- Unless the application is not approved in which case the application fee MAY still be payable (there is an application fee legally set at 2% of the total debts).
Who is eligible for a Debt Arrangement Scheme?
To qualify for a Debt Arrangement Scheme, you fall into the following criteria:
- Have at least one secured debt – this can also include debts you have with a partner or spouse
- Have spoken to a qualified debt advisor – It is paramount that you speak to a qualified debt advisor so they can talk you through your options. Your debt adviser will make an application to help you set up what is called a Debt Payment Programme (DPP) under the Debt Arrangment Scheme.
- Live in Scotland – This programme is only available to residents from Scotland. If you live in England, there is are alternative debt plans available that are like a Debt Arrangement Scheme.
- Able to repay your debts after you’ve paid for your living expenses – If you have a stable job and have some money left over every month after paying your bills for essentials then you will meet the criteria.
- Not be in another form of debt repayment programme such as Trust Deed.
Who is not eligible to join A Debt Arrangement Scheme?
- You don’t have enough money to make the repayments or an asset available to pay into the Debt Payment Programme (DPP).
- You are in a protected trust deed.
- You are bankrupt.
- You are going through a bankruptcy restriction order.
- You are paying debts under a conjoined arrestment order.
What types of debts can be included in a Debt Arrangement Scheme?
The Debt Arrangement Scheme can include the following debts. Most unsecured debts can be included in your debt payment programme (DPP). Unsecured debts are debts that are not tied to an asset. These include:
- Credit Cards Debt
- Store Cards
- Overdrafts
- Personal Loans
- Payday Loans
- Utility Bill Arrears
- Council Tax Debt
- Catalogue Loans
Like many debt solutions, such as the Debt Management Plan in the UK, secured debts are generally not included in the Debt Payment Programme as they are classed as priority debts.
However, there are exceptions to the rule when applying for a Debt Payment Programme. Here are some secured debts that can include:
- Mortgage arrears – these are missed payments from your mortgage
- Rent arrears – these are missed rent payments from your rent
- Car finance arrears – these are missed payments from your car finance agreement
Although it is highly likely that an unsecured debt could be accepted as part of your debt payment programme (DPP), the secured debts above may not be accepted. It is always important to consult a qualified financial advisor to find out whether this is feasible.
Which debts can’t be included in a Debt Arrangement Scheme?
There are debts that are exempt from the Debt Arrangement Scheme. As always it is imperative you get advice from a financial advisor, however, there are debts that can’t be included:
- Child Support – This can’t be included as your child support expense will only be covering a limited period. Often the case is that a child will no longer need child support after they have reached a certain age. As the Debt Arrangement Scheme can last up to 12 years, sometimes this exceeds the expense of paying child support.
- Student Loans – It is important to note that from June 2015, student loans were not allowed to be included in the debt payment plan. Instead, the student loan expense is taken directly from the employee wages, which means that student loans cannot be included.
- Hire Purchase – Although your hire purchase or finance agreement arrears can be included as part of a Debt Arrangement Scheme, your actual hire purchase payments cannot be included.
- Rent – Rent payments cannot be included as part of the Debt Arrangement Scheme, but the rent arrears can.
You Could Write Off Your Unaffordable Debt
How do I apply for a Debt Payment Programme under the Debt Arrangement Scheme?
1. Do your research into what debt solution is right for you
It is paramount that you do your own research into the debt solutions that are available to you. Information online is always a good starting point and will also allow you to make confident and informed decisions when speaking to professionals.
2. Find an approved advisor
The best option is to speak to an approved financial advisor. You will need to ensure that these financial advisors are authorised by the Accountancy in Bankruptcy (AiB) so they can apply for a Debt Payment Programme on your behalf. Below we have set out some key questions you might want to ask your financial advisor:
- How are they getting paid – If you are being charged a fee and your application is rejected then you are at the risk of being worse off than before.
- How would they suggest handling secured debts such as mortgage arrears or rent arrears – A qualified debt advisor will be able to tell you whether you can include them in your Debt Payment Programme (DPP).
- How much experience they have had with setting up a debt payment programme – an experienced financial advisor will be able to tell you if your debt payment programme could get rejected in principle.
3. Organising your financial documents for your proposed Debt Payment Programme (DPP)
This is part that needs your input. Your financials. It is important to reveal to them everything about your current finances.
It is important not to hide anything from them as they are likely to find out and it could put your agreement in jeopardy. Instead, have this information ready, if they ask you for it:
- Wage Slips
- Pension Slips
- Pension Payments
- Any Proof Of Other Income
- Statement From Creditors
- Mortgage or Tenancy Contracts
- Council Tax
- HP Agreements
- Life Insurance Agreements
- Utility Bills
- Proof of any Other Essential Expenditure
4. Calculate your surplus income
Before you speak to your advisor, it might a good idea to know your total income and expenditure.
You will then have a rough estimate to hand to your advisor. They will then do a formal calculation of your finances. Everything will need to assess even those debts that don’t form part of your payment or expenditure. Your debt advisor may do a soft credit search but there is no need to worry as at that point it will not affect your credit rating.
So here is the Maths bit. The calculation to work out your surplus income per month is:
Total Income per month – Total expenditure per month = Surplus income
You can always do a bit of an estimate before your finaicial advisor does a formal calculation.
Once you have worked out the surplus income, this will form the basis of what becomes your monthly payment which you will pay to your creditors as part of your Debt Payment Programme.
5. Calculating the duration of your Debt Payment Programme (DPP)
So, the second part of the Maths bit is working out how long you will pay this amount.
The calculation you will use is:
Total Debt divided by Surplus Income = Length of your DPP
Again, you can always try and work it out yourself, but your advisor will always do the final calculation to submit the application for your Debt Payment Programme.
6. Submit the application
Your debt advisor will then submit your Debt Payment Programme to be reviewed by the people you owe money to, your creditors.
This is your last chance to make sure that you are confident you can make the suggested monthly payments. Also, you are fully aware of what a Debt Arrangement Scheme entails and how it will affect your future financial decisions.
What happens after my Debt Payment Programme application is submitted?
Next is the waiting process. You will have to sit tight and wait patiently as your creditors receive your application.
Once the information has been provided on your proposed Debt Payment Programme, you are then protected against your creditors acting. This protection will only come to a halt if you reject your application.
All lenders listed on the debt repayment programme application shall receive a copy. They will be asked if they agree to your application.
The Debt Arrangement Scheme Administrator (a civil servant appointed by the Scottish Government) has the final say. If the debtor doesn’t respond to this request within 21 days, the Debt Arrangement Scheme Administrator will treat them like they have accepted your payment proposal and they will remain bound to it.
Sometimes your creditors may object to your Debt Payment Programme. This might be for various reasons such as some creditors may feel you can pay more or that you are in a financial position to honour the original loan. However, it’s the Debt Arrangement Scheme Administrator that has the final say and can overrule the objection.
Can I appeal a rejected Debt Arrangement Scheme Application?
Yes, you can. If you think your approved Administrator has not applied the law correctly then you can get them to review their decision. You might need help from your advisor, but you have 14 days from the date of rejection to write to the Debt Arrangement Scheme Administrator to review the decision.
They will then write to you within 28 days of informing you of their decision. They can either keep the same decision, change it, or remove it and replace it with a new one.
If you are still unhappy with the appeal, you can contact the Sheriff Court and you have 14 days from your Debt Arrangmement Scheme Administrator’s review to make this appeal.
You have 14 days to decide if you want to appeal or even reject your application.
When do I make my first payment after my Debt Payment Programme is Approved?
Once a Debt Payment Programme is approved, you have 42 days to make your first payment to the Debt Arrangement Scheme administrator. You will then continue to make your payments monthly until all your debt is paid off.
Each year the Debt Arrangement Scheme advisor will contact you to look at your circumstances and discuss whether this is still the best debt solution for you. If your circumstances do change, it is important to tell them
Will I be charged a fee to join a Debt Arrangement Scheme?
Many organisations are charging for debt advice, so it is worth checking before getting involved.
Approved Debt Advisors working for councils or independent Advice Centres don’t charge the same fees. Find a list of approved wealth advisors on the AiB website.
Once your DPP application has been approved, 22% of your payment is taken as fees to cover the running costs.
This is to your benefit because if for example, you pay your creditors £200, your debt will decrease by £200. It is your creditor who will receive £156 and £44 will cover the fees. 2% of the fees are paid to the Accountant in Bankruptcy (AiB) and 20% is given to your payment distributor.
You Could Write Off Your Unaffordable Debt
Can I pay off my debt payment programme early?
Quite often a person’s finances may change over the course of the Debt Arrangement Scheme.
It is imperative that you contact your Debt Arrangement Scheme financial advisor as soon as possible so you can get guidance on what you should do if you receive a lump sum of money. Not revealing your change in financial circumstances could put your Debt Arrangement Scheme in jeopardy or face legal action.
If you do come into money or have an unexpected windfall during your Debt Arrangement Scheme, then it is possible to pay a lump sum payment, which would reduce the monthly payments of your debt payment programme. This is great news, as you could be on the road to a debt-free future!
What if I fail to pay my Debt Arrangement Scheme monthly payments?
Sometimes, life can take a turn for the worst. You may lose your job or need to take a break from work. This could have serious repercussions for your income.
If your income does decrease, then it is vital that you do not bury your head in the sand. Instead, contact your Debt Arrangement Scheme Administrator to explain your circumstances.
They can provide you with two options to alleviate your financial difficulty:
- Formal payment break – You could arrange up to six months breaks if you meet the specified criteria. A six-month payment holiday will only be allowed if you show that your disposable income has dropped by 50%. This payment break would then be added to your agreement’s end date. You can apply for two payment pauses within a 12-month period.
- Formal variation payments – You could apply for a variation, which would be a reduction of your payments until your financial circumstances change for the better.
How long does a Debt Arrangement Scheme last?
The Debt Arrangement Scheme has no fixed period. Your plan will last as long as you pay back the debt.
The term of the repayment depends on how much debt you have and how much you can afford to pay.
All interest fees and penalties that apply are frozen during a Debt Arrangement Scheme and are waived when you complete the scheme.
Debt Arrangement Scheme is a way of repaying your debt during a specified period of time. You won’t be threatened or pressured by creditors to repay more quickly.
Will the Debt Arrangement Scheme Affect my Credit Score?
Yes, it will. This is because your name is added to a public register called the Debt Arrangement Scheme register. You can access the register here. This information is also shared with credit reference agencies.
Can I obtain credit if I am on a Debt Arrangement Scheme?
The Debt Arrangement Scheme can affect your ability to get credit. As well as your name being added to a public register where lenders can check your details before they lend to you, you will also need to tell creditors that you are on Debt Arrangement Scheme if you want to borrow more than £2,000.
Will my credit file improve if I am on the Debt Arrangement Scheme?
Yes, your credit score can improve. Your account will still show as arrears through the Debt Payment Programme until the debt is paid.
However, after six months your account will go into default and they will disappear from your Credit Reference files. If your Debt Payment Programme is more than six years, this will mean that your credit score could improve.
When will my account go into default on my credit file?
When your account goes into default, the creditors will inform the credit reference agencies.
Depending on the company’s terms and conditions, some firms may report your three months of missing payments whilst others may report six months of missing payments.
Often people will contest the default date and suggest that it should be backdated to the date that the Debt Payment Programme was approved.
The default date is crucial as it would mean that any record of your Debt Payment Programme or the accounts you have defaulted on should be removed from your credit reference files six years after you entered the Debt Payment Programme (DPP).
Can I keep my name off the Debt Arrangement Scheme Register?
You can request not to enter your name on the register for any reason. If the Debt Arrangement Scheme Administrator thinks you are at risk of violence or it will endanger your welfare and security, then your name might be taken off the register.
When will my name be taken off the Debt Arrangement Scheme Register?
Completed Debt Payment Programmes will be deleted from the Debt Arrangement Scheme Register the day after they are completed.
Does my name stay on the Debt Arrangement Scheme register even after the Debt Payment Programme has been rejected?
It will be deleted from the Debt Arrangement Scheme Register on the 15th day of the following the decision being made.
What if my creditors are threatening enforcement action?
Your advisor can contact AiB and confirm that you intend to apply for a Debt Payment Programme. It is called a ‘moratorium’.
Your moratorium is then included on the Debt Arrangement Scheme Register. A few days after registration you will be protected against creditor actions or longer.
A creditor with a payment order already imposed would therefore continue, pending a hearing. Once your debt is approved, your earnings arrestment stops. When approved, you will be protected by creditor action for six weeks.
Get Debt Help
RMS Financial is committed to providing the best possible service to all those who need help with their finances. If you are struggling to make ends meet or perhaps have experienced a change in circumstances that have affected your ability to manage your finances, please contact us as soon as possible, we will complete a thorough, impartial examination of your situation and put you on the road to financial recovery.