Debt Arrangement Scheme
The Debt Arrangement Scheme is a Scottish Government Scheme which allows debtors to repay their debt in an organised and dignified manner. It is the only formal debt remedy in Scotland that is provided for by legislation and is regulated by a Senior Civil Servant, known as the Debt Arrangement Scheme Administrator. The Debt Arrangement Scheme Administrator does not herself provide access to the Debt Arrangement Scheme, but oversees the operation of the Scheme and regulates who can and cannot provide access to the Scheme or act as payment distributors under the Scheme. The official Debt Arrangement Scheme site can be accessed here.
Who is the Debt Arrangement Scheme suitable for?
The Debt Arrangement Scheme is suitable for debtors who live in Scotland and cannot pay their monthly payments to their debts. It is not the only formal solution available to debtors, there are others such as protected trust deeds and formal bankruptcy, which is also known as sequestration. The Debt Arrangement Scheme, however, is for people who are in a position to repay their debts within a reasonable time, normally less than 10 years although in certain circumstances, longer can be allowed. It is also ideal for debtors who may have assets that could be placed at risk were they to become insolvent, such as home owners or people with cars with a market value greater than £3,000.
How does the Debt Arrangement Scheme work?
To apply for the Debt Arrangement Scheme you must apply to the Debt Arrangement Scheme Administrator and notify your creditors of your proposals to repay your debts. This is done by first seeking the advice of an approved money adviser or insolvency practitioner. They assist you by helping you work out what you can afford to pay then making the proposals to your creditors on your behalf. Your creditors, who are the people you owe money to, then get three weeks to consider your proposals. If creditors don’t respond in those three weeks they are considered to have agreed to your plans. Where none of your creditors respond they are all treated as if they agreed and your Debt Arrangement Scheme is approved. The only exception to this rule is where you only have one debt. Where any of them object, it is for the Debt Arrangement Scheme Administrator to decide whether your plan is fair and reasonable. If she believes it is, your plan is approved.
What are the benefits of the Debt Arrangement Scheme?
The key benefits of the Debt Arrangement Scheme are that it freezes all interest on your debts from when you apply and you are also protected from creditors continuing to harass you or taking legal enforcement action using sheriff officers. This means you don’t need to worry about wage arrestments or action being taken to attach your goods to pay your debts. Your creditors are also not allowed to just change their mind later and decide the plan has to be reviewed or you have to start paying more. You, therefore, have the certainty of knowing your plan is safe providing you continue to maintain your payments to it.
What happens if you cannot maintain your payments?
If you lose your job or even just suffer a drop in income, you may struggle to maintain your payments to the Debt Arrangement Scheme. If you do nothing about this when it happens your Debt Arrangement Scheme could be revoked and you may have all the interest and charges you should have been paying reapplied to your debt. There is a solution to this, however. First where you can still afford to pay something, you could apply for a variation to reduce the amount you are paying each month; or you could ask for a payment break where you are not able to maintain your payments. Payment breaks are allowed for up to 6 months where you can show your disposable income each month has dropped by more than 50% – this does not mean your total income has to have dropped by 50%, only that which you can afford to pay towards your debts.
What are the alternatives to the Debt Arrangement Scheme?
There are alternatives to the Debt Arrangement Scheme, such as Protected Trust Deeds or bankruptcy, which is also known as sequestration. To decide what is the best option for you, its best to obtain “best advice” first before you choose any option.