Ian is an expert in the Debt Arrangement Scheme and Business Debt Arrangement Scheme, assisting individuals, sole traders and partnerships.
He also advises on personal debt solutions recommending the best option to resolve problem debt issues.
Debt Arrangement Scheme Advantages & Disadvantages
Like everything in life, there are positives and negatives to entering a Debt Arrangement Scheme (DAS) to solve your debt issues.
This is a quick overview of some of the principal ones. You will have to weigh these up carefully for yourself, before taking appropriate expert advice.
Debt Arrangement Scheme Advantages
You are not insolvent
Debt management solutions such as bankruptcy and a trust deed are both classed as formal insolvency procedures. While it may feel embarrassing or depressing to have to go through this, and you may feel there is a social stigma attached, it can be a positive way of dealing with your debts if it suits your circumstances.
However, it can still be difficult to feel upbeat and positive in such a situation, even with the support of an experienced money adviser, family and friends.
Of course, some people don’t want their friends and family to know about a bankruptcy, but this can prove more difficult to conceal if you are involved with court proceedings.
Declaring yourself insolvent is stressful in other ways too. It means that your assets are effectively transferred on paper to your Trustee, who will review and realise any value in the assets.
The good thing about a Debt Arrangement Scheme is that you avoid all of this, compared to the risks that can come with a trust deed. If your trust deed does not become protected, meaning that creditors have to freeze interest and charges and cannot take further action, your trustee would look to convert the trust deed into a bankruptcy.
In a Debt Arrangement Scheme, once approved, you are protected from any further action by creditors. That does not mean of course that you don’t have to adhere to your debt payment plan, which is an integral part of your Debt Arrangement Scheme, but the plan is just that - a payment plan. It’s also one that can be varied under the terms of your DAS if your circumstances change.
Your assets are generally not included
Being in a DAS protects your assets. These are things you’ve worked hard for – and they would be some of the first things that a Trustee would look to realise under other debt solutions involving insolvency.
However, if you have some really expensive assets (such as private car collection for example!) then you may wish to sell them to reduce the payment term. Most people aren’t of course in this situation, they typically have a modest car and a house.
Again, one further point to note is that, if you are in a DAS, you will not be asked to release any equity in your property either as a way of paying back part of your debt.
You don’t have to deal with your creditors
Being in a DAS protects you from your creditors. It is your money adviser who steps into the ring to deal with them. Any communication from your creditors can be passed to them to deal with.
This can be a huge weight off your mind: it can be demoralising to have countless phone calls from the same creditor, often from different parts of an organisation, and to have to deal with these at home or even at work.
As well as the communication side of things, your money adviser will also work out your debt payment programme with you and negotiate with all your creditors on your behalf.
You get a longer payment term
By being in a DAS, it means that you have longer to pay your debts off. Affordable payments are calculated against your income and living expenses so that you can budget your finances and to ensure that your debt payment programme is sustainable.
You avoid paying interest and charges
From the moment your DAS proposals are submitted, your creditors must stop charging interest and penalties. These were often the very things that made your debts even more pressing in the past.
Now you can reduce your debts free from the burden of any interest and charges, which are frozen and written off entirely at the end of your debt payment programme (DPP). You simply make one single payment to a payment distributor under the terms of your DAS.
This payment may be much lower than the combined payments that you were making before you applied for your DAS, again easing the pressure on you and your family. Critically, under your DAS arrangement, you will be reducing real debt rather than simply servicing interest and charges.
A DAS is flexible
The good thing about a DAS is that it is flexible. You are able to increase your payments to pay off the DAS earlier; you might get a sudden windfall that allows you to do that, or your salary could increase as a result of a promotion or a move elsewhere.
If things don’t go so well for you, it is also possible to reduce your payments or to take a payment holiday within a given period, again working through a money adviser.
Debt Arrangement Scheme Disadvantages
You really need to get it right!
This is a key consideration. You need to make an application that is acceptable to your creditors. It’s about weighing up carefully just what you can afford (to make it sustainable). This is where your money adviser comes in; they bring experience and judgement to bear here.
An experienced money adviser will have a better understanding of what is likely to be accepted. Whilst only one moratorium, which provides six weeks breathing space to stop creditor action, per year can be submitted, you can submit as many DAS application as you like.
However, it is preferable to get the information submitted right first time as in any subsequent applications a change in circumstances may have to be noted to justify why a further application is being submitted.
Incidentally, you should remember that if you have a joint debt with a partner, then you are potentially liable for the entire debt if the creditor cannot recover part of the debt from your partner (i.e. they are unable to pay).
It’s vital to make sure that there are no other debts that have not been added to your DAS application. However, if a debt is in existence at the time a DAS is set up and is missed it can be added. But making an omission in your application may cause some serious problems down the line, particularly if it is a large debt which has been omitted, which will potentially increase the term to an unacceptable level.
A DAS affects your credit rating
When you took out your original loans and agreements, you agreed to pay back your debts according to the terms of your creditors. Being in a DAS means that you have broken the terms of the original agreements, albeit you are agreeing to pay back the sums on the terms stated in your DAS application and the resultant debt payment programme (DPP).
In reality though, you will almost certainly not want to take on further debts while you are paying back your existing ones. If you do require further credit while in a DAS, for an emergency situation, individual debtors are now allowed to access further credit up to a limit of £2000 (except where the debtor has existing debts outside the DPP of £1000 or more.)
If in certain circumstances you require credit in excess of £2,000, you will need to seek approval from the Accountant in Bankruptcy (AiB) as DAS administrator. You will get the opportunity to repair your credit record once your DAS has been paid off.
The Debt Arrangement Scheme can be accessed only through a money adviser
Your application needs to be drawn up by a money adviser as you cannot make an application yourself. They will also ensure that you are completely clear about the obligations that come with a DAS.
The application has to be based on your circumstances, provided by entirely unbiased advice from your money adviser, who is regulated by the FCA. Under these guidelines, your adviser will help structure it to maximise the best chance of it being accepted.
However, if creditors object to an application, it’s ultimately the decision of the Accountant in Bankruptcy as DAS Administrator, as to whether or not it is accepted, and they will carry out a fair and reasonable test to determine this.
It’s a long-term commitment
Having a DAS means that you really have to be sure of your income and budget accordingly. Missing a payment or payments could mean that your debt payment plan is revoked, which would then give creditors the chance to pursue you through the courts – the very thing that you will have wanted to avoid in the first place.
This is not to say, however, that you cannot take a brief payment holiday (for a period of up to 6 months within a given period) if your circumstances change. But such breaks are limited and the outstanding payment(s) are added on to extend your DAS beyond the original time limit.
Your DAS can involve fees
Setting up a DAS may involve some expense. You need access to expert advice around the DAS itself (to confirm that it is it the right thing for you and your circumstances) and structuring your offer as part of your DPP. Further fees are incurred by the management of your DPP; this involves distributing your payments and managing your DAS – some money advisers also act as payment distributors.
If you are accessing DAS through a private sector money adviser There are no set-up or ongoing administration fees payable as all applicable fees are paid from in-gathered funds.
You can also apply for a DAS through a free sector money adviser such as your local Citizens Advice Bureau or local authority money advice team.
Although money advisers may or may not charge for their services, a payment distributor and AiB always charge for their services. These vary depending on the organisation; however they are paid for by the creditors in your DAS.
You have to pay the full amount
Unlike other ways of dealing with debt, a DAS involves you paying back your debts in full. Creditors may be more inclined to agree to them for this reason: they know that they are going to get their money back and that you are committing to regular payments as set out in your debt payment plan.
With other debt solutions such as a trust deed, you still make regular payments over a period of time. This is generally around 4 years, but, after the trust deed has run its duration, any remaining debt is simply written off. This does not happen with a DAS: you have to pay the full amount.
However, unlike a trust deed, your assets do not fall under the jurisdiction of a Trustee. In a protected trust deed, all your assets are signed over to the Trustee who administers the trust deed for you. The protection means that creditors are prevented from taking further action against you, pursuing you for the debt or making you bankrupt. In a DAS, you retain control over all of your assets.
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About the author
Ian Brown