What is the Debt Arrangement Scheme (DAS) in Scotland?

The Debt Arrangement Scheme (DAS) in Scotland has increased in popularity in recent years. Iain Penman of Brodies LLP explains why a DAS might be an option for those with debt problems.

Debt Arrangement Scheme DAS Scotland Bankruptcy

What is the Debt Arrangement Scheme (DAS)?

The Debt Arrangement Scheme, or DAS, as it is usually known, was brought into existence by the Debt Arrangement and Attachment (Scotland) Act 2002, with the scheme coming into force from 2004. DAS is administered by the Accountant in Bankruptcy (the AiB), the Scottish equivalent of the Official Receiver, and is a statutory debt management scheme.

Its key features are:

  • it allows debtors to reschedule their debts over an extended period
  • it prevents creditors from taking enforcement action against a debtor
  • it freezes interest, fees and charges on your debt, from the date of application, with these being waived on repayment of the principal sums

How does a Debt Arrangement Scheme (DAS) work?

To use a DAS a debtor must first seek assistance from a government-approved money advisor (MA) to apply for a Debt Payment Programme (DPP) under the auspices of DAS. From there, the following occurs:

  1. The MA will review the debtor's finances and offer advice on whether a DPP is the appropriate way to help them.
  2. Once the debtor has decided to enter a DPP, its MA will put together a list of the debtor's creditors and write to them seeking details of money owed. The creditors must then confirm the level of debt owed, following which a formal DPP application is submitted for creditors to approve or reject. If creditors don’t respond within 21 days to the DPP proposal, it is assumed that they have accepted.
  3. If creditors reject the DPP, then the debtor is entitled to ask the AiB to conduct a "fair and reasonable" test to determine whether the debtor should be approved for entry into the scheme.
  4. If the debtor's circumstances change once the DPP is running, it can be altered - to reflect a change in income, for example. If a debtor doesn’t comply with the terms of the DPP, it can be revoked and creditors would again be entitled to take legal action against the debtor. They can also add on all interest fees, penalties and charges which would have been payable had the DPP never existed.
  5. In certain circumstances, it is possible for a debtor to make an offer of composition after the majority of the DPP has been completed and fixed amounts of the debt have been repaid. However, it is normal for a debtor under DAS to repay the full sums due to their creditors (less the expenses of the scheme).
  6. Once the DPP is complete, the debtor is released from all their obligations in relation to the debts and is fully discharged.

When might a Debt Arrangement Scheme (DAS) be an option for you?

To apply for DAS, there are specific pre-conditions that must be met. The debtor must:

  • be habitually resident in Scotland
  • seek the advice and assistance of a DAS-approved money advisor (MA)
  • have a reasonable level of income available to them after meeting their basic needs

You cannot apply for a DAS if:

  • you are already in a Trust Deed
  • you are bankrupt
  • your application relates to only one debt

Couples who are jointly liable for debts and living as spouses or civil partners, or co-habiting can also apply for a Joint Payment Programme together.

Unusually and perhaps uniquely to Scotland, it is possible for a business to apply for a DAS but only if it is a partnership trust or unincorporated body. The restrictions on business DAS are much greater and these can only run for a period of up to five years.

What are the advantages of the Debt Arrangement Scheme (DAS)?

There are many advantages of using a DAS in Scotland. These include:

  • It allows individuals who can repay their debts to do so by restructuring them over a manageable period. 
  • It protects debtors from enforcement action by creditors and their debts do not increase due to charges and interest.
  • It is not insolvency and does not put a debtor's assets at risk. 
  • DAS has flexibility, with debtors able to vary their payments or apply for payment breaks if an emergency arises or their position changes.
  • Once the DPP is complete, the debtor’s debts are paid in full.

What are the disadvantages of the Debt Arrangement Scheme (DAS)?

However, using a DAS is not without its disadvantages. They can include:

  • As the DPP is a restructuring of debts, it has an impact on your credit rating.
  • Failure to keep up payments on the DPP, or allowing it to fail, can mean that the debts are moved out of the scheme, allowing creditors to add interest and charges. They can take further action against the debtor, usually seeking bankruptcy.
  • There is a potentially significant psychological impact on the debtor should the DPP continue for a long period of time. There may be an argument that alternative solutions, like Trust Deeds or bankruptcy, would allow individuals to make a fresh start more quickly.

How much does the Debt Arrangement Scheme (DAS) cost?

Unless the debtor opts for a Money Advisor, entering a DPP is free. The debtor pays no additional charges to the AiB or their creditors because of entering a DPP.

The scheme expenses are recovered from the payments made by the debtor towards their creditors. The creditors cover the cost, with a small reduction in the total sum they recover. If a debtor completes their DPP, creditors receive no less than 78 per cent of the debt owed to them.

What are the alternatives to the Debt Arrangement Scheme (DAS)?

  • Sequestration

Sequestration is the Scottish term for bankruptcy, with the two used interchangeably in Scottish Law. To bankrupt themselves, an individual must owe more than £1,500 and seek money advice in the same way required for a DPP.

As might be expected, sequestration has significant consequences, excluding you from certain forms of employment and from being a company director. It also has a significant impact on your credit rating.

It is important to note that, unlike a DPP, sequestration means your assets, including your home, can be taken by your creditors to satisfy your debts.

  • Protected Trust Deed

A Trust Deed is a uniquely Scottish arrangement, like sequestration, but is a voluntary arrangement between the debtor and their creditors. They make payment of a reduced sum in satisfaction of their full debts over a specific period.

Trust Deeds can be expensive and are usually only of interest to individuals who cannot afford to repay all their debts under a DPP but cannot enter sequestration for reasons of their employment. Trust Deeds run for a four-year period and, depending on the circumstances of the debtor, may or may not include their property if they are a home owner.

Has the Debt Arrangement Scheme (DAS) been successful in Scotland?

Overall, the DAS scheme has been applied successfully in Scotland, with significant sums being repaid to creditors, where it might not otherwise have been the case. The lessons and popularity of the scheme appear to have had a positive influence in England and Wales too, where the new "Breathing Space" scheme and associated statutory debt repayment plan are set to be implemented in 2021, providing those with debts with temporary relief from interest, fees and charges.

About the author

Iain Penman is a Senior Associate at Brodies LLP. Iain has almost 20 years’ experience of practising as a litigator and resolving disputes. Over the last 12 years, Iain has focused on developing his specialism in restructuring and insolvency disputes.

See also

Gratuitous alienations, good faith and adequate consideration under the Insolvency Act 1986

What you need to know about protected trust deeds in Scotland

Find out more

Debt Arrangement and Attachment (Scotland) Act 2002 (Legislation)

Accountant in Bankruptcy (AiB)

Breathing space scheme (GOV.uk)

Image: Getty Images

Publication date: 31 March 2020