08 Sep 2011

Debt Arrangement Scheme (Scotland) Regulations 2011

Debt Arrangement Scheme (Scotland) Regulations 2011

Kirsty Allen, Solicitor, looks at he impact of the the recently introduced Debt Arrangement Scheme (Scotland) Regulations 2011.

Kirsty Allen, Solicitor, looks at the impact of the the recently introduced Debt Arrangement Scheme (Scotland) Regulations 2011.

The new Debt Arrangement Scheme (Scotland) Regulations 2011 came into force on 1st July 2011.

The Debt Arrangement Scheme (DAS) is unique to Scotland and has been operating since 2004. DAS differs from the Statutory bankruptcy procedure as it is a more informal scheme administered by the Accountant in bankruptcy (AiB) that helps borrowers pay back money owed to lenders over an extended period of time.

Debt Payment Programmes (DPPs) approved under DAS allow borrowers to repay their debts in full and can last for any reasonable length of time depending on the value of debt due and the amount of disposable income the borrowers have.

Once in place, a DPP will ensure that lenders receive regular payments from the borrower. A DPP freezes interest and charges, and also prevents lenders from taking action, e.g. raising court proceedings.

Key Changes to the DAS Scheme as a result of the Regulations:

  • Increased access to money Advisors. There will no longer be a ‘postcode lottery’ as more individuals can now be approved to offer DAS, ensuring that people across Scotland can benefit from the Scheme; 
  • The administrative burden is removed from the free money advice sector (such as Citizen Advice bureaus). The AiB will now act as the DAS Administrator and will take on responsibility for ongoing administration; 
  • People with single debts can now apply in contrast to the old regulations where the borrower had to have several; debts can be anything from mortgage arrears to credit card bills; 
  • Couples who have joint debts can now apply for a joint DPP which will reduce the administrative burden on the process and can include shared debts as well as individual debts; 
  • There is now a panel of 4 ‘approved firms’ who have been approved as Payments Distributors: Begbies Traynor, Carrington Dean, mLm and Wilson Andrews. They will be responsible for collecting and distributing payments to lenders and can charge up to 8% of the total distribution; 
  • There is no longer an up-front application fee. Instead a 2% fee will be collected from each DPP to cover the costs associated with delivery of the scheme; and 
  • A new web-based case management system will be created (known as the Debt Arrangement Scheme Hub (DASH)) which will give lenders details on specific DPPs. 

How do the changes affect lenders?

A borrower can apply for a DAS if they are in mortgage arrears. However a DPP programme will only be considered suitable if regular mortgage payments are continually paid. Due to the fact that only the arrears are covered by the DAS, if regular mortgage payments are not made lenders can still raise an action in court to repossess a property.

The current economic climate has resulted in the number of DPPs applied for since they were introduced increasing considerably. In the financial year 2004/5 only one DPP was applied for. This increased to over fourteen hundred in the financial year 2009/10.

It is now more important than ever that lenders are aware of the newly revised Debt Arrangement Scheme as the uptake of the scheme will only increase with time and appears to be the Scottish Government’s preferred way for those who have become overwhelmed by their financial obligations to address them.

Kirsty Allen, Solicitor

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