Weighing up the pros and cons of Debt Arrangement Scheme

Debt Arrangement Scheme has been referred to as the simplest and most flexible debt solution available, all debt management tools have their pros and cons, despite how great some of them may appear to be. What’s right for someone else may not be right for you, so its important you consider the pros and cons in context with your own personal and financial circumstances.

Advantages:

You gain time to pay

Debt Arrangement Scheme gives you as long as you reasonably need to pay off all of your debts. A Debt Payment Plan (DPP) can run from 3 to 8 years, although with very large debts sometimes up to 15 years will be accepted by the Debt Arrangement Scheme administrator. 

You pay only what you can afford

Any surplus money left over once you have created a workable budget is split between your creditors. Each will receive less than you were originally contracted to pay, but many creditors are receptive to this - a DPP means you have committed to paying them back all of what you have borrowed.

The Debt Arrangement Scheme protects you from enforcement action

Once a DPP is approved by a Debt Arrangement Scheme administrator, your creditors cannot take action to sequester you or obtain earnings arrestment or property attachment.  Any action that is going through the courts will stop, unless you are already subject to a bankruptcy restrictions order (including an interim order) or bound by a bankruptcy restrictions undertaking. In these cases, you will not be approved by the Debt Arrangement Scheme administrator and the action will go ahead.

Your debts will not increase

Interest and penalties are frozen on your DPP until you complete it and at the end of the DPP they are waived. No matter what creditors say, as long as you keep up with your payments they will not be able to increase your debt.

You do not deal with your creditors

Your money adviser handles all of the negotiations of your DPP, dealing with the stress and hassle of unpleasant creditors so you don’t have to. Once approved, a payments distributor arranges the payments, so at no time during the course of your DPP should you come into contact with a creditor.

You do not declare yourself insolvent

Some debt management solutions are a risky proposition if you are worried about sequestration. If a debt management solution – like a Trust Deed - fails for whatever reason, your creditors could move straight away to have you sequestered because a Trust Deed is an admission of insolvency. With Debt Arrangement Scheme, you are simply setting up a payment plan and that is all. There is no admission of insolvency at all.

Your assets are generally not included

Most of the time you do not have to hand over your assets to be sold to release money to creditors. There are some exceptions to this. Assets are regarded by Debt Arrangement Scheme administrators as either essential or non-essential. Having a car is essential for you to get to work, but it doesn’t have to be a very expensive car. If you own a valuable car outright, they may require you to buy a less expensive model to release some money to creditors. However, that is a decision that the Debt Arrangement Scheme administrator may or may not make.

You learn financial management skills

Sticking to a budget and living within your means, living without depending on credit all the time, is a skill that many people have not mastered, but it is something you will be able to do with the help of a money adviser. Once you are debt-free, the skills you have learnt will help you build a much brighter future for yourself and your family.

Disadvantages

You must go through a money adviser

Individuals cannot make an application for a DPP because it is important to have unbiased financial advice before going ahead with any financial product. The Scottish Government has set up the Debt Arrangement Scheme this way to ensure you understand the commitment you are taking on and receive debt counseling tailored to your circumstances.

You must pay a fee to the payments distributor

There are fees involved with the administration of your DPP. Your money adviser may or may not charge for their services, but a payment distributor will always charge. As they shield you from creditors and take away all the hassle of dealing with them, it is only to be expected they will make a charge. To ensure the maximum amount gets to your creditors, their fees are capped at a maximum level of 10% of the payments you make.

You must have more than one debt

Only multiple debts are eligible for inclusion in Debt Arrangement Scheme so unfortunately, even if you have a very large single debt, you will not be eligible to apply. However, having more than one debt with the same creditor would be classed as having multiple debts.

You must be a permanent resident in Scotland

Only Scottish residents can register on Debt Arrangement Scheme. Your money adviser would probably consider you a resident if you live full time in Scotland and have a permanent job, as the Debt Arrangement Scheme rules do not specify how long you must have lived in Scotland to be classed as a permanent resident.  If you moved permanently to Scotland a few weeks before or are working on a temporary contract, you may find the Debt Arrangement Scheme administrator would not consider you eligible to apply.

You can only make one application a year

Unfortunately, you can only apply for Debt Arrangement Scheme once every 12 months, so if your application is rejected you will have to wait. This is to stop people abusing Debt Arrangement Scheme to simply delay court proceedings, rather than being serious about getting out of debt.

You will be on the scheme until your debt are paid off

In contrast to some debt management solutions where you could take a payment holiday, payments cannot be stopped without the express permission of the Debt Arrangement Scheme administrator. If you miss payments, your DPP may be revoked.

Your credit rating will be affected

Because you will be paying your creditors less than you were originally contracted to do, you will have broken the terms of your original agreement with your creditors and be in default. This will show up on your credit record for a few years. However, unlike those debt management solutions associated with insolvency, the Debt Arrangement Scheme scheme is not regarded in such a serious way and your credit is likely to recover quickly once your debts are paid off.

For more information about the pros and cons of the Debt Arrangement Scheme and to set your application in motion, call to speak to in confidence to one of our Debt Arrangement Scheme consultants free on 0800 043 2027 who will talk you through your options and point you in the right direction. Alternatively use our free call back service here.