Scotland: Debt Arrangement Scheme

Wednesday 10 January 2024

Debt Arrangement Scheme (DAS) – applies Scotland only

The Debt Arrangement Scheme is a statutory debt solution for residents of Scotland who, after making essential payments, have enough surplus income to repay all their debts, but who need to do so over an extended period of time. In exchange for agreeing to freeze interest, fees and charges, as well as not pursuing legal action, the credit union should  received a minimum of 78% of the original debt back though the scheme (for cases approved prior to 4 November 2019, the figure is 90%)

As a credit union, when you are dealing with a member who is in financial difficulty, a DAS would generally be preferable to other solutions such as Trust Deeds, given the higher rate of return. Below we have summarised how DAS works, and any issues you should be aware of. Please note that these rules apply only to cases from 1 April 2015 –  there may be some differences for existing DAS cases that started before then. Please contact ABCUL if you have any questions about cases prior to this.

The DAS Administrator is the Accountant in Bankruptcy (AiB), and no court application is required. All DAS cases require a Debt Payment Plan (DPP), which sets out how much is paid to creditors (those who are owed money, such as credit unions), and over what timeframe. As the administrator, the AiB supervises DPPs, administers DPPs, revokes DPPs, and can approve money advisers and payments distributors.

The relevant legislation can be accessed here.

The Moratorium

Before an application for a DAS Debt Payment Plan (DPP) is made to the AiB, it is likely that a moratorium will be requested by the individual (debtor). The AiB will enter all moratoria granted on the Register of Insolvencies and the DAS Register, and it will last for 6 week from the date this appears. During the moratorium period, the credit union cannot enforce any diligence (recovery action) against the member (debtor), with the following exceptions:

  • Auction an article which has been attached in accordance with the Debt Arrangement and Attachment (Scotland) Act 2002 (asp 17) where: notice has been given to the debtor under section 27(4) of that Act, or the article has been removed, or notice of removal has been given, under section 53 of that Act
  • Implement a decree of forthcoming
  • Implement a decree or order for sale of a ship (or a share of it) or cargo
  • Execute an earnings arrestment, a current maintenance arrestment or a conjoined arrestment order which came into effect before the day on which the moratorium period in relation to the person begins.

We would therefore advise that, before progressing with any recovering action against a member who is in arrears, you check the Register of Insolvencies and the DAS Register, to ensure that the money is not wasted. Both registers are free to use.

Should the member go on to make an application for a DPP (within the 6 week moratorium period) all interest, fees, penalties and other charges on debts included in the programme are ‘frozen’ from the date of application. If the DPP application is approved all interest, fees and charges will be written off when the Programme is completed. If the DPP application is rejected, or the Programme is approved but not completed, then all interest, fees and charges can be added back on and the debts can subsequently be enforced by the credit union.

Only one moratorium is permitted for any individual within any 12 month period (unless it was a joint DPP with a partner, and the relationship ends).

If an application for a DPP is received by the AiB within the 6 week period, the moratorium protection is extended until a decision is made, or the application is withdrawn.  During this time, the DAS Register will be amended to show ‘A  programme that is yet to be approved’.This is for DPP proposals awaiting feedback from creditors on whether they will consent to the proposal, or where a decision by the DAS Administrator is required.

If no application is made during the moratorium period, as a creditor you can resume diligence after the 6 weeks expires.

If a DPP application is made

If the member wishes to proceed with an application for a DAS DPP, their money adviser will contact you (accompanied by a signed mandate authorising them to act on the debtor’s behalf) to ascertain what outstanding debt the debtor has, and for confirmation of this. If the money adviser does not provide you with a mandate, you should ask to see it.  If they refuse to provide you with a mandate you should contact the AiB.

In responding, you will be asked to provide or confirm:

  • The principal debt.
  • The amount you originally lent to the debtor.
  • The original term of the debt.
  • The contractual payments.
  • The payments that the debtor contracted to pay.
  • The balance outstanding.
  • The amount the debtor still owes you.
  • The amount of arrears.
  • The amount that the debtor has missed paying you.
  • Any charges that may be incurred, for example, penalty charges on missed payments (These charges must have been stated in the original agreement).
  • Details of any existing payment protection.
  • You must also notify them of any liability where you have security against a co-obligant of the debtor.

At this stage, neither you nor the debtor are committed to a DPP.  The money adviser and debtor are still exploring their options.

If a DPP is identified as the best option for the debtor then the DAS approved money adviser will prepare and submit on behalf of the debtor an application for approval, which sets out  setting out how much they can afford every month, and how long they will therefore take to repay their debts. You should then be asked to give formal consent to the plan. The request to consent to a DPP proposal will normally be sent to you via EDEN, if you are registered, or by mail.  The request to consent is designed to give you all the information you need to make a decision to accept or reject the proposal.

It should clearly state on the form:

  • The debtor’s details (name, address, postcode and date of birth).
  • The total amount the debtor owes to you.
  • The % of the total debt owed that will be repaid by the debtor after the fees have been deducted (net amount of debt).
  • Sort codes, account numbers and reference numbers (if known).
  • The amount you will receive in each instalment.
  • The frequency of the proposed payments to you.
  • The proposed length of the DPP.
  • Any lump sum payments or realisation of assets.

When deciding whether to give consent, it is worth being aware of some of the rules of the DAS scheme:

  • The DPP must be calculated according to the Common Financial Tool (summarized below). However, the advisor can propose to exclude some of the surplus income from the plan. As a creditor, you have to make a judgement in whether you feel the proposal is reasonable.
  • DAS applies only to debtors habitually resident in Scotland. Credit unions based elsewhere must comply with DAS rules when it involves a Scottish member.
  • Individuals considering a DAS must have obtained advice from a AiB approved money advisor prior to applying.
  • The DPPs can last any ‘reasonable’ length of time (the average is around 8 years), can include one or more debts, and can be in the name of either a single debtor or held jointly by two.
  • Up to 22% of payments made can be used to cover the admin costs (2% to the AiB, and up to 20% to the payments distributer and money adviser).
  • As from November 2019, it is no longer allowable for the debtor to be paying advice fees upfront.
  • An individual in receipt of benefits may apply, but must have available surplus to make payments.

(A continuing liability is defined in the regulations as those sums which are deducted from income when calculating the surplus remaining available for distribution amongst creditors to pay debts (for example, rent, utilities, council tax).  These are not included in a DPP.  However, arrears of these payments can be included in the DPP.  The document attached to this page sets out more guidance on continuing liabilities.)

In general, we would encourage credit unions to be mindful of the fact that DAS is a preferable debt solution for creditors (given the minimum of 78% return) – if they opt for a Protected Trust Deed instead, the situation is far worse for creditors (usually between 10-20% return). Though it is up to the credit union to make a judgement on whether you have a better chance of recovery through another means, we hope you will be mindful if the possibility that they might also opt for a far less generous option when considering consent. The feeling from the AiB (who make the final decision on whether to accept the DPP) is that any debtor who has opted for a DAS has given a clear signal that they want to repay all their debts, and so are unlikely to take into consideration relatively minor objections from creditors. The full list of what they take into account when conducting a fair and reasonable test is attached to this page.

We have become aware that many of the DPP proposals sent to credit unions are lacking information and so, if you feel that the proposal you are sent is not comprehensive enough to make an informed decision, please do contact the money adviser handling the case to highlight this.

If a DPP application is made

The DPP should be calculated according to the Common Financial Tool– in Scotland the same tool must be used to ensure consistency across all debt solutions. The current tool is the Common Financial Statement.

DAS application must include a statement of income and expenditure (I&E) in the style and format of the Common Financial Tool. The ‘Form 1 Appendix for Section 5’, which includes the required information on income and expenditure will be available in the ‘Documents’ section of DASH (for those who use it), and will be attached to any DPP proposal sent by post. As of 29 October 2018, the legislation allows for the advisor to exclude some of the debtor’s surplus income from the repayment plan.

Your response

You are required to respond to the request within 21 days from the date of the request. If you do not respond to the proposal within 21 days you will be deemed to have consented to the terms of the DPP.  Responses can be made either in writing, or via DASH.  The 21 days starts from the date of posting or electronic transmission to you.

There are 3 possible responses you can make:

  • Consent – Where you respond within 21 days and agree.
  • Deemed consent –  Where you do not respond within 21 days.  In this case, you are deemed to have agreed to the proposal, unless the DPP is only for a single debt, where it will be treated as if you have not consented.
  • Non consent – Where you reply within the 21 days and do not agree with the proposal.  We would encourage you, in your response, to explain why you do not support the proposal, as your comments will be considered by the AiB when making a final decision on the case.

Where consent is granted

At the end of the 21 days, if all the creditors consent (or are deemed to have consented), the AiB will approve the DPP regardless of the amount of the debt or the length of the proposed programme.  The DAS register will be updated to show ‘An approved programme’. The date of approval will take effect from midnight of the day before the day the notice appears in the register. All interest, fees, penalties or other charges are frozen from then until the DPP is completed or revoked. From the date of approval you cannot undertake any enforcement action against the member, and you cannot petition for their sequestration.

At this point any existing arrestment against earnings or property will be recalled. The AiB will send a notice of recall to each employer or party with possession of funds or property arrestment.  Earnings or property in the hands of a third party shall be released. The AiB will also notify the clerk of the court that any conjoined arrestment orders, time to pay directions, time to pay or time orders – this will in effect recall all those orders.  Therefore, if you are receiving any monies as a result of a direction or order, these payments will stop as the debt should be being paid through the DPP.

As a creditor, if the DPP has been approved, you must comply with it, and make no attempt to persuade the debtor to withdraw, or make additional payments. You must stop at automated communications that are sent as part of your usual recovery processes.

The collected payments are then distributed to you and the other creditors on a pro-rata basis, depending on the amount of debt due to each.

Where consent is not granted:  

Where creditors representing more than 10% of the total debt have not consented (or where the DPP is for a single debt and the creditor has not responded within the 21 day period), the AiB must approve the DPP proposal if it is deemed ‘fair and reasonable’. The AiB will consider all the creditors’ responses and whether it is appropriate to approve the DPP. There is more information on the ‘fair and reasonable’ test in the document attached to this page. If one or more creditors object, but they collectively do not represent more than 10% of the total debt owed, the AiB will automatically approve it, without applying a ‘fair and reasonable’ test.

If it is still not approved after this further consideration, protection from for the individual from creditor diligence will cease from the date the AiB updates the DAS register to reflect the fact that the application has been rejected.  At this time your credit union can consider whether further enforcement action to recover debts is appropriate.  The terms and conditions under which the debt was originally provided continue to apply. The DAS register will be amended to show ‘Application rejected’.

The debtor still has the right to request a review and, if this happens, the AiB must carry out the review within 28 days of the date the application for review is received.  The debtor is not protected from enforcement action during this period.

Please note that, as of 4 November 2019, the AiB requires that all creditors confirm the final debt owed within 120 days of a DAS being approved. If there is good reason that you were not able to do this, the AiB are able to waive the requirement at its discretion.

eDEN

The AiB have set up the eDEN system, which is an online facility to allow all parties to share information about the case electronically. The AiB encourages all creditors to make use of it, although it is not compulsory at the moment.

If you want to find out more about using eDEN, please contact: eDENenquiries@aib.gov.uk. More guidance is available here. 

Payments

Under a DPP the debtor commits to making a regular payment to a payments distributor, either the AiB  or a firm contracted by the AiB, to allow their outstanding debts to be repaid. The payments distributor will contact you to arrange how that money will be credited to you. The payments distributor makes payments on a pro-rata basis to each of the creditors for the agreed period of the DPP.

Fees for the application and distribution of repayments will be deducted by the payments distributor before each installment is paid to you.

Lending to those in an existing DAS DPP

As of 29 October 2018, the rules changed to allow those within a DAS DPP to access additional credit. If you receive a loan application from someone within a DAS, the rules state that: debtors within a DAS can access up to £2000 of additional credit without requiring permission. This only applies when the debtor does not have additional debt over £1000. Of course, they would need to also have surplus income after their repayments to be able to repay the loan.

Variations

The average Debt Payment Plan lasts for around 8 years. During that time it is typical that variations may be applied for, to adapt to changes in the debtors circumstances. As a creditor, you are also entitled to apply for a variation. Variations can be made to:

  • The amount of the payments
  • The frequency of the payments.
  • The length of the DPP.
  • A new condition may be attached.

The AiB will decide whether the DPP can be varied.  As a creditor, you can apply for a variation to a member’s DPP to the AiB using a Form 4. Before applying, you should have made an attempt to agree the variation with the debtor.

The AiB have produced a list of the reasons you may apply for a variation – no application is allowable for any other reason. These are:

  • Where a debtor agrees with all the creditors that the programme should be varied.
  • Where a debtor and a creditor agree that the debt is no longer owed.
  • Where the DPP was approved prior to 1 July 2007 and the debtor wishes to apply for the freezing of interest, fees and penalties on their debts.
  • Where there has been a material change of circumstances, including a change in income.
  • When a debt due at the approval of the programme was omitted from the DPP or wrongly assessed for the DPP because it was overlooked, or someone made an error.
  • Where a future debt, which was not quantifiable when the DPP was approved, becomes due for payment.  For example, a debt that wasn’t due for some months.
  • Where a contingent debt, which was not quantifiable when the DPP was approved, becomes due for payment.
  • Where the debtor has an emergency and needs credit to meet an essential requirement (more than £2000).
  • Where a debtor wishes to defer payments for a period of up to 6 months, as there has been a reduction in their disposable income of 50% or more.  This is a ‘payment break’ and can only apply under certain circumstances. The period of the DPP is extended for an equal period.

You should note that, if a payment break is granted, you cannot contact the debtor during this period. There is no limit to the number of payment breaks which may be given. If an application for a payment break is made by the debtor, or another creditor, you will be notified of this, and you may comment on it. The final decision will be made by the AiB.

Crisis Payment Breaks

As of 4 November 2019, money advisers have the power to apply an crisis payment break on behalf of their clients. This equates to one month’s payment. It is up to the judgement of the money adviser as to what circumstances they would consider to be a  crisis. Once the break is initiated, it does not need the approval of either the AiB or the creditors (though they do need to inform both). There can be no more than two payment breaks per rolling year, and the missed payment must be added on to the end of the plan, to ensure there is no overall loss to creditors as a result.

Revocation (withdrawal of the Debt Payment Plan)

There are a number of circumstances in which the DPP is revoked, and the individual is withdrawn from the programme. This will happen automatically when the individual is awarded bankruptcy, has a Trust Deed protected, or dies.  The debtor will be removed from the DAS Register, and you will be informed.   You can at that point apply any interest, fees and charges to the debt, and carry out any recovery within the original terms of the loan.

Outside these circumstances, as a creditor, you can also apply to have a DPP revoked, for the following reasons:

  • If a debtor fails to satisfy a standard or discretionary condition without good cause. (information on conditions attached to this page)
  • If a debtor makes a statement in their application which they know to be untrue.
  • The debtor has missed the equivalent of payments due over a 2-monthly period and a further payment is due.
  • In the case of a joint DPP, where the parties no longer qualify to be part of a joint DPP

If you disagree with a revocation, you can submit a request to the AiB for a review of their decision to revoke the DPP. If unsuccessful, you can also appeal to the sheriff, on a point of law, against the determination of the AiB to revoke the DPP.

When a joint DPP is revoked because the two individuals are no longer eligible (usually because their relationship has ended), you cannot take enforcement action for a period of 6 weeks following the date of revocation. This is to give both individuals the opportunity to seek advice on their options without recovery action being taken against them. This does not apply to other DPPs when revoked. Where the debtor applies for a DPP in their own name within 21 days of the revocation of the joint DPP, you cannot apply any interest, fees or charges to the debt.  Beyond this, it is within your discretion. These rules also apply in the event of the death of one of the debtors.

Completion of a DPP

A DPP reaches completion at the end of the agreed period.  This will be when the debtor makes all the payments as agreed, or has made a lump sum payment equal to the sum of all outstanding payments.  Completion of the DPP will be at the time specified when the DPP was first approved, or if it has been varied, at the most recent variation.

The debt in the DPP will have been paid in full, minus the fees paid the DAS Administrator or payments distributor. You should have received 90% of the amount you were originally owed.

The payments distributor will write to notify you that the DPP has completed.  If you have any enquiries about this, or if you do not believe the debt has been fully paid, you should contact the AiB. Upon completion of the DPP, the debtor cannot be held liable for any further payments towards debt(s), or any interest or charges which would have accrued after the date of it being enforced.

The Accountant in Bankruptcy or the money advisor, with consent of the debtor, can make an offer of composition to each creditor in the DPP after 12 years from the approval of the DPP and where 70% of the total debt due in DPP has been paid. A creditor who accepts the offer agrees that liability of the debtor to repay that debt is discharged. A creditor who does not respond to the offer within 21 days is deemed to have accepted the offer. If all creditors agree, the DPP comes to an end.

Reviews & Appeals

If you wish to ask the Accountant in Bankruptcy to review a decision to approve, reject, vary or revoke a DPP, you can to so within 14 days of the decision being made. The AiB will complete their review within 28 days.

Appeals can be made, on a point of law, to the sheriff.   All appeals to the sheriff must be made within 14 days of the DAS Administrator’s review decision. Any appeal will be recorded on the DAS register. You may wish to take legal advice before considering making an appeal.  All appeals to the sheriff must be made by summary application. The decision of the sheriff is final.

Accountant in Bankruptcy (‘the DAS Administrator’)

The contact details for the AiB are:

DAS Administrator

Accountant in Bankruptcy

1 Pennyburn Road

Kilwinning

Ayrshire

Scotland

KA13 6SA

Phone: 0300 200 2770

Fax 0300 200 2920

E: das@aib.gsi.gov.uk

You can read there regular newsletter on DAS on their website.

Advice for members in financial difficulty

If a member of your credit union approaches you to discuss their options for managing their debts, we would encourage any credit union to work with them to find a solution – informal agreements are likely to be beneficial to both the credit union and the individual.

Below are some sources of free confidential advice, should you need to refer anyone (though you will of course be more familiar with local sources of information, depending on where you operate):

If one of your members is considering a Debt Arrangement Scheme, they must go to a money adviser approved by the AiB.  Information on how find one is available here:  https://www.aib.gov.uk/debt-arrangement-scheme

Business DAS

Credit unions may also be affected by Business DAS cases, although the feedback we’ve had from members suggests there are very few. The AiB have published guidance on their website. If you have any questions, please feel free to contact us on the details below.

If you would like to discuss any of this, or if you would like to highlight any worrying trends you are seeing, please contact your Member Relationship Manager by emailing them directly, on info@abcul.org or by dialing  0161 832 3694.

Further guidance is available for the DAS on the ABCUL Member Resource Library here.

​