The Scottish Debt Arrangement Scheme was created in 2004 by the Debt Arrangement and Attachment (Scotland) Act 2002 and for the first time created a formal non-insolvency solution for debtors with multiple debts.
In simple terms it allows debtors to repay their debts, without the threat of enforcement action from their creditors or them being made bankrupt. It also allows them to repay their debts by making one single payment each month, whilst freezing all interest and charges
The process for applying for the scheme is simple. They must first speak with an approved money adviser who will work with them to draw up an outline of their income and expenditure. Once the debtor’s essentials have been worked out, the money adviser then works with the debtor to decide if they can still maintain their minimum contractual payments each month. If they can’t the scheme may be suitable for them.
An application is then made to the Debt Arrangement Scheme Administrator, a Scottish Government officer and creditors are notified of the repayment plan that is being proposed and how long it is anticipated it will last before the debts are repaid in full. The creditors then get three weeks to agree or object to the plan. Where none of them object, the plan is automatically approved. If a creditor doesn’t apply within the three weeks they are deemed to have consented.
Where a creditor does object the Debt Arrangement Scheme Administrator then applies a fair and reasonable test to decide if the plan should be approved or not.
In making that decision she examines a number of factors including, the level of the debts, whether there has been previous plans and how long the plan will take to complete. Normally where the plan will take less than 5 years it’s automatically approved, where it will take between 5-10 years it will depend on the circumstances and where it will last longer than 10 years it will usually be rejected.
The average Debt Payment Plan under the Debt Arrangement Scheme on average lasts just over 7 years.
Once a plan is approved the debtor receives full protection from their creditors. If their circumstances subsequently change, they can vary the plan to increase or reduce the amount they are paying, although when they do the fair and reasonable test is reapplied. If their income drops by more than 50% they can apply for a payment break that will last up to 6 months until they are able to return to work.