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OTHER DEBT SOLUTIONS

What is a Debt Arrangement Scheme?

A Debt Arrangement Scheme is a way of managing unaffordable personal debts. It has been made available to residents of Scotland by the Scottish Government. It provides you with debt and general financial advice and presents you with additional time to repay your debts. Unlike an informal debt management plan, the Debt Arrangement Scheme provides you (and therefore your home also) with legal protection from your unsecured creditors. This prevents them from taking legal recovery action against you. The DAS also stops further interest from being added to your debts.

What are the benefits of a Debt Arrangement Scheme?

  • You are protected from further legal action by your unsecured creditors.
  • Current diligences (like a wage arrestment) must stop being enforced.
  • Your creditors cannot bankrupt you.
  • Interest costs (and other penalty fees) will be stopped from the date of approval and fully waived when your Debt Arrangement Scheme is completed.
    Pressure from creditors will be lifted and you’ll have support from the DAS advisor.
  • Your home will be protected providing you keep up your DAS and mortgage/rent payments.
  • The Debt Arrangement Scheme has the flexibility to be amended if your circumstances change (for the better or the worse).

What are the potential drawbacks of a Debt Arrangement Scheme?

  • Your debts will usually need to be fully repaid. In some circumstances this can result in a longer repayment schedule than other debt solutions.
  • As with most debt solutions, your credit rating will be negatively affected by the Debt Arrangement Scheme.
  • DAS should be considered to be a “formal” debt solution.
  • Interest may be re-added to the debts if you fail to complete your DAS Scheme.
  • During your Debt Arrangement Scheme you cannot use further credit without receiving prior approval from the DAS Administrator or submitting a variation for essential credit.

What is Sequestration?

What are the benefits of Sequestration?

  • You will have an insolvency practitioner on your side.
  • You will be discharged after a year.
  • Creditor contact will stop pursuing you.

What are the potential drawbacks of sequestration?

  • Your credit rating will be affected.
  • Your employer may not allow you to enter into i.t
  • You will not be able to obtain credit until discharged.

Sequestration is a legal process which allows you to have your unsecured debt written off after a year. This process is best suited to those who cannot realistically pay off their debts in a reasonable timeframe. Payment needs to be made towards the debt, which could result in property or vehicles being sold to make payments for up to three years.Once sequestration has been agreed, creditors cannot make contact via any method of communication or take any further legal action against you. In order to apply for sequestration, permission needs to be granted by one or more of your lenders or they must have already started legal action against you. If this is not the case, you can also apply for bankruptcy through the MAP scheme if you are on a low income.

Who Qualifies for Sequestration?

You may apply if you:

  • Have unsecured debts of at least £1,500.
  • Are unable to repay your debts within a reasonable timescale.
  • Have the agreement of one or more of your lenders.
  • Are able to cover the £200 application fee.

Your acceptance will depend on the approval of the Accountant in Bankruptcy, (AiB), who may reject your application if they think another solution would better suit your needs.

What is an Individual voluntary arrangement?

An individual voluntary arrangement is a legal procedure for people in financial difficulty who have unsecured debts. It is a form of insolvency you must be unable to pay your debts to apply for an IVA and is only eligible for people living in England, wales and Northern Ireland.

You need an Insolvency Practitioner (IP) to arrange an individual voluntary arrangement. Your IP will assess your finances and send a proposal to all of your unsecured creditors. The IP will propose to your creditors that all your available income (after you have paid your household bills) will be used to make monthly payments to them through an IVA solution. These payments will take place over an agreed period, which is usually five or six years. Sometimes a lump sum may also be paid or a combined lump sum with a monthly payment. Once you have made all the agreed payments any remaining debt is then written off.

What are the benefits of an induvial voluntary arrangement?

  • Payments are based on your circumstances and what you can reasonably afford to pay.
  • All administration is dealt with by the Insolvency Practitioner.
  • At the end of an IVA, normally a period of 5 years the balance of the debts included I your IVA will be written off.
  • No legal action can be pursued once the IVA is accepted.

What are the potential drawbacks of an individual voluntary arrangement?

  • Once the IVA is accepted then it is legally binding for BOTH parties.
  • Failure to pay may result in future being taken.
  • You cannot take any form of credit without consulting the insolvency practitioner first.
  • Details of the IVA will be placed on the insolvency register.

What is an Individual Debt management plan?

A debt management plan is an informal arrangements and helps individuals or households manage their unsecured debt when they can’t afford their current monthly contractual payments. A debt management plan is usually arranged by a third party on your behalf. They then consolidate your debt payments into a new affordable payment and help you to deal with your creditors on a monthly basis.

What are the benefits of a debt management plan?

  • One affordable monthly payment.
  • Reduces calls and letters from your creditors.
  • Suitable for your unsecured debts.

 What are the potential drawbacks of a debt management plan?

  • Your credit rating will be affected.
  • Interest and charges can still be applied.
  • Creditors can still contact you while you are in a DMP.