When you’re struggling with debt and looking for ways to get back to a level you’re comfortable with – you may be contemplating what informal and formal debt repayment plans are available to consider, and have seen companies offering a debt management plan.
A Trust Deed in Scotland is a way of managing debts and becoming debt free in as little as 4 years, with interest and charges frozen and then the unaffordable debts are written off at the end.
However, another other formal solution exists in Scotland known as the Debt Arrangement Scheme, which isn’t available as an equivalent in the rest of the UK. yet.
Therefore, when debt advice companies offer a debt management plan as a way of managing debts, they may not know the nuances of Scottish debt help solutions particularly well and may not be able to offer DAS as a solution to you.
When weighing up a Trust Deed vs DAS, vs Sequestration or Minimal Asset Process, against each other – There are advantages and disadvantages, or risks and benefits to each that need to be assessed and understood in order to make a balanced and informed decision on what solution is best for the individual.
However, when weighing up the Debt Arrangement Scheme vs Debt Management Plan, the advantages are overwhelmingly tipped in the favour of the Debt Arrangement Scheme.
The Debt Arrangement Scheme is an official, government-backed scheme that helps people with a regular income and who are in debt, to repay what they owe over a longer period of time. An approved money advisor works with you to formulate a Debt Payment Programme (DPP) and this is presented to your creditors for approval.
On the other hand, a Debt Management Plan is arranged and administered by either the individual themself, or a representative of a debt advisory organisation, and is an informal arrangement with creditors to repay the debt in full.
Its informal nature introduces a range of issues that could ultimately result in an unsatisfactory, prolonged experience.
A Debt Management Plan has no fixed end-point, and therefore, in theory, could continue for many years without conclusion. Your creditors may decide to add interest and other charges to the amount owed at any point during the arrangement, leaving you at risk of exposure to a seemingly endless period of debt repayments.
The Debt Arrangement Scheme locks the payment arrangement into place, which not only gives you the benefit of having an end-date in sight, but also means the creditors can’t move the goalposts on their agreement and all of a sudden demand more money, or payment in full.
Freezing internet and charges
If you enter into a Debt Management Plan, you’ll find that most of your creditors would agree to freeze the interest, but they are not forced to do so by law. In practical terms, they could decide to continue to applying interest and charges on their debt at any time, and some may even do so from the start.
When you apply for the Debt Arrangement Scheme and your plan has been approved – interest and charges are legally frozen and upon completion of your debt payment programme, these interest and charges are officially removed.
Protection from creditors legal action
In practical terms, it’s never typically in your creditor’s interest to take legal action against you to recover monies from you. However, when you’re in a Debt Management Plan, this is still an avenue that they are open to pursuing. As long as you comply with the terms and condition of the Debt Arrangement Scheme, you are legally protected from your creditors.
Reduced creditors contact
A creditor chasing payment over their debt can become a nuisance and it is always in their own best interest to chase you for as much payment as possible. In a Debt Management Plan, repayment is determined based on pro-rata amounts. Therefore if you owed the creditor £1,000, but the overall debt was £10,000 then that creditor would receive a pro-rata repayment of 10%.
However, this isn’t guaranteed and every creditor has a different interpretation on what you spend your money on and whether that’s acceptable to them.
With a formal Debt Payment Programme locked in, your creditors are bound by its terms and therefore communication from them will reduce as a result.
Built-in protection mechanisms
When you’re in a Debt Management Plan, you may experience an unexpected change in your circumstances. Redundancy, family bereavement and long term illness are all potential ways that an individual can experience a drop in their income which can trigger creditor communication or legal action.
The Debt Arrangement Scheme has the flexibility to legally arrange renegotiation of the original terms or a payment break of up to six months.
Debt Management Plan vs. Trust Deeds
The only solutions open to you in Scotland aren’t exclusively a case of Debt Management Plan vs. Debt Arrangement Scheme.
There are both merits and downsides to alternative solutions including Sequestration and Protected Trust Deeds which makes it important that you seek expert advice which will, in turn, lead to you understanding how each of the solutions works and how they are likely to impact you.
The Trust Deed lasts for a period of 4 years typically, after which can debt is written off upon completion and you can find out more about how do Trust Deeds works.
If you would like to learn more about Trust Deeds, you can contact Trust Deed Scotland® on 0141 221 0999. Find out if you would qualify for a Trust Deed by using our unique Trust Deed Wizard® tool online.