Similar to the washing powder ads of a similar name - a new and improved version of the above scheme came into effect in Scotland in July 2011. The scheme is unique to Scotland and has been in operation since 2004. There was much fanfare in 2004 and we advised lenders on what steps to put in place in the event of receiving such applications.
There had been anticipated at that time that a great number of Scottish debtors would apply to take part in this scheme. This did not materialise and many lenders may even have forgotten of the existence of such schemes.
The problem under the old scheme was that the debtor had to have access to a Government approved money adviser. This limited access to the scheme in obtaining the appropriate advice. The scheme can now be accessed through insolvency practitioners. Since this has been introduced there has been an increase of 30% in applications to the scheme. It is therefore appropriate for lenders to review their processes particularly in the case of those borrowers that have mortgage arrears as well as other debts.
Who Can Apply
The debtor can apply for a Debt Payment Programme under the Debt Arrangement Scheme (DAS) if they have one or more debts and are having difficulty keeping up with their payments. They require to have sufficient income to meet normal outgoings and a payment to arrears. The payments to the creditors will be split in relation to the size of debts.
There may be a fee applied to accounts when a scheme is approved and a payment disruptor is appointed they will be entitled to charge a fee for the distribution of the funds. The administration fee must be no more than 8% of the sum due to be paid to a creditor.
Can A Creditor Object To The Scheme
The creditors have just 21 days to respond to the payment plan offer. Even if a creditor objects, the plan may still go ahead. The majority will go ahead unless it is clear the debtor cannot pay and really should be sequestrated or the borrower has a lot of land or property assets that should be liquidated to pay the creditors.
Mortgage arrears are covered by the DAS but the debtor must still be able to meet their regular monthly mortgage payment. The debtor cannot include their normal monthly mortgage payment in the debt payment plan. If the borrower falls behind with regular payments the lender can progress repossession proceedings. If there is an agreement set up which includes the arrears then the CMI will continue unaffected but the arrears will be frozen at the point the DAS agreement is established.
So interest cannot continue to accrue on the arrears when they become part of the agreement.
Consequences Of Das
Once approved every month the borrower makes one single payment to a payment distributor who takes over and pays out to the creditor. If a borrower is participating in the scheme the creditors cannot seek an earnings arrestment or bankrupt the borrower.
What Should Lenders Do
In many ways our advice in 2004 still stands. These schemes are similar to IVAs and your IVA personnel would be best suited to dealing with such applications. If such an application is received your team must be aware of time limits and if objecting specify fully either that income insufficient and bankruptcy best route or requiring liquidation of assets. If scheme is approved the appropriate details should be entered on the borrowers account so no enforcement action is taken whilst scheme is being adhered to.
Myra Scott, Partner, IM Insurance Lending & Recoveries Team, Scotland
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