Can I keep PPI compensation if I’m in a Debt Arrangement Scheme?

The Payment Protection Insurance scandal of recent years has led to hundreds of thousands of people making claims for compensation relating to financial products they were mis-sold. PPI compensation can be a lifeline when you’re in debt, but what happens if you’ve entered into a Debt Arrangement Scheme (DAS)?

If you’ve received compensation following a claim for PPI, you may be wondering whether you’re entitled to keep the money or if you need to pay it over to the creditors included in your debt payment programme (DPP).

The Debt Arrangement Scheme and PPI claims

The Debt Arrangement Scheme allows you to pay off all your debts at an affordable rate. Charges and interest are frozen, and then written off at the end of the agreement as long as you’ve met all the terms.

Flexibility is built in to the scheme so that if your circumstances change and you can’t keep up repayments, monthly amounts can be varied or you can take a short payment break. The same principle applies if your financial situation improves, and you receive a windfall payment such as PPI compensation.

Some companies have paid a huge price financially for mis-selling PPI, so your compensation could be a significant amount. Whatever the sum, you should declare it to your DAS Administrator as it could affect the level of payments you make. Alternatively, you may be able to reduce your overall debt by paying it into your payment plan.

Considerations for PPI compensation and DAS

Have you claimed against one of your DAS creditors?

Banks and other financial institutions have the right of ‘set-off’ when they’re owed money by customers. This means if your bank is included in the debt payment programme as a creditor, and they’re also the subject of the PPI claim, they can allocate the compensation against your debt to reduce or clear it.

Might you receive the compensation directly?

It’s possible the compensation payment will be sent directly to you if it doesn’t involve a creditor in the debt payment programme. If this happens, it may still be a good idea to make a lump sum payment to your DPP, in which case you would need to contact the Administrator. Doing this could considerably reduce your DAS term, or even repay your debts in full.

Full and final settlement

If you receive the compensation directly it may be worthwhile obtaining a full and final settlement figure from your creditors, if you think the amount of compensation would be sufficient to pay it. Your money adviser can help you with this.

If you would like more information on PPI compensation and the Debt Arrangement Scheme, our experts at Scotland Debt Solutions can provide independent professional advice. We specialise in helping Scottish residents to escape debt, and operate from five offices around Scotland. Please call one of the team to arrange a free same-day meeting.