Mortgage Debt Relief

March 23, 2015

You may be able to obtain relief from mortgage debt if you are eligible to apply for the Debt Arrangement Scheme (DAS). This is only open to people living in Scotland who have received money advice from a DAS Approved Advisor.

Your approved advisor will review your financial situation, taking into account all assets, debt and income, and let you know if the Debt Arrangement Scheme is right for you. Once this has been decided, the advisor will put together a Debt Payment Program (DPP), speak to creditors on your behalf including your mortgage lender, and obtain their agreement to the Program before proceeding.

Inclusion of mortgage arrears in a DPP
When the Debt Arrangement Scheme (Scotland) Regulations were first introduced in 2011, debt incurred on a secured loan could not be included. An amendment to the legislation in 2013 relaxed the rules a little, however, by allowing mortgage arrears to be added into the Program.

This alleviated a great deal of stress for worried property owners, but it is worth remembering that you need to make sure your current mortgage repayments are made in full and on time, as the threat of repossession remains despite the Payment Program.

If you were to get behind on your regular repayments, the lender can still go to court to request a repossession order, and you could still lose your home. Only the arrears included in the DPP are protected from creditor action.

How does the Debt Arrangement Scheme work?
Once the Debt Payment Program has been agreed by your creditors, you will make a single monthly payment to a designated Payment Distributor who ensures that each creditor receives the correct amount as agreed in the Program.

There is no specific time limit for a DPP as everyone’s circumstances are different, but once all debts contained in the Program have been repaid, you are released from the agreement. None of the debts are written off; you simply pay what you owe over a longer period of time and without additional interest and charges.

Disadvantages of DAS
The main downside is the negative effect it has on your credit rating. A DPP stays on your credit file for a period of six years, and will impact on your ability to obtain credit. In fact for the duration of the DPP you will be barred from obtaining any further credit.

Additionally, your DPP will appear on the online DAS Register which may be accessed free of charge by members of the public. The fact that their financial situation is no longer a private matter can be upsetting for some people.

Mortgage debt relief as part of a DPP
As long as mortgage payments are maintained alongside payments to your Debt Payment Program, being able to include mortgage arrears in your DPP may help to protect your home. It takes away some of the stress associated with secured debts as your mortgage lender would need to convince the courts that it is reasonable to repossess your property, even when you have taken responsibility for your debts via the Debt Arrangement Scheme.

Obtaining relief from mortgage debt via the Debt Arrangement Scheme offers a breathing space for debtors worried about their home, but if payments to the DPP are not made in full, this can cause the Program to be revoked. Failure to make three payments on time is a serious issue that can lead to further creditor action against you.

There is some flexibility built in to the scheme, however, with payment breaks of up to six months being available. If your income has decreased by more than half, you may be able to apply for a payment break of between one and six months, which will be organised by your Approved Advisor.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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