Differences between a Trust Deed and Debt Arrangement Scheme (DAS)

What are the differences between a Trust Deed and Debt Arrangement Scheme (DAS)?

If you’re struggling with large personal debts that are spiralling out of control, it’s crucial to recognise that there are a number of options available to you.

In Scotland, there are three main statutory debt help solutions available to those struggling with unmanageable loans, credit cards, and other costly debts.

One is bankruptcy (sequestration) which is typically only used for extreme cases of debt. The other two options are Trust Deeds and Debt Arrangement Schemes (DAS) and these are much more frequently used by individuals in debt.

Both Trust Deeds and Debt Arrangement Schemes have a number of similarities and differences but share a common goal in being designed to help Scottish residents repay their unsecured debts via a more manageable, hassle-free instalment plan over a set number of years until they are ultimately debt-free.

How is a Creditor Agreement made?

If your trustee or approved Money Advisor can show your creditors how you intend to repay them through a structured and manageable process, it’s likely they will agree to you entering into a trust deed or debt arrangement scheme also known as Debt Payment Plan. Your Trust Deed can become 'protected' if enough of your creditors agree to it. If more than half of your creditors in number or those accounting for one third or more of your debt do not agree to the terms of the trust deed, it will not become protected. In a Debt Payment Plan (DPP) if one or more creditors object to the proposal the fair and reasonable test shall be applied by the Debt Arrangement Scheme (DAS) Administrator to decide whether to approve or reject the DPP.

What is the duration for both schemes?

This is where we see the first major difference between a trust deed and a debt arrangement scheme. A trust deed procedure normally lasts for four years – this was increased from three years in November 2013. It is designed for people who will struggle to repay all their debts but in this four-year period, they are expected to repay as much as they can realistically afford plus realise any equity in any assets they own. After this time any remaining unsecured debt will be written off, providing the agreement has been honoured throughout. In contrast, a debt arrangement scheme will last until all debts are repaid however there is no requirement to realise your assets in a debt arrangement scheme.

How does this affect your home?

By entering into a debt arrangement scheme, this won’t affect your home or mortgage providing you keep up with your repayments. In a trust deed, however, it's likely that you'll have to release some equity from your home but only in rare cases would you be expected sell it. In some instances you can exclude your home from your trust deed if your secured creditors grant their permission for you to do so. However, the rest of your creditors will have the chance to object to this proposal when asked to agree to the protection of your trust deed.

Is there a minimum debt level?

There is no minimum debt level required to enter a Debt Arrangement Scheme. You must however owe a minimum of £5,000 to access a Trust Deed.

How will this impact credit rating?

Unsurprisingly, both solutions will have an adverse affect on your credit rating and this damage is likely to stay on your file for six years.