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Differences between Sequestration & Debt Arrangement Scheme (DAS)

Reviewed 22nd April 2024

For Scottish residents there are three specific debt help solutions designed to get you out of the red and back into the black over a period of time. If you have large personal debts that you simply cannot afford to pay and creditors are chasing you for payment, it may be time to consider one of these solutions.

In this guide, we’ll discuss the differences between two of these solutions; the debt arrangement scheme (DAS) and sequestration (also known as bankruptcy). Each process has its similarities but also a number of key differences which we will shed more light on in order to bring clarity to your situation and potential options.

Although both processes allow you to regain freedom from crippling debt, the two are actually very different. A DAS is not a formal insolvency procedure; instead it is a structured Debt Payment Plan (DPP) which helps you pay your debts in a more affordable way. Your debt will not be written off, however, you will be given more time to pay back what you owe. Sequestration, on the other hand, is an insolvency procedure and therefore has much more serious consequences for you and your future.

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What is the difference for creditors?

Although sequestration and DAS share a number of similarities, they also have numerous differences which are important to recognise. A DAS is effectively a statutory repayment plan whereby you have come to a point where you need real help with the debts you can’t afford and want to put a structure in place to repay creditors, though these creditors are not forced to agree to it. If one or more creditors object to the Debt Payment Plan then the fair and reasonable test shall be applied by the Debt Arrangement Scheme (DAS) Administrator to decide whether to approve or reject the DPP. However, in sequestration, creditors have no choice but to adhere to its terms.

How are funds realised?

In sequestration the Trustee (the individual who is administering the bankruptcy) shall look to realise your share of equity in any assets owned by you, such as property, for the benefit of the creditors. In addition to this the Trustee may ask you to make a monthly payment towards the cost of your bankruptcy; again, this money will be portioned between your creditors. These contributions, known as a Debtor Contribution Order (DCO), will be taken from any disposable income you have. The amount will be calculated by adopting an approach which takes into account your essential living costs. You will be expected to make contributions for a period of 48 months should your finances allow.

In a DAS, a regular monthly payment to cover all unsecured debts will go to a Payment Distributor who will then distribute this amount to your creditors. It’s important to differentiate that a DAS allows you to repay your debt in full over a manageable period of time, whereas a sequestration will provide debt relief and discharge you from the debts (subject to certain exceptions) you have incurred after a period of one year unless you are subject to a DCO.

What is the duration of sequestration and a DAS?

You will typically be discharged from the obligations of sequestration after 12 months providing you comply with your Trustee. If you fail to comply, the Accountant in Bankruptcy can decide not to discharge you. A DAS can last for several years depending on the amount of debt you have and the amount you are able to repay on a monthly/weekly basis. A DAS will not usually be allowed to extend beyond 10 years. If you do not believe you would be able to clear your debts within this time then you may need to consider an alternative debt solution process such as sequestration or a trust deed.

If you have a Debt Payment Plan under the DAS an entry will be recorded in the DAS Register, which is a matter of public record. If you have been sequestrated there is an entry in the Register of Insolvencies, which again, is a public register.

What is the process and how do they differ?

In order to enter sequestration or DAS you must have sought advice from a Money Advisor or Insolvency Practitioner. The Money Advisor/Insolvency Practitioner will review your financial position and ascertain the most appropriate option for you.

With both a DAS and sequestration, the ultimate aim is to be financially stable and debt-free at the end of the term. With each solution, you will be required to repay your creditors through monthly repayments and/or through proceeds raised from the sale of assets depending on your individual circumstances.

A DAS will last until all debts are repaid. Entering into a DAS won’t affect your home or mortgage providing you keep up with your repayments. You can exclude all assets or choose to realise assets to make lump sum payments and thereby reduce the total term of the DAS.

In contrast to the regular monthly payments of a DAS, sequestration will see an insolvency practitioner realise your share of equity in any assets owned by you. You are not able to exclude any assets from the sequestration and these will automatically pass over to your Trustee. You may also be required to make an income contribution towards your debts should you have sufficient disposable income to do so.

How is your credit rating affected?

Both sequestration and a DAS will have an adverse effect on your credit rating which is unlikely to recover for at least six years after entering the procedure. This will make it difficult for you to access credit in the future, meaning a variety of things from a mortgage, down to a mobile phone contract, could be out of reach.

What you should remember, however, is that your credit rating is likely to be already affected by the time you get to the stage of considering a debt remedy solution. Any missed or late payments, or any payments made which are less than the contractual amount, will all damage your credit rating.

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