Introduction
Dealing with debt can be a stressful and overwhelming experience, especially when you’re not sure where to turn for help. Fortunately, there are debt management tools available in Scotland that can help you get back on track and regain control of your finances.
The two most common debt management tools are Trust Deeds and Debt Arrangement Schemes (DAS), but what are the differences between the two? In this article, we’ll explore the key differences between Trust Deeds and DAS, and help you understand which debt solution option may be best for your individual circumstances.
It’s important to understand the differences between Trust Deeds and DAS, as choosing the wrong option can have significant consequences. For example, a Trust Deed may be suitable for someone with high levels of debt and assets, but it could put their home at risk if they are a homeowner.
On the other hand, a DAS may be more suitable for someone with lower levels of debt, but it may not offer the same level of protection from legal action as a Trust Deed. Understanding the differences between the two options can help you make an informed decision and choose the debt management tool that’s right for you.
So, whether you’re struggling with debt or simply want to know more about your options, read on to learn more about the differences between Trust Deeds and DAS. By the end of this article, you’ll have a better understanding of each option, as well as the pros and cons of each, and you’ll be better equipped to make an informed decision about which option is best for you.
What is a Trust Deed?
If you’re struggling with unmanageable debt in Scotland, you may have heard of a Trust Deed. A Trust Deed is a formal insolvency arrangement that allows an individual to make a legally binding agreement with their creditors to repay their debts over a fixed period of time.
To qualify for a Trust Deed, you typically need to have significant levels of debt, often a minimum debt level required of over £5,000, and some assets that can be used to repay your creditors. This could include your home, if you are a homeowner.
The Trust Deed is set up by a licensed insolvency practitioner, who acts as the Trustee, and is designed to help individuals who are struggling with unmanageable debts to repay what they owe to their creditors through a voluntary agreement. Once the Trust Deed is signed, the debtor is legally bound to make regular payments to the Trustee for the duration of the agreed repayment period.
In exchange for agreeing to the Trust Deed, the creditors agree to stop pursuing the debtor for the outstanding debts and to write off any remaining debt at the end of the repayment period. This means that the debtor can make a fresh start and begin to rebuild their financial future.
However, it’s important to note that a Trust Deed is not suitable for everyone. If you are a homeowner, for example, a Trust Deed could put your home at risk if you are unable to keep up with your payments. Additionally, a Trust Deed will have a negative impact on your credit rating for six years from the date it was granted, which could affect your ability to obtain credit in the future.
Overall, a Trust Deed may be suitable for people in Scotland who have significant levels of debt and assets, and who are able to make a substantial monthly payment towards their debts. However, it’s important to carefully consider your individual circumstances and seek advice from a money adviser before deciding whether to opt for a Trust Deed.
What is a debt arrangement scheme?
If you are struggling with debt in Scotland, a Debt Arrangement Scheme (DAS) may be a more suitable option for you than a Trust Deed. A DAS is a flexible debt management tool that allows individuals to repay their debts over a longer period of time, without the fear of legal action being taken against them by their creditors.
To qualify for a DAS, you typically need to have lower levels of debt, usually less than £10,000, and be able to make regular monthly payments towards your debts. The DAS is a statutory scheme that is administered by the Scottish Government, and it offers protection from interest and charges on the debts included in the scheme.
Once you have entered into a DAS, the DAS Administrator will help you to prepare a Debt Payment Programme (DPP), which outlines repayment plan, how much you will repay each month and for how long. This DPP is designed to be affordable and realistic, based on your income and essential living expenses.
When you enter into the DPP, interest and charges on your debts will be frozen, which means that the total amount you owe will not increase over time. You will make one regular payment to the DAS Administrator, who will distribute the funds to your creditors in accordance with your DPP. This means that you will no more owe money no longer need to deal with your creditors directly, as the DAS Administrator will manage all your debt payments on your behalf.
One of the advantages of the DAS is that it does not require the transfer of assets, such as your home, and therefore does not put your home at risk. Additionally, a DAS will have a less severe impact on your credit rating than a Trust Deed, as it is not a formal insolvency arrangement.
DAS offers protection from legal action and interest and charges, and allows individuals to repay their debts over a longer period of time. It’s important to seek advice from a money adviser to determine whether DAS is the right option for your individual circumstances.
Level of debt?
When deciding between a Trust Deed and a Debt Arrangement Scheme, the level of debt is an important factor to consider. A Trust Deed is typically suitable for people who have significant levels of debt, often over £5,000, while a DAS is more suitable for people with lower levels of debt, usually less than £10,000.
If you have a small amount of debt, a DAS may be a more appropriate option for you, as it allows you to repay your debts over a longer period of time without the risk of legal action being taken against you. Additionally, a DAS may offer more flexibility in terms of the length of time you have to repay your debts, as it is not a fixed-term agreement like a Trust Deed.
However, if you have significant levels of debt, a Trust Deed may be a more suitable option for you, as it allows you to make a legally binding agreement with your creditors to repay your debts over a fixed period of time. This can help you to take control of your debts and avoid further financial difficulties.
It’s important to note that while a Trust Deed is suitable for people with significant levels of debt, it may not be suitable for people who have assets, such as a home, that they want to protect. This is because a Trust Deed requires the transfer of assets to the Trustee, who will use them to pay off your debts. Additionally, a Trust Deed will have a more severe impact on your credit rating than a DAS.
Affordability
Affordability is an important factor to consider when deciding between a Trust Deed and a Debt Arrangement Scheme. Both options are designed to be affordable and realistic, based on your income and essential living expenses, but there are some key differences to be aware of.
A Trust Deed requires you to make a substantial monthly payment towards your debts, often in the region of £100-£200 per debt free month, depending on your individual circumstances. This payment is designed to be affordable, but it may require you to make some changes to your lifestyle and budget in order to make the payments.
On the other hand, a DAS is designed to be more flexible and to take into account changes in your circumstances. The monthly payment you make towards your debts will be based on what you can realistically afford, and the DAS Administrator will work with you to ensure that the payment is affordable and sustainable.
It’s important to note that if you are struggling to make your regular payments, a DAS may be able to help you to make more affordable payments and reduce your overall debt. Additionally, a DAS freezes interest and charges on your debts, which means that the total amount you owe will not increase over time.
Assets
Another important factor to consider when deciding between a Trust Deed and a Debt Arrangement Scheme is how each option handles assets, such as a home or car.
In a Trust Deed, the debtor is required to transfer assets to the Trustee, who will use them to pay off the debts. This means that if you own a home or a car, you may be required to sell them to repay your debts. This can be a significant risk, particularly if you have a lot of equity in your home or if your car is essential for work or family commitments.
On the other hand, a Debt Arrangement Scheme does not require the transfer of assets, which means that your home or car will not be at risk if you enter into a DAS. This can be an important consideration if you have assets that you want to protect.
It’s important to note, however, that if you have a lot of equity in your home, your creditors may still try to force the sale of your home in order to recover the debt. This is something that you should discuss with a money adviser before deciding which debt management tool is right for you.
It’s important to consider how each option handles assets, particularly if you own a home or car. It’s also important to seek advice from a money adviser to determine which option is best for your individual circumstances.
Legal Protection
Legal protection is an important consideration when deciding between a Trust Deed and a Debt Arrangement Scheme. Both options offer some level of protection from legal action, but there are some key differences to be aware of.
In a Trust Deed, once the agreement has been signed, your creditors are legally bound to stop pursuing you for the outstanding debts. This means that they cannot take legal action against you to recover the debt, which can offer you some peace of mind.
On the other hand, a Debt Arrangement Scheme does not offer the same level of legal protection as a Trust Deed. While your creditors cannot take legal action against you while you are in a DAS, they can still take legal action to recover the debt once the DAS has ended. This means that you may still be at risk of legal action in the future.
However, it’s important to note that a DAS does offer protection from interest and charges on your debts, which can help to reduce the overall amount total debt you owe. Additionally, a DAS is a flexible option that can be adjusted to suit changes in your circumstances.
When deciding between a Trust Deed and a DAS, it’s important to consider the level of legal protection each option offers, as well as other factors such as affordability and assets. It’s also important to seek advice from a money adviser to determine which option is best for your individual circumstances.
Credit Rating
Your credit rating is an important consideration when deciding between a Trust Deed and a Debt Arrangement Scheme. Both options will have a negative impact on your credit rating, but there are some differences to be aware of.
A Trust Deed is a formal insolvency arrangement, which means that it will have a severe impact on your credit rating for six years from the date it was granted. This can make it difficult to obtain credit in the future, as lenders will see you as a higher risk borrower.
On the other hand, a Debt Arrangement Scheme is not a formal insolvency arrangement, which means that it will have a less severe impact on your credit rating. However, it’s still important to note that entering into a DAS will be recorded on your credit file and may affect your ability to obtain credit in the future.
It’s also important to seek advice from a money adviser to determine which option is best for your individual circumstances. Remember, while your credit rating is important, your immediate priority should be to deal with your current debts and get back on track financially. Once you have done that, you can work on rebuilding your credit rating over time.
Length of Agreement
The length of the agreement is another important factor to consider when deciding between a Trust Deed and a Debt Arrangement Scheme. Both options have a fixed-term agreement, but there are some differences to be aware of.
In a Trust Deed, the length of the agreement is typically four years. This means that you will be required to make regular payments towards your debts for four years, after which any remaining debt will be written off. This can be a good option if you want to take control of your debts and repay them within a fixed timeframe.
On the other hand, a Debt Arrangement Scheme can last for as long as it takes to repay your debts. This means that the length of the agreement can vary depending on your individual circumstances. While this can be more flexible, it can also mean that you will be making payments towards your debts for a longer period of time.
It’s also important to consider the length of the agreement and what works best for your individual circumstances. If you want to repay your debts within a fixed timeframe, a Trust Deed may be a more suitable option. However, if you need more flexibility in terms of the length of time you have to repay your debts, a DAS may be a better option. It’s important to seek advice from a money adviser to determine which option is best for you.
Impact on Employment
Another important factor to consider when deciding between a Trust Deed and a Debt Arrangement Scheme is the impact each option may have on your employment.
Entering into a Trust Deed may affect your ability to work in certain industries, particularly those that require you to be financially sound, such as the finance. This is because a Trust Deed is a formal insolvency arrangement, which may be seen as a sign of financial irresponsibility.
On the other hand, entering into a Debt Arrangement Scheme is not a formal insolvency arrangement, which means that it may not have the same impact on your employment prospects. However, it’s important to note that any form of statutory debt management plan may be seen as a negative by potential employers, as it indicates that you have had financial difficulties in the past.
Deciding between a Trust Deed and a DAS, it’s important to consider the potential impact on your employment prospects. If you work in an industry that requires financial stability, a Trust Deed may not be the best option for you. However, it’s important to seek advice from a money adviser to determine which option is best for your individual circumstances.
Eligibility Criteria
The eligibility criteria for a Trust Deed and a Debt Arrangement Scheme are different, and it’s important to understand these criteria before deciding which option is best for you.
To be eligible for a Trust Deed, you must have at least £5,000 of unsecured debt and be able to make a monthly contribution towards your unsecured debts. You must also be able to demonstrate that you are insolvent, which means that you are unable to pay your as they fall due.
On the other hand, to be eligible for a Debt Arrangement Scheme, you must have one or more debts and be able to make regular monthly payments towards these debts. The level of debt that you have is not as important for a DAS as it is for a Trust Deed, and you do not need to demonstrate that you are insolvent to be eligible for a DAS.
When deciding between a Trust Deed and a DAS, it’s important to consider whether you meet the eligibility criteria for each option. If you have a significant amount of unsecured debt and are insolvent, a Trust Deed may be the best option for you. However, if you have lower levels of debt and are struggling to make your regular payments, a Debt Arrangement Scheme may be a better option. It’s important to seek advice from a money adviser to determine which option is best for your individual circumstances.
Conclusion
In conclusion, deciding between a Trust Deed and a Debt Arrangement Scheme is an important decision that should not be taken lightly. Both options have their own advantages and disadvantages, and it’s important to consider all the factors involved before making a decision.
When deciding between these two debt management tools, it’s important to consider your level of debt, affordability, assets, legal protection, credit rating, length of agreement, impact on employment, and eligibility criteria. By considering these factors, you can make an informed decision that is right for your individual circumstances.
It’s also important to seek advice from a money adviser who can help you to understand the pros and cons of each option and determine which one is best for you. A money adviser can also help you to prepare a budget and negotiate with your creditors to ensure that you get the best possible outcome.
Remember, there is no one-size-fits-all solution to debt problems, and what works for one person may not work for another. The key is to take action as soon as possible and seek help if you need it. With the right support and guidance, you can take control of your debts and get back on track financially.
