Debt Arrangement Scheme and Trust Deeds - what's the difference?

8 July2011

If you're a resident of Scotland and you're struggling with your debts, there are a range of solutions designed for people in your situation that could help; two of these are the Debt Arrangement Scheme (DAS) and Trust Deed.

What's the difference between these two debt solutions, though? And which one might be the more suitable solution for you?

We'll start by taking a look at the Debt Arrangement Scheme.

A Debt Arrangement Scheme is, in simple terms, a form of statutory debt management solution.

It's a type of repayment agreement between a borrower and their unsecured lenders in which they'll be able to repay their debts over a longer timeframe than they had originally agreed to.

DAS can help you repay your debts if you're really struggling. You would be protected against court action by your unsecured lenders, and the interest charged on your debts would be frozen.

On a DAS, you'll make monthly payments to an approved Payment Distributor, which will then be distributed amongst your lenders according to how much you owe each of them.

As with any debt solution, there are things you should keep in mind when thinking about a DAS.

For example, while you'll only have to pay what you can afford each month (after your essential costs have been covered), your credit rating will be affected, your details will be entered into the DAS register, and you generally won't be able to borrow any more money while the agreement is underway.

So, if you're a resident of Scotland, are carrying more than one debt, and have money left after covering your essential costs each month, a Debt Arrangement Scheme might be right for you.

Please note: you cannot apply for a Debt Arrangement Scheme if you've already signed a Protected Trust Deed.

Now we've covered DAS, we're going to look at a Trust Deed.

A Trust Deed is, like a DAS, an agreement between you and your unsecured lenders in which you'll be expected to repay as much of your debts as you can afford throughout the duration of the agreement.

A typical Trust Deed will last for three years. It will involve you signing your rights to your possessions to a trustee. Your trustee, who will be in charge of your Trust Deed, can sell your possessions to repay your lenders.

A Trust Deed won't be legally binding on all your lenders. However, it can become a Protected Trust Deed - which will be legally binding on all your unsecured lenders.

Your Trust Deed can become 'protected' if enough of your lenders agree to it.

They'll each be given five weeks to respond in writing to your trustee. If they don't respond within this time, they'll be treated as though they have accepted your terms. Once the five-week period draws to a close, your Trust Deed will be recorded in the Register of Insolvencies and will become a Protected Trust Deed.

As with a DAS, there are a few things you need to bear in mind when considering a Trust Deed.

For example, while a Trust Deed will affect your credit rating (affecting your ability to obtain credit), the unsecured debt you cannot afford to repay in the agreed time will be written off upon successful completion of the agreement.

Also, while you may be required to release equity from your home if you're a homeowner, you'll know exactly when you'll be debt free (providing you stick to the Trust Deed as you agree to).

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Tags: debt, debts, trust deed, scottish trust deed, insolvency, DAS, debt arrangement scheme, trustee, credit, credit rating

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