Debt Arrangement Scheme 2019 changes
The new Debt Arrangement Scheme (DAS) 2019 Amendment Regulations will come into force on November 4th, 2019. Find out the main changes and how they might affect you.
These new regulations have several changes, including:
- The removal of all up-front and ongoing costs so that those struggling with debt have free access to DAS
- Revised fee-charging arrangements
- Emergency Payment Breaks so clients can cope with unexpected expenses
- Streamlined decision-making processes to allow faster applications.
Private Management Fees abolished
Before the 2019 regulations, debtors who applied for a DAS via a private fee-charging service would be subject to paying an additional fee for their continuing money adviser on top of their ongoing DAS payments.
Meaning those accessing DAS via a private debt management firm or insolvency practitioner were paying more for their debts.
For example, Mr J Bloggs, who entered the DAS via a fee-charging firm, was paying £150 per month for his DAS payments.
However, only £100 was going towards clearing his £5,000 debts and £50 per month paid in fees to the firm.
Meaning Mr Bloggs would take 4.2 years to clear the debt. Over this period, the firm would have earned £2,500 for the administration of the DAS plan.
After November 4th 2019, private debt management firms and insolvency practitioners are no longer able to charge a fee to the debtor for accessing the scheme. The debtor will pay back enough in their periodic payments to cover their total debts and nothing more.
For example, Mrs J Doe, who enters the DAS after November 4th, 2019 via a fee-charging firm is paying £150 per month for her DAS payments towards clearing her £5,000 debts.
Meaning Mrs Doe, who is paying the same as Mr Bloggs, will remove her debts in just 2.7 years as the full amount paid is going towards her DAS.
However, this will not be applied retrospectively to cases. Therefore, those DAS plans previously set up before November 4th, 2019, will continue to pay such charges if necessary.
The only way in which a debtor can avoid paying these fees is to revoke by stop paying their DAS. Unfortunately, this could lead to their creditors, adding on the interest and charges which was frozen at the date of the DAS application and increasing the debtor’s total outstanding debt.
Another improvement to the DAS is the streamlining of automatic approval for proposals.
Before the new regulations, any objections were subject to the Fair and Reasonable test - 96% of all applications where the objecting creditor owed less than 10% of the total debt owed, were approved as Fair and Reasonable.
After November 4th, 2019, only objections where the creditor is owed more than 10% of total debts will go to Fair & Reasonable test which is administered by the DAS Administrator who decides whether to approve the proposal.
Under this streamlining process, those who are subject to the Fair & Reasonable test will have their case reviewed more quickly.
Another streamlined process regarding automatic approval is for variations in which the debtor proposes to reduce the term of the DAS programme such as increasing payments to their DAS.
Therefore, instead of waiting for creditor approval, the proposal will be automatically approved by the DAS administrator to allow debtors to pay at the proposed increased amount immediately.
After November 4th, 2019, debtors experiencing an unexpected crisis while repaying their debts under a DAS programme will be able to request two payment breaks per year. Each payment break mustn’t be for more than one month and can be applied instantaneously.
Previously, debtors could apply for a Variation for a Payment Holiday if the debtor required reprieve from their DAS payments. However, the application process was slow, and for many debtors, the crisis had passed by the time the DAS Administrator approved the variation.
In these new regulations, a money adviser can approve the payment break and ensure the deferral of payments for a month is instantly applied.
The criteria for the short-term payment break allows the money adviser to apply their judgement if satisfied that the debtor has experienced or is experiencing a short-term financial crisis.
If the deferment is likely to take longer than a month and the debtor requires a longer payment holiday, the money adviser can apply for a variation using the long process which is subject to DAS Administrator approval.
Changes to Fee Structure
The last change doesn’t impact on debtors but will change the DAS culture across the sector.
At present, under DAS a debtor repays 100% of the total debt balance and creditors receive 90% of this payment.
The remaining 10% is split between the Payment Distributor and Account in Bankruptcy’s DAS Administrator. Payment Distributors can charge up to 8% of the total debt balance as fees, and the DAS Administrator receives 2%.
For example, Mr J Bloggs is repaying his debt of £5,000 via his DAS programme.
For the duration of the DAS, his creditors will receive £4,500 and the remaining £500 will be split, with £400 paid to the Payment Distributors and £100 to the DAS Administrator.
Under the new regulations, Payment Distributors can charge an administration fee, inclusive of VAT, of 20% of the total debt owed. Meaning creditors under the DAS may only receive 78% of the debt owed, an overall reduction of 12%.
For example, under the new 2019 regulations, Mrs J Doe is repaying her debt of £5,000 via her DAS programme.
Throughout the lifetime of the DAS, her creditors will receive £3,900 and the remaining £1,100 will be split with £1,000 going to her Payment Distributor and £100 going the DAS Administrator.
In these examples, there is no difference to the debtors on the amounts in which they pay. It is the amounts received by creditors which are affected. Nonetheless, payments secured by creditors is still more favourable than other statutory debt options such as bankruptcy and Protected Trust Deeds.
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