Should You Go Bankrupt Or Use The Debt Arrangement Scheme In Scotland?
The Debt Arrangement Scheme suits people who can repay what they owe from surplus income over a reasonable period, because it is a repayment programme. Sequestration suits people who cannot, because it deals with debts that will never be repaid in full.
A Debt Arrangement Scheme writes off none of the money you owe. Interest, fees, penalties and charges stop, so the balance stops growing, but the principal is repaid to the last penny.
- Part of your pay is protected by law
- The deduction is set by statutory tables, not the creditor
- An arrestment can be stopped or replaced
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Torn between a Debt Payment Programme and bankruptcy? Get free advice today.
Free, confidential and no obligation.That single sentence decides most cases. If the sums do not work over any sensible period, a programme built on income you cannot sustain will fail.
Both are statutory, both are overseen by the Accountant in Bankruptcy and both put your name on a public register. How sequestration works and how the Debt Arrangement Scheme works are the two overviews.
What is the basic difference between the two?
A Debt Payment Programme is not an insolvency solution. You repay the debt in full, and what changes is the pressure rather than the balance.
One repays, the other discharges
A debt payment programme pays the principal in full with interest and charges frozen. Sequestration discharges the debts you owed at the date of sequestration under section 145(1), apart from a short statutory list.
Section 145(3) lists what survives. Fines and other court penalties, debts obtained by fraud, and aliment or a periodical allowance payable on divorce are not written off.
Student loans are not written off either, by a different route. Section 145(7) leaves the student loan regulations untouched rather than listing the debt as an exception.
Side by side
| The point | Debt Arrangement Scheme | Sequestration |
|---|---|---|
| What it is | A statutory repayment programme | Formal insolvency |
| Do you repay in full | Yes, every penny of the principal | No, the debts you owed at the date of sequestration are discharged apart from a short list |
| Interest and charges | Frozen from the date the application is recorded | Claims are valued at the date of sequestration |
| Minimum debt | None, and no maximum either | £3,000 for full administration, section 2(8)(a) |
| Your estate | Nothing vests in anyone | Your estate is sequestrated and passes to a trustee |
| Who decides | Your creditors, then the DAS Administrator | The Accountant in Bankruptcy, or the sheriff on a petition |
Whether a Debt Arrangement Scheme writes off any debt deals with the write-off question properly, because it is the claim this market makes most often and gets wrong.
Who can use each one?
The Debt Arrangement Scheme has no minimum debt and no maximum. Sequestration needs at least £3,000 for full administration under section 2(8)(a), in force since 30 November 2016.
The thresholds
There is no minimum debt and no maximum. A programme may be approved where it provides for the payment of one or more debts, so a single debt is enough.
A Minimal Asset Process has a ceiling of £25,000 rather than a floor, and how much debt you need sets each figure against its provision and date.
Creditor consent exists on one side only
Not all of them. Since 4 November 2019 a programme for an individual is approved where not less than nine tenths in value of the creditors consent, under regulations 23(1)(a) and 24(1) of the Debt Arrangement Scheme (Scotland) Regulations 2011.
Silence counts as consent. Regulation 23(5) deems a creditor who does not respond within 21 days of the request to have consented, irrespective of any assignation of the debt.
Reaching nine tenths does not end the matter. Regulation 24(1) is subject to regulation 24(1A), in force since 1 April 2015, so a programme for an individual may only be approved in accordance with the Common Financial Tool.
Nobody can object to a debtor application on the ground that they would rather be paid. Whether all your creditors have to agree covers the arithmetic on the scheme side.
Getting in, side by side
| The question | Debt Arrangement Scheme | Sequestration |
|---|---|---|
| Who applies | Your money adviser applies on your behalf, regulation 20(2)(a) | You apply, having obtained advice under section 4(1) |
| Creditor consent | Nine tenths in value for an individual, since 4 November 2019 | Not required at all |
| Silence from a creditor | Counts as consent after 21 days, regulation 23(5) | Not applicable |
| Is consent the whole test | No, approval must accord with the common financial tool | The statutory conditions decide it |
| Cost to apply | Nothing, and an adviser may not charge you for the work | £150, exempt on prescribed benefits or nil surplus, and nothing for a Minimal Asset Process |
The money adviser rules are not the same
You cannot apply on your own. Regulation 20(2)(a) requires the application to be made by a money adviser on the debtor’s behalf.
In sequestration the statutory condition is different. Section 2(8)(c) requires that you obtained the advice of a money adviser in accordance with section 4(1) for full administration, and a Minimal Asset Process needs a certificate for sequestration under section 2(2)(f) that only an authorised person can grant.
Both are free. Since 4 November 2019 a money adviser may not charge an individual a fee for scheme work, under regulation 12(2) as substituted by SSI 2019/315.
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Free, confidential and no obligation.What happens to your home and your other assets?
This is the clearest practical difference. A debt payment programme does not touch what you own, and sequestration takes your estate.
Nothing vests in a programme
There is no trustee and no vesting. Your home, your car and your savings are unaffected by the programme itself, and whether the scheme is better if you own your home is the article that compares the two on property.
Rent and mortgage arrears on your sole or main residence are the exception. Regulation 20(2AA), which has applied since 29 October 2018, lets an individual leave them out rather than requiring it.
The Accountant in Bankruptcy’s eligibility guidance sets out how that option is used in practice.
In a sequestration the estate passes to a trustee
Your interest in a family home is reinvested in you three years after the date of sequestration under section 112(2), unless the trustee has taken one of nine listed steps.
That is a long-stop on trustee inaction rather than a guarantee, and whether you lose your home sets out how it works in practice.
Which one stops a wage arrestment sooner?
Both stop one, and both do it automatically. The scheme does it on approval, and sequestration does it on the date of the award.
The two triggers
Regulation 33(1)(a) recalls any arrestment of your income or property on approval, and notice of the recall goes to the employer or to whoever is holding the arrested funds.
In a sequestration it is section 72(2) of the Debtors (Scotland) Act 1987 that ends an existing earnings arrestment on the date of sequestration.
Section 72(4) then bars a fresh earnings arrestment for a debt that could be claimed in the sequestration.
Whether the scheme stops a wage arrestment covers the recall in full.
Neither of them refunds what has gone
Money deducted before the trigger date is credited against the debt rather than returned. That is the same on both routes.
The gap before either arrives
A statutory moratorium gives six months of protection and you get one per rolling 12 months. It stops service of a charge for payment, stops new diligence and stops creditor petitions for sequestration.
It does not stop an earnings arrestment that was already running. Section 197(5)(d) of the Bankruptcy (Scotland) Act 2016 lets a creditor carry on executing an earnings arrestment, a current maintenance arrestment or a conjoined arrestment order that came into effect before the moratorium began.
So a moratorium buys time against new enforcement while an application is prepared. It does not stop a deduction that is already coming off your pay.
What do you pay, and for how long?
Both take your assessed surplus. The difference is the end date: a programme runs until the debt is paid, and a contribution order runs for 48 months under section 91(2)(a).
Money and time compared
| The question | Debt Arrangement Scheme | Sequestration |
|---|---|---|
| What you pay | One monthly payment covering the whole programme | Your whole assessed surplus income |
| How it is assessed | The common financial tool | The common financial tool |
| How long | No statutory maximum for an individual | 48 months from the date of the first payment, section 91(2)(a) |
| Who pays the fees | Creditors, out of what is distributed to them | The estate and your contributions |
| The end | The programme completes when the debts are paid | Discharge at twelve months, or six in a Minimal Asset Process |
| Payments after that | None, the debt is gone because it is paid | The contribution order applies irrespective of discharge, section 93(2) |
No maximum length applies to a programme for an individual. The five-year limit that appears on some pages belongs to Business DAS.
How your scheme payment is calculated and what a sequestration costs give the arithmetic on each side.
Who pays for the scheme
A payments distributor may make no charge of any kind to a debtor. You pay one figure and it is split between the creditors.
The fee comes out of what is distributed to creditors rather than being added to your debt. Your creditors fund the scheme out of what they receive.
The application fee on the other side is £150, exempt on prescribed benefits or where the common financial tool shows no surplus, under the 2023 Regulations, in force 6 February 2023.
What does each do to your credit file and public record?
Both are on a free public register. Only one of them is an insolvency, and that is what the credit reference agencies key their retention to.
The records compared
| The consequence | Debt Arrangement Scheme | Sequestration |
|---|---|---|
| The public register | The DAS Register, free and open to anyone | The Register of Insolvencies, free and open to anyone |
| Retention | No statutory period, and details are removed on completion | No statutory period exists either |
| Credit file | No agency publishes a retention rule for it at all | Treated as insolvency data, six years for live decisions |
| Is it insolvency | No | Yes |
| Restrictions order | No equivalent | Two to five years from the Accountant in Bankruptcy, five to fifteen from the sheriff |
| Borrowing | Up to £2,000 without a variation, subject to conditions | Disclosure required at £2,000, or any amount while you owe £1,000 or more |
No credit reference agency publishes a retention rule for a Debt Arrangement Scheme. Experian, Equifax and TransUnion all publish what they hold and for how long, and none of them lists a Debt Arrangement Scheme at all.
The widely quoted six years is the rule for insolvency entries, and a Debt Arrangement Scheme is not an insolvency. What your creditors report is the state of each account, so ask them and check your own file.
For a sequestration the agencies do publish a period, and how it affects your credit file sets out all three schedules and what actually sets them.
Be sceptical of a fixed number for the scheme
No statutory period governs how long an entry stays after a programme completes. The Accountant in Bankruptcy says details are removed on completion without giving a timescale.
National Debtline’s scheme guide is careful about this, and a page giving you a confident number of years for a programme on a credit file is not working from a published source.
Which one fits your circumstances?
Surplus income is the pivot. Take your income, subtract what you genuinely need to live on, and set what is left against what you owe.
Points that tend to favour the Debt Arrangement Scheme
- You have disposable income and can clear the debts in a reasonable period.
- You own a home or another asset you want to keep out of a trustee’s hands.
- Your job or profession would be affected by an insolvency.
- Only one or two creditors are involved, since a programme can cover a single debt.
Points that tend to favour sequestration
- Your income is solely social security benefits and tax credits, so no contribution is due.
- Debts of £25,000 or less and assets of £2,000 or less, putting the free Minimal Asset Process in reach.
- No realistic prospect of repaying the balance over any period you could sustain.
- A creditor already threatening a petition, or a charge for payment that has expired.
Where the two systems touch
The revocation of a debt payment programme is itself an act of apparent insolvency under section 16(1)(h). mygov.scot’s guide to applying sets out the scheme side of the process.
Discharge in a sequestration is a decision rather than a date under section 137(2), and how long it lasts sets out the clocks you would be taking on.
If a Minimal Asset Process is in play the comparison changes again, and the scheme against a Minimal Asset Process is the article for it.
Frequently asked questions
Is the Debt Arrangement Scheme better than bankruptcy?
It depends on whether you can repay. A programme repays the debt in full and leaves your assets alone, while sequestration deals with debts that cannot be repaid and takes your estate in exchange.
Is there a minimum debt for the Debt Arrangement Scheme?
No, and there is no maximum either. A full administration sequestration needs at least £3,000 including interest under section 2(8)(a).
Does the scheme write off any debt?
No. Interest, fees, penalties and charges stop, so the balance stops growing, but the principal is repaid to the last penny.
Do all your creditors have to agree?
Not all of them. Since 4 November 2019 a programme for an individual is approved where not less than nine tenths in value consent, and a creditor who does not reply within 21 days is deemed to have consented.
Will either stop a wage arrestment?
Both do. Approval of a programme operates as a recall of an arrestment of your income or property, and section 72(2) of the Debtors (Scotland) Act 1987 ends one on the date of sequestration.
Do you pay anything for a debt payment programme?
Not to the payments distributor, which may make no charge to you at all, and not for the advice. The scheme’s fees come out of what creditors receive.
How long does each one last?
A programme for an individual has no statutory maximum length and runs until the debts are paid. A debtor contribution order runs for 48 months from the first payment.
Can you switch from the scheme to sequestration?
Yes, and the revocation of a programme is itself an act of apparent insolvency under section 16(1)(h). A money adviser should compare both before either is started.
Related guides
- How Does The Debt Arrangement Scheme Work In Scotland? One monthly payment, interest and charges frozen, creditors blocked from diligence, and an arrestment already running recalled on approval.
- Is A Debt Arrangement Scheme Better Than Sequestration If You Own Your Home? What sequestration does to your home, whether it comes back after three years, what a programme does instead, and who qualifies for each route.
- Which Should You Choose, A Debt Arrangement Scheme Or MAP Bankruptcy? Why your income and assets usually decide this for you, and what each route costs, how long it lasts and what it leaves on record.
- How Does Sequestration Work In Scotland? The three routes in, who becomes your trustee, what you pay, what happens to the things you own, and what discharge does not clear.
- Which Is Better, A Trust Deed Or Sequestration In Scotland? How the two compare on qualifying, your home and car, cost, length, credit file, and which one stops a wage arrestment sooner.
- Does A Debt Arrangement Scheme Write Off Any Of Your Debt? Why the principal is repaid in full, what happens to the frozen interest and charges, and which Scottish routes do write debt off.
- Do All Your Creditors Have To Agree To A Debt Payment Programme? How consent is measured by value, when silence counts as agreement, and what happens when creditors owed more than a tenth object.
- Will You Lose Your Home If You Are Sequestrated In Scotland? What passes to the trustee, when a sale needs your agreement, the three-year rule for the family home, and what little equity changes.
- How Does Sequestration Affect Your Credit File In Scotland? Why six years comes from agency policy rather than statute, how the entry reaches your file, and what happens to the accounts behind it.
- How Much Does Sequestration Cost In Scotland? The four costs of a sequestration, when the £150 fee is not payable, where the trustee is paid from, and the costs that are not money.
Written as general information about Scottish debt law rather than regulated financial or legal advice, and your own circumstances may change the answer. Free, impartial help is available from Citizens Advice Scotland, StepChange, National Debtline and Advice Direct Scotland.