If you’re struggling with debt, you might have researched available debt solutions and narrowed it down to either a Trust Deed or a Debt Arrangement Scheme (DAS). But while both options can be effective in helping you deal with your unmanageable debt, there are some key differences that you should know about.
The best debt solution for you depends on a number of factors, such as your individual circumstances, your total debt level, your repayment ability, and your assets. It’s important to ensure your chosen debt solution works with your lifestyle.
What is a Trust Deed?
A Trust Deed is a formal debt solution where you make a smaller monthly contribution towards your debt for a set period (typically four years). The payments are worked out after a careful review of your finances to ensure they’re affordable for you.
Trust Deeds can only be set up and managed by a licensed Insolvency Practitioner (IP), who will take on the role of ‘trustee’ during your arrangement. They will essentially act as the middleman between you and the people you owe money to (your creditors) by submitting your proposal, facilitating all communication, and distributing your payments on your behalf.
A Trust Deed becomes a Protected Trust Deed if the majority of your creditors accept the terms outlined in your proposal. Once this happens, the Trust Deed will be binding on all creditors (even those who rejected it) and they can no longer take any measures to recover the money.
This means that your creditors won’t be able to contact you (including phone calls) or take legal action against you, and all interest and fees will be frozen for the duration of the four-year period. Once you’ve reached the end of your arrangement, any debts included but not repaid will be written off.
In some cases, you might be asked to release equity towards the end of your Trust Deed to ensure your creditors can recover as much of the debt as possible. If you can’t release equity, your Trust Deed may be extended by 12 months.
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What is the Debt Arrangement Scheme?
The Debt Arrangement Scheme (DAS) is a legally binding government scheme designed to help people struggling with unaffordable debt repay what they owe at a more manageable pace. Under the DAS, you repay your debt in regular instalments through a Debt Payment Plan or Debt Payment Programme (DPP).
Because the DAS requires you to repay your debt in full, it will last as long as it takes to clear your balance. This means that it could realistically take anywhere from 12 months to 12 years, but the average length is around six years.
During a DPP, your creditors can’t contact you or take further action against you (including court action) to recover the debt. This way, you can focus on gradually chipping away at your balance without any unnecessary distractions, making the process of clearing your debts easier.
Most debts will need to be included in the DAS, but you can choose to keep your mortgage or rent arrears out of your arrangement if you wish. However, the DAS can’t be used to deal with priority debts, such as council tax and criminal fines.
What are the differences between a Trust Deed and a DAS?
There are many differences between a Trust Deed and a DAS. Knowing how these two debt solutions differ can help you decide which option might be better suited to you.
The main differences between a Trust Deed and a DAS are:
Eligibility
There are three main eligibility criteria you must meet to apply for a Trust Deed. For example, you must have unsecured debts of at least £5,000, owe at least two creditors, and have a reasonable amount of disposable income to repay your debt in regular instalments.
Unlike Trust Deeds, there is no minimum debt level required for the DAS. However, you must owe one or more debts and be able to afford a certain amount for your creditors to agree to your DPP payments.
Length
Trust Deeds typically last four years, after which time all remaining unsecured debt is written off. They can also be extended beyond the usual four years in certain situations (e.g. your circumstances have changed or you can’t release equity).
The length of a DAS, on the other hand, depends on how much debt you have. This can sound daunting, but it might be a better option if you’d rather make a single payment over a prolonged period until you’re officially debt-free.
Write-off
Once your Trust Deed concludes, any remaining unaffordable debt not repaid through the arrangement will be written off. This means that your creditors won’t ask you to pay it anymore and you can enjoy a fresh financial start. However, if you have any other debts not included in your arrangement, these will still need to be dealt with separately.
There is no debt write-off with the DAS as you’ll be expected to pay back your debt in full. This will take longer, but it means you could pay less each month and spread your repayments over a longer period, which can put less pressure on you to meet your financial obligations each month.
Assets
In a Trust Deed, you must inform your trustee if you have any assets (e.g. a car or property). They might sell them to raise money to repay your debt, but this is only likely if the items are of significant value and they’re not exempt.
Since the DAS focuses more on repaying what you can over a prolonged period as opposed to repaying a set amount by a fixed deadline, assets are generally protected. This means that you should never be forced to sell your home or car when you’re in a DPP.
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Trust Deed vs DAS: Key similarities
While there are many differences between a Trust Deed and a DAS, they are also alike in some ways.
Some of the similarities between a Trust Deed and a DAS include:
Credit impact
Unfortunately, both a Trust Deed and DAS will be listed on your credit file and have a negative impact on your credit rating for six years. During this time, you’ll struggle to get approved for further credit, such as a loan, mortgage, credit card, bank account, and even a phone contract.
As well as your credit file, both debt solutions will also be listed on the Register of Insolvencies and the DAS Register, respectively. These online databases are publicly available but are usually only accessed by people and companies with a valid reason to check your insolvency status, such as lenders, employers, and landlords.
Legally binding on the people you owe money to
With a Trust Deed, you’ll be afforded legal protection. This means that, once protected, included creditors can’t add any interest or fees or take any further action to recover any of the money they are owed.
A DAS is also legally binding, so you can rest assured you have legal protection against further collection efforts, no matter which debt solution you choose.
Affordable payments
With a Trust Deed, your payments will be worked out based on a review of your financial situation. Because of this, you should be able to afford to repay your debt alongside your essential living costs, such as your rent or mortgage and bills.
Similarly, your DAS will only begin once both you and your creditors are happy with the monthly payment amount proposed. Because a DAS typically lasts longer than other debt solutions, you might be able to make lower monthly payments than you would with a Trust Deed.
Bankruptcy alternatives
Both a Trust Deed and a DAS are designed to help you avoid bankruptcy, which is generally considered to be one of the most severe debt solutions.
Failure to stick to the terms of a Trust Deed or a DAS could result in your creditors petitioning for your bankruptcy. If the court agrees that bankruptcy is the best option for you, you’ll need to enter a bankruptcy period.
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How can I choose between a Trust Deed and a Debt Payment Programme?
Choosing between a Trust Deed and a DAS primarily comes down to your own circumstances, your debt repayment goals, and your ability to manage a repayment plan on a long-term basis.
First, it’s worth taking a look at your total debt level. If you have a high debt level, a Trust Deed is likely the better option for you as it offers the potential to write off a significant amount of what you owe after four years. Generally, your creditors are unlikely to accept a DAS if it’s projected to last 10 years or more.
Next, it’s worth considering how much you can realistically afford to pay towards your debt each month. If you know you can’t repay your debt in full, a Trust Deed allows you to only repay a percentage of it over a short time before it’s written off. However, while a DAS doesn’t offer the option to write off your debt, it can be a better option if you’d rather make regular payments towards your debt over a longer period.
Finally, you should think about whether your circumstances are likely to change as Trust Deeds are largely inflexible. This means that, if you miss payments or break the rules, there is little room for adjustments and your arrangement might fail. When this happens, you could face bankruptcy.
A DAS, however, tends to be more flexible. For example, if your income dropped or you were to lose your job suddenly, you could apply for an adjustment to make your repayments more manageable for you on a permanent basis or until you get back on your feet.
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Conclusion
Choosing between a Trust Deed and a DAS can be a difficult decision, especially if you’ve done your research and you think you’d be a suitable candidate for both. However, by taking a closer look at how you want to repay your debt and how long you want to make payments for, you can be better informed to make a decision.
A Trust Deed offers a fixed repayment period and the possibility of a debt write-off, but might require higher monthly payments, while a DAS offers the potential for lower monthly payments and greater flexibility, but can be a more expensive process in the long run.
Failure to stick to a debt solution puts you at risk of your plan failing and leaves your creditors free to take legal action and resume charging interest. Reaching out for tailored debt advice from a money adviser can help you identify the best solution for you, whether that’s a Trust Deed, a DAS, or something else altogether.
