What Happens To Your Home With A Debt Settlement Arrangement?

22nd January 2014

Because Debt Settlement Arrangements were introduced so recently, many people have little idea of the consequences of entering into this type of personal insolvency. In this article we review the consequences for your home of a DSA. In particular we review whether you’re likely to lose your home if you go ahead.

Debts fall into two main categories; secured and unsecured. Secured loans are tied to an asset. Most commonly this might be a residential mortgage. If you fail to keep up with your repayments the secured asset, such as your house, might be put at threat of repossession. Unsecured debts aren’t tied to an asset. Typical examples might be a credit card, or an unsecured loan from a bank or credit union.

A Debt Settlement Arrangement only deals with unsecured debts that you’re struggling to repay. You’d be expected to carry on paying your mortgage in full. Because your monthly unsecured debt repayments will usually be reduced (into a single payment to your DSA) you should find that it becomes easier to afford to carry on fully repaying your mortgage. In this respect your ability to remain in your home may be strengthened.

Once a DSA is set up you will also be protected from legal recovery action by your creditors (provided that you stick to the deal that was made). This again may help to secure your position to remain in your home.

You will be expected to contribute to your DSA. Most people will fund this from their surplus income and make a single monthly payment. Due to their income and household expenditure requirements some people might find that they’re unable to afford to contribute monthly. This may present a barrier to entering this type of personal insolvency.

Among those that have no spare cash for this monthly payment might be some people that do have equity in their home (i.e. the value of the home is greater than the mortgage owed on it). This may leave them in a vulnerable position, unable to repay their unsecured debts and at threat of losing their home if they became bankrupt. In such circumstances some might consider it to be reasonable to sell their home. This might produce a lump sum that could be used to fund a Debt Settlement Arrangement instead of (or possibly in addition to) making a monthly contribution.

Where this is the case a home might be sold in order to facilitate entering the DSA. However the key point is that this will be an informed decision made by the individual rather than being forced upon them by another person or organisation. An individual can decide whether selling their home makes sense compared to the other alternatives which exist.

It’s clear that entering a DSA will, for many people, make it less likely that they’ll lose their home compared to taking no action to deal with a serious debt problem. For some people it might be the case that selling their home is something they’re prepared to do so that they can fix their finances and avoid bankruptcy. In either case the terms of a Debt Settlement Arrangement proposal will be discussed with you, and agreed with you, prior to them ever being presented to your creditors. You’re therefore in charge of the process and whether there are any consequences for your home. 

For further information about a DSA you may wish to ask a question in our forum or to contact our in-house debt advice team.