What changes and improvements can we expect from the new Bankruptcy and Debt Advice (Scotland) Bill which is currently passing through the Scottish Parliament? Claire Orr, from the Accountant-in-Bankruptcy joined us at our recent Local Authority Forum to provide an overview of the new powers which are likely to come into force in spring 2015. The following provides an overview of the key points and impacts addressed by Claire.
When we set out to bring Scotland’s bankruptcy and debt advice legislation into the 21st century our primary aim was to ensure access to fair and just processes of debt relief and debt management for all, better balancing the interests of all parties and ensuring that those who can pay their debts do pay.
The current bankruptcy legislation did not provide all of the tools needed to address the challenges we now face. With the changes in society and the radical advances in technology, communications and financial services since 1985; not to mention the changes in public attitudes to credit and debt, the availability of credit, the increase in debt management solutions and the spectrum of debt advice which was being made available in the public, third and private sectors, it became clear that we needed a range of new solutions and tools for debt relief and debt management.
The consultation we issued in early 2012 was well received by stakeholders with a good response rate. Proposals have been modified based on the feedback we received during the consultation.
We also wanted to ensure that those debtors who can pay their debts should pay, creditors got the best return possible and we wanted to try to break the debt-cycle for individuals through improved rehabilitation from debt problems, education for both those experiencing debt problems and by developing early intervention education strategies to improve people’s financial awareness and confidence when dealing with financial matters.
Overview of the Bill
The Bankruptcy and Debt Advice (Scotland) Bill contains a range of powers – you can view the full bill on the Scottish Parliament website in the parliamentary business/current bills area of the site. You can also follow the current status and stages of the bill as it passes through the Parliament on this page. The Bill will complete its first stage of three in December 2013.
- Advice and Education
- Payments by debtor following sequestration
- Minimal Asset Process
- Moratorium on Diligence
- Application Process
- Administration of estate
- Functions of Sheriff and AiB
- Review of decisions by AiB
So what can we expect to see change around April 2015 when the updated Act is likely to come into force?
One of the most important changes will be that individuals will no longer be able to make themselves bankrupt without having first taken advice from an approved money adviser. Advice will ensure that people are aware of the range of solutions open to them and that they choose the solution most appropriate to their needs.
We want to ensure that bankruptcy becomes a last and final resort. Financial Education will be compulsory for some debtors who have been identified as vulnerable to recurring debts.
A common financial tool will be introduced as a mandatory part of the advice process. By ensuring that all money advisers use the same tool to assess income, expenditure and identify the surplus income available for a contributing towards debts we will improve consistency and transparency. The Common Financial Statement has been chosen as the common tool. This tool has the support of the money advice sector generally and it is accepted as a fair tool for the calculation of surplus income.
The debtor will be required to undertake to pay the contribution determined by the common financial tool for a minimum of 48 months, which is 12 months more than current sequestration.
Although this a longer period, evidence has shown that the Common Financial Statement makes a fair assessment of the amount of money individuals and families need and therefore the level of contributions set through this tool are sustainable. The longer payment period reflects the desire to increase returns to creditors. A new ‘debtor contribution order’ replaces the Income Payment Order and debtors will also be able to apply for a payment break of up to six months, but they will still have to make a minimum of 48 monthly payments. The debtor will be required to sign a new statement of undertaking and if they don’t sign it or comply with is conditions, including paying the determined contribution, it could lead to a delay in discharge. The aim is to encourage more co-operation from the debtor and more dialogue between debtor and their trustee.
A new moratorium is to be introduced across all statutory debt solutions which means if an individual gives notice that they want to apply for a statutory debt solution they will be given a six week period of protection from action against them by their creditors. This period of 6 weeks provides some breathing space and allows people to have the benefit of money advice. During this period no arrestment, money attachment, interim attachment or attachment of estate can have effect. Individuals who give notice will have their details entered by AiB on RoI and DAS register for the duration of the 6 week period.
There will no automatic discharge, except in MAP cases, and the trustee will have to apply to AiB for discharge at the end of the sequestration. If the trustee does not intend to apply for a discharge he/she must explain their reasons to the debtor. The debtor will be free to appeal to the Sheriff if they do not agree with the trustee. Furthermore, if someone has been discharged and subsequently inherits assets or assets are discovered that would have been vested in the trustee there will be a process for re-opening the case contained in the new Act.
To minimise the impact on the Sheriff Courts and to ensure that decisions are taken at the most appropriate level a number of administrative procedures will pass to the AiB, including application by a trustee for direction, recall of sequestration where debts can be paid in full and appointing a replacement trustee.