The Bankruptcy and Debt Advice (Scotland) Bill was passed by the Scottish Parliament on 20 March 2014, containing significant amendments to Scottish personal bankruptcy legislation.
Modernising Personal Bankruptcy
On 11 June 2013, the Scottish Government presented the draft Bankruptcy and Debt Advice (Scotland) Bill to the Scottish Parliament. The Bill's provisions were informed by a consultation on bankruptcy in Scotland led by the Accountant in Bankruptcy ('AiB'). The principal aim of the Bill is to create a 'Financial Health Service' to modernise the system of personal bankruptcy in Scotland, taking into account the significant levels of debt incurred by individuals in the wake of the credit crunch and the recession of recent years. The Scottish Government has stated that the provisions of the, now passed, Bill are designed to ensure appropriate debt relief, advice and management.
The headline reforms contained in the new Act include:
- Debtors considering applying for any form of debt relief (e.g. sequestration, trust deed or a debt payment programme under the Debt Arrangement Scheme) must first receive compulsory monetary advice from an approved money adviser.
- Mandatory financial education for those in need of it. (e.g. those who have been bankrupt more than once).
- The introduction of a 'Common Financial Tool' to be used by money advisers to analyse a debtor's incomings and outgoings.
- Creditors will be unable to serve a charge for payment, or enforce any diligence, once the Accountant in Bankruptcy has been given notice that a debtor intends to apply for a form of debt relief.
- Creditors will have 120 days to submit claims after receiving notice from the Trustee in Sequestration. Currently, claims must be submitted within 8 weeks.
- Assets acquired by the debtor post-bankruptcy will now vest in the Trustee for four years. Currently, this property would only vest in the Trustee for one year following the date of sequestration.
- Payment periods for Debtor Contribution Orders will be extended to 48 months. The debtor, Trustee or any other interested person can apply to the AiB to have the Debtor Contribution Order reviewed.
- Debtors will no longer be automatically discharged from sequestration after one year.
- A debtor who has paid, or can repay his debts, will be required to apply to the AiB (as opposed to the Sheriff Court) for recall of the sequestration. The debtor can apply to the Sheriff Courts regarding other grounds for recall.
- If a debtor cannot be traced, the discharge of their sequestration will be deferred indefinitely. Currently, the debtor's discharge can only be deferred for two years.
- The AiB is given the power to convert a protected trust deed into a sequestration and to correct procedural issues in some circumstances.
The new Act contains many controversial provisions, such as the extension of the payment period under Debtor Contribution Orders, and the enhanced powers given to the AiB. However, the introduction of measures such as compulsory monetary advice and financial education may provide individuals, who have found themselves in financial trouble, with the tools to avoid these problems in the future. Only time will tell if the Scottish Government's desired outcomes will be met by these provisions.