24 Oct 2013

Bankruptcy and Debt Advice Scotland Bill

Bankruptcy and Debt Advice Scotland Bill

Andrew Smith, Solicitor, discusses the Bankruptcy and Debt Advice Scotland Bill and the key changes creditors should be aware of.

Andrew Smith, Solicitor, discusses the Bankruptcy and Debt Advice Scotland Bill and the key changes creditors should be aware of.

Scotland’s bankruptcy laws have often been criticised for being unnecessarily confusing and difficult to apply. To restore coherence to the legislation, the Scottish Government introduced the Bankruptcy and Debt Advice (Scotland) Bill on 11 June 2013. The Bill aims to achieve this by providing a legal framework which better allows for the rehabilitation of individual debtors in a way that meets both the needs of debtors and creditors.

To create this fair and equitable debt relief system, the Bill introduces a number of key innovations, most notably:

Compulsory money advice

Debtors applying for bankruptcy will be required to have money advice prior to any application.

Moratorium on enforcement                  

Where notice has been given by a debtor that they intend to apply for either sequestration, a protected Trust Deed or to a Debt Arrangement Scheme, creditors will be barred from further diligence for an initial six weeks.

Common financial tool  

The Bill proposes to introduce a 'common financial tool'. The 'tool' is a standard method of assessing what contribution a debtor has to pay after sequestration. This works by creditors automatically agreeing the expenditure levels used by debtors when calculating disposable income as long as these do not exceed the local average thus speeding up the process.

The Bill also strengthens the provisions regarding recovery of assets and the consequences for debtors who fail to co-operate in the process. For example:

  • Assets to invest in Trustees for four years following sequestration. 

  • Income Payment Orders to be replaced with the more robust Debtor Contribution Orders. Under this contributions can be deducted directly from source where either the debtor agrees or misses two payments.

  • Where a debtor cannot be traced, the automatic discharge of the bankrupt will be deferred indefinitely thus preventing a debtor from being released from his debts without having engaged in the process to the benefit of his creditors.

  • The Accountant in Bankruptcy will also be able to reappoint a trustee where assets are discovered after discharge and these assets would've formed part of the bankrupt's estate.

The Bill also seeks to streamline the legal framework to make it proceed faster in a manner less cumbersome for the courts. In particular the role of the Accountant in Bankruptcy is to be enhanced, giving her many powers that previously required an order of the court.

For example:

  • A debtor who is able to repay all his debts can apply to the Accountant in Bankruptcy rather than the Court for a recall of sequestration.

  • The Accountant in Bankruptcy can convert a protected trust deed to a sequestration upon an application being made to her.

A key point for creditors is that a strict deadline is to be imposed for the submission of claims on the estate of a bankrupt. Creditors will now have a period of 120 days to submit their claims from the date of receipt of notice from the Trustee. Creditors will therefore need to act quickly when they receive notice of bankruptcy to prevent their claims from being time barred.

The Scottish Government are aiming for these changes to come into force by April 2015.

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