The Bankruptcy and Debt Advice (Scotland) Act 2014 - now in force

The Bankruptcy and Debt Advice (Scotland) Act 2014 comes into force today. The legislation seeks to balance the rights of debtors and creditors, an time will tell if the right balance has been struck.

 The Scottish Government's Minister for Business, Energy and Tourism Fergus Ewing has commented “It is only proper that we seek to do everything we can to help financially rehabilitate families and individuals on low incomes and with little by way of assets who are struggling with debt, while still offering a fair deal for those owed money.”  The Accountant in Bankruptcy ("AiB") website carries a press release.   

 The highlights of the legislation are:

 Moratorium on Diligence

From the point the Accountant in Bankruptcy (AiB) is notified that a debtor intends to apply for sequestration, or apply for a debt payment programme under the Debt Arrangement Scheme (“DAS”) or enter into a Trust Deed there is a six week period – from when the AiB publishes notice in the Register of Insolvencies – when diligence is not permitted. The debtor can only make one application in any twelve month period. Arrestments etc. in place before the moratorium are unaffected, and sales in progress can continue.

 Notice to Banks

The Trustee has to notify a debtor’s bank of their sequestration, and the bank has no liability to the Trustee prior to that notice.

 Minimal Asset Process

A new Minimal Asset Process bankruptcy is introduced for debtors with debt up to £17,000, and unable to pay a contribution and negligible assets. There is a reduced application fee £90 (normally £200) and automatic discharge from a MAP sequestration after six months.

 Common Financial Tool and Contributions

The new “Common Financial Tool” must be used to assess what debtor contribution is appropriate having regard to the debtor’s assets, income, liabilities and expenditure. The AiB now assesses what proportion of a debtor’s post sequestration income is paid to the insolvent estate, and makes a debtor contribution order. Contribution orders can now extend for 4 years.

 Creditors Claims Deadline

A creditor is required to submit a claim within 120 days of being invited to do so.Failure to do so can result in a creditor losing their right to claim. As ye there is no guidane on what is meant by “exceptional circumstances” that would justify the submission of a late claim.

 Discharge

The Trustee is now to submit a report on the debtor’s conduct to the AiB within ten months of the sequestration commencing. The AiB then determines whether the debtor gets his discharge. This can normally be expected at the 12 month stage, but debtors who can't be traced or fail to co-operate with their Trustees will not be automatically discharged.

 Acquirenda

Any assets which a debtor acquires within the four year period from the date of sequestration will automatically vest in the Trustee (irrespective of whether the debtor had been discharged from sequestration within that period). But how will the trustee know about them?

 Financial Health Service

The Financial Health Service website points debtors towards free information and advice on debt, managing money, housing, homelessness and ethical lending. Money advice prior to an applicatn sequestration is mandatory, as is post insolvency “financial education” in prescribed cases.

 Conclusion

“Overall, the changes being implemented through BADAS bring a more balanced approach to the rights of debtors and creditors in bankruptcy,” said David Menzies, the Director of Insolvency at ICAS. http://icas.org.uk/News/Latest-News/Personal-insolvency-changes-come-into-effect/