Review of changes introduced by Bankruptcy and Debt Advice (Scotland) Act 2014

The purpose of the consultation was to review the legislative changes that came into force on 1 April 2015 through the Bankruptcy and Debt Advice (Scotland) Act 2014 and to establish if any improvements were needed. The consultation concentrated on the areas that had previously been highlighted, through stakeholder engagement, as needing some improvement.   

These key areas were as follows:

• Statutory Moratorium on Diligence
• Common Financial Tool (CFT)
• Debtor Contribution Order (DCO)
• Minimal Asset Process (MAP) Bankruptcy
• Financial Education.

The consultation also sought views on two additional areas that had been raised as follows:

• The discharge of child maintenance debts in bankruptcy
• The statutory and judicial rate of interest.

The consultation attracted 41 responses from individuals, groups of individuals, organisations and groups of stakeholders.

Most respondents supported an increase to the 6 week moratorium period with a 12 week period being favoured by the majority of those who wanted an increase. Most respondents also believed the Scottish Government should consider the additional moratorium provisions which were presented in the consultation as well as further protections for those receiving mental health crisis treatment.

A small majority of respondents preferred the Common Financial Statement being used as the CFT, however, there were still some reservations about the application of that particular tool.

Most respondents supported increasing the timescale for trustees to submit their DCO from 6 weeks to 12 weeks.

The majority of respondents did not believe the minimum debt levels should be increased in a MAP bankruptcy, Full Administration bankruptcy or a creditor petition bankruptcy.

Most respondents supported student loans being excluded from the debt level in a MAP bankruptcy application.

A small majority of respondents believed there should continue to be a maximum debt threshold for entry to a MAP bankruptcy with an increase to £20,000 being the preferred threshold.

A small majority of respondents believed the current approach to discharging child maintenance arrears is the correct one.

Almost all respondents did not believe the current interest rate for both dividends in bankruptcy and the judicial rate are set at the correct level and should be reduced to either the Bank of England base rate or the Bank of England base rate +2%.

The Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021 commenced on 29 March 2021. The regulations increased the debt level threshold in a MAP bankruptcy to £25,000 and excluded a student debt from that debt criteria. The regulations also increased the timescale for trustees submitting their DCO proposals to 12 weeks.

The other areas highlighted in the Bankruptcy and Debt Advice (Scotland) Act 2014 consultation have formed part of a wider review of Scotland’s statutory debt solution which is currently ongoing.

The wider review is a commitment by the Scottish Government to identify and consider possible improvements to Scotland’s statutory debt solutions. The review is being conducted in a three stage process –

• Stage 1 - to identify immediate priorities which can be implemented with a clear consensus. This stage has been completed and resulted in the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021 highlighted above being introduced.
• Stage 2 - to consider and recommend improvements to key areas of Scotland’s statutory debt solutions. This stage is currently underway and is being led by representatives from the money advice sector, creditor organisations, insolvency professionals, their representative bodies and lawyers. Reports with their recommendations are expected to be published in the first half of 2022.
• Stage 3 - a longer term strategic review of the debt solutions to assess if they meet the needs of a modern economy. This stage is expected to commence later in 2022.

More information on the wider review of Scotland’s statutory debt solutions is available at: Wider review of Scotland's debt solutions | Accountant in Bankruptcy (aib.gov.uk)