Scottish bankruptcy and debt advice—all change?

Scottish bankruptcy and debt advice—all change?

With new bankruptcy and debt advice legislation on the horizon in Scotland, Stephen Cowan, managing partner of Yuill + Kyle, a Scottish firm specialising in debt recovery and credit control, talks about the new provisions coming into force and what they could mean for lawyers and their clients.

Original news

The majority of the Bankruptcy and Debt Advice (Scotland) Act 2014 (BDA(S)A 2014) will come into force on 1 April 2015 (via Bankruptcy and Debt Advice (Scotland) Act 2014 (Commencement No 2, Savings and Transitionals) Order 2014 SI2014/216 ).

After that date there will be compulsory money advice for those entering bankruptcy, certain powers relating to bankruptcy will be transferred from the sheriff court to the Accountant in Bankruptcy (AiB) and there will be a freeze on a creditor’s ability to enforce debts while an application for a statutory debt solution is made.

What are the key changes which will arise as a result of the coming into force of these provisions?

The key changes are that individuals will have to take financial advice prior to going through the ‘self’ bankruptcy route. This is to ensure they are selecting the correct ‘debt relief’ and most suitable vehicle for themselves and their situation. Vulnerable and recurring debtors will have to receive financial education through ‘the financial wealth service’ to try and break the debt cycle—although I have no idea how this will be delivered and how effective it will be. Most likely is that Money Advice Scotland will be tasked with this in close discussion with the AiB.

The mandatory ‘common financial tool’ to assess surplus income should create a consistent and level playing field, and will hopefully assess surplus income available for creditors which otherwise may have meant an increase in dividends in the past. Whether this will be realised will have to be seen, although the increase in the minimum contribution period from 36 to a more sustainable 48 months should be seen as a positive move towards achieving increased creditor return.

The new ‘debtor contribution order’ which replaces the ‘income payment order’ should lead to little change—although the six-month moratorium to assist debtors whose circumstances have changed through issues such as illness or a bereavement are fair, and mirror what happens with the Debt Arrangement Scheme. The requirement for debtors to sign a ‘statement of undertaking’ to comply with the trustees conditions, including payment of contributions, should

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