New bankruptcy and DAS amendment Regulations to come into force
Legislation brought about as a result of the Scottish Government’s ongoing wide-ranging review of Scotland’s debt solutions, led by the Accountant in Bankruptcy (‘AiB’), and a desire to respond to the cost of living crisis, has been laid before and approved by resolution of the Scottish Parliament.
The Bankruptcy and Debt Arrangement Scheme (Miscellaneous Amendment) (Scotland) Regulations 2023 (‘the Regulations’) will come into force on 6 February 2023.
The Regulations make amendments to the Bankruptcy (Scotland) Act 2016 (‘BSA 2016’), the Debt Arrangement Scheme (Scotland) Regulations 2011 (‘the DAS Regulations’) and the Bankruptcy Fees (Scotland) Regulations 2018 (‘the Fees Regulations’).
The changes brought about by the Regulations are set out below.
Minimal Asset Process (‘MAP’) bankruptcy minimum debt level
Section 2(2)(b)(i) of BSA 2016 is amended to remove the minimum debt level to access MAP bankruptcy (currently £1,500). The change is being made to allow anyone experiencing problems of unsustainable debt, particularly the most financially vulnerable, access to debt relief.
Bankruptcy application fee exemption
The Fees Regulations are amended to insert new Regulation 7B. The new Regulation extends the debtor bankruptcy application fee waiver to individuals who have been assessed by the Common Financial Tool as having no surplus income.
This change resulted from a recommendation by the final report of the Social Justice and Social Security Committee following its inquiry into low income and debt. That inquiry included testimonies, via focus groups, from people on low incomes who have experience of debt. There was also evidence taken at Committee sessions from debt advisers, public sector and third sector organisations, creditors, regulators (including ICAS) and the AiB.
Creditor fee where AiB appointed trustee
Part 2 of the Schedule to the Fees Regulations is amended to increase the fee payable for the administration of bankruptcies where the AiB is appointed trustee following the award from £300 to £750.
The AiB advise that this change is made with the aim of limiting the pressures on the public purse created in cases where no funds are recovered through the bankruptcy process. The AiB state that in approximately half of the current creditor petition bankruptcy awards administered by the AiB, there are no funds collected that can pay either the debt or the cost of AiB’s role in administering the case.
The AiB confirms that the proposal has been discussed with stakeholders and subject to targeted consultation. Specifically, given that a considerable proportion of creditor petition bankruptcies are instigated by local authorities for council tax debt, COSLA has been consulted on this reform with no specific concerns raised.
This change may be welcome news for private sector insolvency practitioners, who will hope the significant cost increase will mark more of a move towards creditors considering the AiB as trustee of last resort, as opposed to the trustee of default.
Debt Arrangement Scheme (‘DAS’) payment breaks
Regulation 37 of the DAS Regulations is amended through relaxation of the criterion for payment variation (payment break) applications.
Payment break applications will now be permitted where disposable income has reduced by 50% or more and it is envisaged that the disposable income will be reduced for the period of the deferment of payments. Previously such a variation could only be sought where the income reduction was a result of certain matters such as a change in employment or unemployment, a period of illness or a result of specified other significant life events.
This change resulted from a recommendation by the DAS Review Board, who consider that the existing options for applying for a deferral of payments (or payment break) of up to 6 months are limited and do not allow for significant and unplanned increases in expenditure, such as the recent significant increases in energy bills, resulting in difficulty in meeting scheduled payments under DAS.
The changes to fees made by the Regulations apply in relation to sequestrations where the petition was presented, or the debtor application was made, on or after 6 February 2023.
In relation to the removal of the minimum debt level to access MAP bankruptcy, this applies to all applications submitted on or after 6 February 2023.
In relation to the amendment extending the criteria for applying for a payment break in DAS, this applies to all new and existing DAS programmes, as of 6 February 2023. The extended criteria will be available regardless of when the programme was entered into.