Bankruptcy application latest trends
Minutes of a recent Accountant in Bankruptcy Debtor Application Working Group meeting provide an insight on the current bankruptcy landscape. Find out what they reveal.
Minutes released by the Accountant in Bankruptcy (AiB) of a recent meeting of their Debtor Application Working Group provide a valuable insight to the current landscape of bankruptcy in Scotland.
Since the commencement of the Bankruptcy and Debt Advice (Scotland) Act 2014 on 1 April 2015 until 30 June 2016 (14 months) 3716 debtor applications for bankruptcy have been made resulting in 3448 awards of bankruptcy.
Of the applications received by the AiB, 1 in every 7 is on a paper form. This is substantially higher than the AiB anticipated following the introduction of mandatory debt advice, but is perhaps not as surprising to those involved in providing the debt advice.
Completing a bankruptcy application online can only be done through the AiB BASYS system by the debt adviser and requires substantial time. Given time pressures within the free advice sector as well as within professional practices it is perhaps not surprising that debtors may be given the paper application pack to complete.
The main advantage of the BASYS application is that it cannot be submitted without being fully completed. Approximately 1 in 4 of the paper applications are returned as incomplete resulting in at best a delay for the debtor accessing debt relief. The new bankruptcy application process in England and Wales only allows online applications to be made and I wonder how long it will be before the same applies in Scotland.
The disparity in the number of awards of bankruptcy against the number of applications received is not explained but it is clear from the figures that approximately 1 in every 13 applications does not result in an award of bankruptcy. Given that every debtor is required to have obtained debt advice prior to the completion and submission of the application this is perhaps a surprising figure.
Part of the answer is perhaps alluded to in part 3 of the minutes which reveals a rise in the number of MAP (Minimal Asset Process) applications where there is a surplus income. One of the conditions for MAP is that no contribution is assessed as payable by the debtor. At a recent AiB stakeholder event it was said that there was a trend where when a contribution was assessed following a MAP application there was a trend for applications to be withdrawn. Again surprising as you would expect the driver to bankruptcy is to obtain debt relief and not to be to avoid having to pay a contribution.
MAP applications will almost exclusively be through the free money advice sector. The trend for MAP applications to be submitted with surplus earned income or where a contribution is assessed as payable on review of the application or where the debts are in excess of the statutory maximum of £17,000 perhaps suggests that there is a need for greater levels of training or supervision for debt advisers operating in this sector.
The number of debtor contribution orders issued is also surprisingly low at just over 500 for 2015/16. That equates to only 1 in 2 full administration bankruptcies. Nearly three quarters of contribution orders are made where a IP is the trustee with only 1 in 4 being where the AiB is nominated as trustee.
The amount payable under a contribution order where an IP is the trustee is nearly double that where the AiB is the trustee (£109.83 and £56.68 respectively).
Positively, the AiB are dealing with applications efficiently. Where applications are submitted complete and with all supporting documentation there is evidence that applications are being approved and bankruptcies awarded the same day.
So, how can applications avoid being delayed or rejected? The Minutes give some clues to this also in addition to the points raised above regarding MAP applications and the use of BASYS:
- Ensure that wage arrestments are added back to income when using the Common Financial Tool
- Where there are dependants, it is useful to include details of their ages in the notes section within the child benefit or child tax credit section. This allows the AiB to verify non-essential expenditure is in line with Common Financial Statement trigger figure levels
- Where the debtor is a tenant, if no tenancy agreement is available then alternative evidence of the tenancy such as a rent statement, housing benefit award letter of correspondence from the local authority should be provided.
- Supporting evidence for a request to withhold personal details from the Register of Insolvencies (RoI) should be provided. This may include a police report, court order, or letter from solicitor. Only the address will be withheld from the RoI.
- Moratorium applications can be submitted directly to the RoI rather than via email.
I meet regularly with officials from the AiB, so if you encounter any issues with the debtor application process or have any suggestions on how this can be improved, please contact me so that I can raise these with the AiB.