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The Accountant in Bankruptcy (AIB) has released figures today covering the use of trust deeds, bankruptcy and the debt arrangement scheme in Scotland. These represent the 4th quarter results for their 2011/12 reporting year.
The number of people accessing various forms of debt relief/solution tends to be seasonal, so comparisons with the same period last year can produce the most useful information. Insolvency in general (including both trust deeds and bankruptcy) has increased by 14% compared to the 4th quarter of 2010/11.
The figures for bankruptcy have changed little, with a small decrease of 3%. 2609 awards of bankruptcy were made in the quarter. Of these 2142 resulted from debtor applications (1060 using the LILA route to bankruptcy). 448 awards of bankruptcy resulted from creditor action. Just 19 awards of bankruptcy were made as a result of the trustee of a Scottish trust deed applying for an individual to become bankrupt.
The number of protected trust deeds has increased substantially, with a 43% increase compared to the 4th quarter last year. In 2011/12 there have been 9194 trust deeds compared to 7980 in 2010/11. This total for 2011/12 exceeds the previous high of 9188 in 2009/10.
The debt arrangement scheme continues to expand quickly. 942 debt arrangement schemes were started in the 4th quarter of 2011/12. The comparable quarter of 2010/11 saw just 478 debt arrangement schemes get set up.
What can we deduce from these figures?
Given the current economic situation it is perhaps encouraging that insolvency in general hasn’t increased dramatically. However, a 14% increase certainly signifies that households around Scotland continue to face enormous financial pressure that is unlikely to recede in the near future.
Bankruptcy figures have changed little. Where feasible for it to happen, it does appear that many people prefer to use trust deeds rather than to proceed with bankruptcy. It’s also very interesting to note a 72% decrease in the number of people being made bankrupt by their trustee in a trust deed. This is reflected in our trust deeds forum where increasing numbers of people that have experienced failed trust deeds report that they have been discharged but left to deal with their debts. The AIB appear interested in this topic and are consulting on whether a trustee for a failed trust deed might be required to proceed with the bankruptcy of their client.
Trust deeds are an increasingly popular way for overindebted residents of Scotland to deal with their debts. The current AIB consultation on the reform of debt solutions in Scotland appears to be geared up to reduce the number of trust deeds being used by directing people (in certain circumstances) towards other options.
Fergus Ewing, the Minister responsible for insolvency and debt management in Scotland, said, “I am pleased to see an increase in debt payment programmes approved, following AIB’s continuing efforts to raise awareness of the Scheme (debt arrangement scheme) and its benefits”. The AIB work on creating awareness about the debt arrangement scheme has certainly been welcome and effective. It’s disappointing (though perhaps not surprising) to note that the Minister did not pay equal credit to the commercial debt advice sector that has done an enormous amount of work to drive up use of the debt arrangement scheme since they have become able to participate more fully in the scheme. One major UK debt management company has alone driven much of the increase via the conversion of existing informal debt management plan clients over to the Scottish debt arrangement scheme.
A major theme of the current AIB consultation on the reform of debt solutions in Scotland seems to be to drive people away from the use of trust deeds and bankruptcy, and instead direct more people to the debt arrangement scheme. While DAS is clearly an excellent solution for many people, and preferable to an informal debt management plan in almost all cases, many debt and money advisers are extremely nervous that a drive to increase the use of the debt arrangement scheme at the expense of trust deeds could result in serious unintended negative consequences in the long-run.Tags: bankruptcy, debt arrangement scheme, trust deeds