Changes To Creditor Bankruptcy Petitions Elsewhere In The UK

19th January 2015

Last week we found out that the level of debt required for a creditor to make a debtor bankrupt elsewhere in the UK is to increase. Currently set at £750, the threshold will increase to £5,000 later this year.

In Scotland the threshold is set at £3,000; far above the current £750 level elsewhere but significantly lower than the new £5,000 figure which has now been announced.

Changes have also been announced to the “Debt Relief Order” which is used in England and Wales. The old £15,000 maximum debt threshold is to be increased to £20,000 and debtors can proceed with this option in the future with a slightly higher value of owned assets than was previously the case. The application fee will remain just £90.

LILA (low income low asset) bankruptcy in Scotland is the closest “equivalent” to the DRO; a debt solution primarily intended to be used by those with limited income and few assets. While there is no maximum amount of debt to utilise this option in Scotland, the application fee is much higher at £200.

Debt relief orders and bankruptcy (both sides of the border) will usually last for a year. Those that can afford to are expected to make monthly contributions from their income into their bankruptcy estate for a period of three years, However, in Scotland this term is due to be extended to four years soon. The minimum term for a protected trust deed has already been increased from three years to four.

There appears to be a clear direction of travel elsewhere in the UK to provide greater protection from creditors and better access to some types of debt solution. In Scotland, many would currently argue that the direction of travel is in the opposite direction.

For some time the ratio of people becoming insolvent in Scotland (number of personal insolvencies per 10,000 adults) was much higher than in other parts of the United Kingdom. It could be argued (as we have in the past) that this was in no small part due to the fact that the consequences to the debtor of dealing with debt in Scotland were often less onerous than those which applied in England or Wales.

Some Scottish politicians have been clearly uncomfortable about these figures and concerned that creditors aren’t getting a fair deal when things go wrong. Hence costs have increased, repayment terms have become longer and the financial threshold for protection from creditor petitioned bankruptcy is now to fall behind.

Of course it is the job of government to balance the interests of different groups. Lenders require protection in the interests of fairness and also so that they remain commercially inclined to keep lending.

However, this background information must all be taken into account when future sets of statistics are released. It’s likely that the insolvency figures in England and Wales will increase with these changes as those priced out of bankruptcy previously gain access to an affordable debt relief order. The figures in Scotland are at the lowest level they have been since 2008.

Does this mean that personal debt problems are declining in Scotland compared to the rest of the country?

Probably not.

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