Changes to the Bankruptcy Process in Scotland
23rd March 2015
From April 1st some rules and processes applicable to sequestration in Scotland will change. Any bankruptcy applications reaching the Accountant in Bankruptcy by 31st March 2015 will be subject to the old system. Those applications for sequestration that arrive from April 1st onwards will be subject to the changes.
What are some of the key changes from April 1st?
Prior Advice is Mandatory
Anyone applying for bankruptcy in Scotland will have to take advice first. This advice can be sourced from some insolvency practitioners, Citizens Advice, Council Money Advisers or DAS approved Money Advisers.
A Moratorium Period
The adviser helping you can, if necessary, protect you from legal action by your creditors while you work together to get the bankruptcy process completed. This moratorium period will provide up to six weeks of relief from this threat, but is a process that can only be used once in a twelve month period.
Debtor Contribution Orders
A debtor contribution order (DCO) will replace the “income payment agreements” and “income payment orders” that were previously in effect. The payment period will now be four years (rather than three) and can, in certain circumstances, be extended. The level of contribution will be assessed using the new “Common Financial Tool” and can be amended in the future if your circumstances change.
Coming Into Money
If you come into money (or assets) for four years from the date of your bankruptcy, the money may well have to be paid over to the trustee. This might include an inheritance, or winning the lottery, for example. This applies even if you have previously been discharged.
An End to Automatic Discharge
Discharge from bankruptcy used to be automatic after twelve months. Under the new system a debtor that does not conduct themselves properly in terms of the bankruptcy process (in the view of their trustee) might find that their discharge is delayed or withheld.
A Replacement for LILA
The old low-income low-asset route to bankruptcy will cease to exist. It will be replaced by the new Minimal Asset Process (MAP) route to sequestration. A key feature of this change is a reduction of the applicable application fee from £200 to £90 for those who qualify.
Comparing Sequestration versus Trust Deeds
These changes will bring the consequences of bankruptcy back more into line with those associated with protected trust deeds. Trust deeds were extended from a typical three year term to a minimum four year term in late 2013. This meant that debtors have temporarily experienced an incentive (in terms of the possible repayment period) to choose bankruptcy as opposed to a trust deed. That incentive ends from April 1st 2015.
The extension of liability where someone comes into money or assets during sequestration also helps to harmonise the effects of these two debt solutions. Those choosing sequestration may well be discharged sooner (after a year typically, rather than four years for a Scottish trust deed) but this will no longer mean that such windfalls fall outside of the interests and powers of the trustee handling the sequestration.
It remains to be seen whether this harmonisation will shift the balance of numbers between those selecting bankruptcy compared to selecting protected trust deeds in the future. However, it seems likely that a shift to some extent, back towards favouring trust deeds, is likely after their numbers have fallen so significantly during recent quarters.
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