The Bankruptcy & Debt Advice (Scotland) Act 2014 came into force today on 1 April 2015, introducing, in the Scottish Government's own words, "one of the most modern systems of debt advice and debt management in the world."
It forms a key plank in the Government's vision of a Financial Health Service for Scotland that aims to provide debt advice, debt management and debt relief that is fit to meet the challenges of the twenty first century. It also represents a recognition that the previous approach of dealing with issues "of the moment" on an ad hoc basis was not working and that a more "holistic" approach was required.
These are bold claims indeed and the Act has much to live up to. The legislation does however implement some innovative, radical and far reaching changes to Scotland's existing bankruptcy and debt relief regimes.
The result is a genuinely sophisticated system that is geared towards meeting the individual needs of individual debtors by protecting vulnerable debtors but at the same time ensuring that, where possible, all debtors take proper responsibility for their debts.
The Act contains something for everyone whether they be debtors, creditors or insolvency professionals. Some of the key measures include;
Minimal Asset Process ("MAP")
MAP offers debt relief quickly and more cheaply then before to those debtors who have limited assets and income.
Those seeking access to statutory debt relief will be given mandatory money advice to ensure that they are offered the remedy that best suits their needs. Debtors who have been sequestrated more than once or who have demonstrated a pattern of irresponsible behaviour will be required to undergo a course of financial education.
Debtors seeking to apply for statutory relief form their debts will have the benefit of a six week statutory moratorium giving them protection from their creditors while their application is processed.
Common Financial Tool
A common financial tool has been introduced for the purpose of assessing what (if any) financial contribution individual debtors can afford to make towards their debts, no matter which regime they are subject to. This should promote consistency and transparency. Debtors in sequestration will also be expected to make contributions over a longer period then before (up to 48 months as opposed to 36 at present) providing consistency with debtors in Protect Trust Deeds.
Currently assets acquired by a debtor after the date of sequestration but prior to the date of discharge (acquirenda), vest in the trustee for the benefit of creditors. From today this applies to any assets acquired within four years after the date of sequestration. This not only provides consistency with PTD's but prevents debtors with personal injury claims delaying raising court action or settling with insured until after the date of discharge to avoid claims being paid to the trustee.
All creditors must submit their claims no later than 120 days after notification by the trustee. Failure to do so will result in the creditor not being permitted to claim in the debtor's estate and the claim being lost. This should allow greater certainty about a debtor's financial position.
Debtors will no longer be automatically discharged after 12 months. Discharge has to be granted by the Accountant in Bankruptcy ("AiB") and debtors who fail to cooperate with their trustees and engage in the sequestration process may have their discharge refused. Debtors who cannot be traced will also not be discharged until they make themselves known to their trustee or the AiB.
Functions of the AiB
A number of functions that were previously exercised by the Courts will now be exercised by the AiB. The Act contains provisions for review by the AiB of her own decisions and appeals to the Sheriff if parties remain dissatisfied. Although concerns have been raised about the AiB's impartiality and competence, this should lead to quicker and cheaper decisions in relation to matters that are largely administrative.
Radical and responsible?
The intention of the Scottish Government was also that the Act would promote more responsible social attitudes towards matters of credit and debt in the general population in much the same way as seat belt wearing and drink driving legislation has promoted a more responsible approach among drivers.
Whether or not those who have become intoxicated on easy credit can and will sober up as a consequence of this Act remains to be seen.