the bankruptcy and debt advice (scotland) bill 2013
TRANSCRIPT
Objectives To outline the primary features of the Bankruptcy and
Debt Advice (Scotland) Bill 2013 (BADAS Bill), as at Stage Two
To review the primary areas of concern in relation to the BADAS Bill, as has been raised by stakeholders during the legislative process.
To outline the provisions contained in Clause Four of the BADAS Bill at Stage Two and the implications this will have for debtors and their advisers.
Key Objectives of Bill(As outlined by the Scottish Government)
To ensure the people of Scotland have access to fair and just processes of debt advice, debt relief and debt management.
To ensure those who can pay their debt, do pay their debt, whist acknowledging the circumstances and events that contribute to indebtedness and insolvency.
To ensure best returns for creditors, whilst balancing the needs and interests of creditors and debtors.
Summary of Provisions Mandatory requirement for debtors to obtain money advice before
applying for bankruptcy. Debtor must undergo mandatory financial education if required by
Trustee. Common Financial Statement to be used in all cases to assess if debtor
can make a contribution. New Minimum Asset Procedure to replace Low Income, Low Asset
Bankruptcy route. Extension of DAS Intimation process to Bankruptcy and Protected
Trust Deeds. Acquirenda rule to be extended to four years. Abandoning automatic discharge. Controversial transfer of powers from Courts to Accountant in
Bankruptcy The requirement for creditors to submit claims within 120 days.
Mandatory Money Advice Requirement
Currently not possible to enter other formal debt remedies without advice Protected Trust Deeds – Insolvency Practitioners
Debt Arrangement Scheme – Approved money Advisers and Insolvency Practitioners
New requirement brings debtor applications for sequestration into line with other formal statutory debt remedies.
Verdict: Widely welcome by stakeholders.
Requirement for Financial Education
Mandatory only for debtors where Trustee requires them to undertake it, but not in all cases.
Debtor may be required to undertake course if
Previously in a formal or informal debt remedy within five years of award of sequestration; and
Undertaken such a course would be appropriate
Requirement for Financial Education
Debtor not required to undertake course if debtor would not be able to participate for health reasons; or previously completed course in last five years.
Refusal to undertake course may result in delayed discharge.
No specific provisions for appeal of Trustee’s decision.
Verdict: cautiously welcomed. Questions regarding appropriateness of undertaking course in many cases and effectiveness of it.
Requirement for Financial Education
Proposed Stage Three Amendments:
Trustee must make decision as to whether to issue notification within 6 months of date of sequestration; or
Where debtor cannot be located as soon as possible once the debtor has been located.
Common Financial Statement Already now standard Common Financial Tool for
Protected Trust Deeds and Debt Arrangement Scheme.
To be used to assess debtors ability to make contributions in bankruptcy.
Verdict: Welcomed generally, though concerns raised that there can be no one size fits all solution. It is believed CFS will allow this flexibility and was preferred Common Financial Tool by Money Advice Sector.
Minimum Asset Procedure Acceptance by Scottish Government their fee increase
for bankruptcy, including those applying through Low Income, Low Asset Route, excluded many debtors.
New procedure will replace Low Income, Low Asset Route into Bankruptcy.
More restrictive than LILA, however.
Minimum Asset Procedure Debtor must be assessed as:
not being able to make a contribution; or
Being in receipt of a prescribed benefit for 6 months before the date of sequestration.
Must have debts of between £1,500 and £17,000 (LILA had no debt cap).
Debtor must not have assets of more than £2,000 or anyone asset of more than £1,000.
Minimum Asset Procedure Cannot have used MAP in last ten years, or being bankrupt
in last five years.
Cannot own heritable property.
Cars under £3,000 exempt as assets, if reasonable require as are other normally exempt assets in bankruptcy.
AIB to be trustee in all cases.
AIB, Rosemary Winter Scott, has given guarantee application fee will be £100 or less.
Minimum Asset Procedure Debtor entitled to discharge after 6 months with
certain conditions still applying re obtaining credit and trading under business names.
Debtor whose circumstances change before discharge, can be transferred to normal, full bankruptcy.
Verdict: concern over short discharge period, which remains automatic. Concern remedy will not be as accessible as LILA.
Moratorium on Diligence Replaces current provisions for Intimation of an intention
to apply for a Debt Payment Programme and extends them to Protected Trust Deeds and Sequestration.
6 week protection period from diligence and petition of sequestration being raised.
Can only apply once ever 12 months.
Also applies for partnerships, unincorporated bodies etc. considering sequestration
Moratorium on Diligence Moratorium ends when 6 weeks expires, unless debtor
applies for
Sequestration;
Protected Trust Deed; or
Debt Payment Programme
Verdict: Welcomed generally by stakeholders.
Acquirenda Now extended to four years.
No longer connected with discharge.
Automatic Discharge Automatic discharge is to be repealed
Where AIB not Trustee, trustee must send to the AIB a report before the end of 10 months from the date of sequestration.
AIB will decide whether to grant discharge at 12 months or defer discharge.
Debtor and Trustee have right of review of AIB Decision and appeal to sheriff.
Automatic Discharge Where AIB is Trustee, they will decide whether to discharge
debtor at the end of 12 months and notify of their decision
Debtor
Creditors
Debtor will have right of review and appeal to sheriff of decision to not discharge.
Verdict: Mixed with many concerns this will increase confusion and lead to increase in undischarged banrkupts
Transfer of Powers Transfer of a number of powers from the court to the
AIB.
Continuation of pattern began with Bankruptcy and Diligence Etc (Scotland) Act 2007, such as with power to award debtor applications.
Some powers administrative, some not and arguably controversial
Transfer of Powers Powers being transferred:
Power to cure defects Power to recall sequestration Power to award Bankruptcy Restriction Orders Power to award Debtor Contribution Orders Power to defer discharge Power to giver direction to Trustees Power to reopen sequestration
Most powers allow a right of review and ultimatelyappeal to Sheriff.
Additional Changes Abolition of composition in bankruptcy
Power to refuse bankruptcy if inappropriate
Debtor Contribution Order Introduces new provisions into Bankruptcy (Scotland) Act
1985
S32A: Debtor Contribution Order
S32B: Payment Period and Intervals
S32BA: Review and appeal
S32C: Effect of Debtor Contribution Order
S32D: Deductions from Income and Earnings
S32E: Variation and removal of order
S32F: Payment Break
S32G: Review and Appeal
Debtor Contribution Orders AIB must set a debtor contribution order (which can be
zero):
In the case of a debtor’s application at the date of awarding sequestration;
In the case of a creditors petition, after considering the initial proposals by the trustee.
The trustee in a creditor’s application must send a report to the AIB within 6 weeks of the date of sequestration.
Before making an Order the AIB must use the CFS to assess a debtor’s contribution
Debtor Contribution Orders A Debtor Contribution Order may provide for a third
person to make payments of money due to the debtor to the Trustee
Where such an order is made regards a third party, they are no longer liable to the debtor for such amounts.
Eg. employers, tenants Etc.
Debtor Contribution Orders Following the making of such an order the AIB must
notify:
The debtor
The Trustee
Any third party named in the order.
No order shall take effect for 14 days from the making of the order.
Payment Periods and Intervals Where the contribution order is not set at zero, it must
contain details as to the payment period and intervals payments are to be made.
Payment Periods and Intervals payment period means—
the period of 48 months beginning with the date of the first payment; or
such shorter period as is determined by the person making or varying the order (but only where ingatherings would pay the debts in full); or
The order can be for a longer period Where the debtor has missed payments due under the
Contribution Order; or is
Agreed by the debtor and trustee
Payment Periods and Intervals The AIB must state what the date of first payment is
when making a Contribution Oder and also state, what date is the date of first payment and where a zero order is granted the deemed date of first payment.
Reviews and Appeals A review of the AIB’s Order can be requested by the:
Trustee; or the
Debtor; or
Any other interested party.
Applications for review must be made within 14 days of the order being made.
The order is suspended until an determination is made.
Reviews and Appeals The AIB before making a determination must take into
consideration any representation made by any interested party within 21 days of the application being made.
The AIB must make a determination within 28 days of an application being made.
A further right of appeal is possible to the Sheriff by the debtor or trustee within 14 days of a determination being made by the AIB.
Effect of Contribution Order The debtor must pay any contribution order as made
by the AIB or varied to the Trustee, irrespective of the debtor’s discharge.
If there is sufficient ingathering's into the debtor’s estate to satisfy all the debtors debts, the Order ceases to have effect.
Deductions from Earnings Where the debtor or a third party is required to pay to the trustee
amounts from income or earnings:
The debtor must give instructions to the employer or person responsible for paying income or earnings to the debtor to make those payments to the trustee.
Where the debtor fails to give such instructions and misses two payments, the Trustee may give such instructions.
The party due to make such payments is not liable to the debtor for any sums paid.
The Scot Gov may make regulations in relation to how such orders are made, the consequences of them and the effect of any failure.
Variation and Removal of Order The Trustee may vary or quash any Contribution Order
if:
On application of the debtor if their circumstances change;
If the Trustee considers it appropriate where the debtor’s circumstances change;
If the Trustee considers it appropriate when Sending a discharge report after 10 months to the AIB; or
By the AIB when granting a discharge, where the AIB is Trustee
Variation and Removal of Order The Trustee use the CFS when deciding to vary or quash a
Contribution Order.
No decision to vary or quash an order shall take effect until 14 days after it is made.
On deciding to vary, quash or refuse an application to do so, the Trustee must notify: The debtor The AIB Any third party Any interested party.
Payment Break The Trustee on the application of a debtor may extend the
contribution period by up to six months by granting a payment break, where:
The debtors disposable income has fallen by 50% and has not previously applied for a payment break and the following circumstances apply
The loss of employment, or a change in employment; the birth or adoption of a child or the need to care for a dependant; a period of illness; a divorce or dissolution of a civil partnership; a separation in a marriage or civil partnership; the death of a person who cared with the debtor for a dependant
Payment Breaks Problems:
Debtor may apply; does not need to. However, debtors ability to make contributions may be affected.
If not married and partner dies, cannot apply unless has dependant, but may still be unable to afford contribution.
A separation from unmarried partner may affect ability to make contribution, but cannot apply.
Debtor not refusing to co-operate. Debtor cannot apply for payment break. Can trustee extend contribution period?
Doesn’t allow debtor’s who suffer emergencies to apply.
Verdict: not controversial, but legally problematic and not very transparent how it will work. Also could extend payment periods to 54 months.
Reviews and Appeals Debtors have right to review and ultimate appeal
against decisions of
Trustee to vary contribution orders;
Refuse payment breaks.
