The Debtors Landscape
The BADAS Bill:
1ObjectivesTo 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.
2Key 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 ProvisionsMandatory 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 BankruptcyThe requirement for creditors to submit claims within 120 days. Mandatory Money Advice RequirementCurrently not possible to enter other formal debt remedies without adviceProtected Trust Deeds Insolvency PractitionersDebt 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 EducationMandatory 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; andUndertaken such a course would be appropriate
Requirement for Financial EducationDebtor 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 Trustees decision.
Verdict: cautiously welcomed. Questions regarding appropriateness of undertaking course in many cases and effectiveness of it.
Requirement for Financial EducationProposed 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 StatementAlready 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 ProcedureAcceptance 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 ProcedureDebtor must be assessed as:not being able to make a contribution; orBeing 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 ProcedureCannot 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.12Minimum Asset ProcedureDebtor 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 DiligenceReplaces 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 sequestrationMoratorium on DiligenceMoratorium ends when 6 weeks expires, unless debtor applies for Sequestration; Protected Trust Deed; or Debt Payment Programme
Verdict: Welcomed generally by stakeholders.
AcquirendaNow extended to four years.
No longer connected with discharge.Automatic DischargeAutomatic 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 DischargeWhere AIB is Trustee, they will decide whether to discharge debtor at the end of 12 months and notify of their decision
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 banrkuptsTransfer of PowersTransfer 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 controversialTransfer of PowersPowers being transferred:
Power to cure defectsPower to recall sequestrationPower to award Bankruptcy Restriction OrdersPower to award Debtor Contribution OrdersPower to defer dischargePower to giver direction to TrusteesPower to reopen sequestration
Most powers allow a right of review and ultimatelyappeal to Sheriff.Additional ChangesAbolition of composition in bankruptcyPower to refuse bankruptcy if inappropriate
Clause Four & The BADAS Bill 22Debtor Contribution OrderIntroduces new provisions into Bankruptcy (Scotland) Act 1985
S32A: Debtor Contribution OrderS32B: Payment Period and IntervalsS32BA: Review and appealS32C: Effect of Debtor Contribution OrderS32D: Deductions from Income and EarningsS32E: Variation and removal of orderS32F: Payment BreakS32G: Review and Appeal
23Debtor Contribution OrdersAIB must set a debtor contribution order (which can be zero):
In the case of a debtors 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 creditors 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 debtors contribution
Debtor Contribution OrdersA 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 OrdersFollowing the making of such an order the AIB must notify:The debtorThe TrusteeAny third party named in the order.
No order shall take effect for 14 days from the making of the order.
Payment Periods and IntervalsWhere 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 Intervalspayment period means the period of 48 months beginning with the date of the first payment; orsuch 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 periodWhere the debtor has missed payments due under the Contribution Order; or is Agreed by the debtor and trustee
Payment Periods and IntervalsThe 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 AppealsA review of the AIBs Order can be requested by the:Trustee; or theDebtor; orAny 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 AppealsThe 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