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Low Income, Low Assets - A new route into bankruptcy: Consultation on proposed regulations


Allan Wilson, MSP photo


I introduced the Bankruptcy and Diligence etc. (Scotland) Bill, which was passed on 30 November 2006 and received Royal Assent on 15 January 2007, in order to provide a better balance between the rights and duties of creditors and debtors in a modern bankruptcy system. The Act as passed supports the "can pay, should pay" principle, and many of the reforms will help creditors recover their debts.

Unfortunately, not everyone can pay. If access to debt relief is too hard then people will be stuck in a debt trap with no chance of escape. If access is too easy then creditors will lose money that could and should have been paid. A balance must be struck, but debtors should be able to bankrupt themselves if they are genuinely unable to pay their debts.

In Scotland, the current law assumes that when a creditor takes enforcement action and is not paid then the debtor is insolvent and can apply for bankruptcy. Such a debtor is described as being Apparently Insolvent. However, people can be unable to pay their debts without being Apparently Insolvent because none of their creditors are willing to use enforcement. This may be because the debtors have no income or assets and are not worth chasing. It may be because the creditors are happy to wait and see if the debt is paid, safe in the knowledge that the sum due will increase over time as a result of interest and penalty charges.

Many people with severe debt problems never become Apparently Insolvent. Some people have too little property to persuade creditors to spend money trying to enforce their debts using diligence, and not enough property left to pay for a Protected Trust Deed. These debtors are stuck in a debt trap. They are most likely to be found in low income communities that are also vulnerable in other ways. A creditor who does not use diligence is still likely to try and collect the debt. Letters, phone calls and visits may continue. The debt may be sold at a discount, and with each sale there is a further attempt at collection. Interest and charges on loans will be applied to the debt, making the problem progressively worse. The pressure from these factors is known to lead to illness, and social problems such as families breaking up.

The Executive set up an independent debt relief working group to consider the extent of the problem of people not having access to debt relief, and make recommendations for reform. The main recommendation of the working group was
that debtors with Low Income and Low Assets should have a new path into debt relief. In response to this the Bankruptcy and Diligence etc. (Scotland) Act 2007 creates a new route into Bankruptcy for Low Income, Low Asset debtors. The Act provides an outline of this new route into Bankruptcy and the details of how it will work will be set out in Regulations.

I am therefore seeking views on the content of the proposed Regulations.

Allan Wilson, MSP photo

Allan Wilson, MSP
Deputy Minister for Enterprise and Lifelong Learning