Bankruptcy and debt advice review: consultation

1. Ministerial Foreword

In April 2015 the Scottish Government introduced the most significant and wide-ranging reforms to bankruptcy law in Scotland for 30 years. These changes sought to deliver a fair and equitable insolvency system that balances the needs of those struggling with unsustainable debts while safeguarding the interests of both creditors and other borrowers by providing that those who can pay their debts do pay their debts. The Scottish Government now seeks your views on the changes that were introduced and whether any further improvements are needed.

The reforms reinforced the Scottish Government's emphasis on people receiving appropriate advice prior to embarking on any of the statutory debt solutions operating in Scotland. Following the introduction of these changes, advice from a qualified person prior to entering self-nominated bankruptcy became a statutory requirement, replicating the arrangements already in place for accessing a Protected Trust Deed or the Debt Arrangement Scheme. We recognised the need for some breathing space to make that decision and introduced a moratorium period to provide those that need it, time to seek advice about the right solution for them. We also sought to introduce the concept of financial education in certain circumstances in bankruptcy to help support financial capability. We recognised that some people in need of debt relief required specific arrangements to be made where they had few assets and no ability to make a contribution towards their debts. We introduced a new and lower cost route into bankruptcy allowing an individual in these circumstances to obtain debt relief more quickly and at a reduced cost.

One of the key aims was to provide greater transparency for those entering bankruptcy by bringing forward the process of assessing the expected contribution where appropriate. As part of that, we introduced a single tool - the Common Financial Tool - to promote consistency, fairness and transparency in the assessment of household income and expenditure and determination of the level of contribution an individual would be able to pay in any of our statutory debt solutions. Last year we consulted on the future of this tool and brought forward plans to adopt an alternative model as the Scottish Common Financial Tool. This issue in particular has sparked much debate and discussion in recent months and highlighted the need to undertake further consultation and analysis before deciding on future arrangements. This is an important aspect of this consultation and it is critical that we maintain as much consistency and transparency in the system while ensuring that the outcomes are fair for both those facing problems with debt and the creditors that are affected.

The Scottish Government is committed to continuous improvement and we want your feedback on the effectiveness of these reforms. This document asks for your feedback on a number of changes that were introduced and your feedback will be used to determine what improvements are needed to ensure our solutions continue to be effective.

Your feedback is vital and I look forward to hearing your views.

Jamie Hepburn MSP
Minister for Business, Fair Work and Skills