New laws will help and hinder debtors

Legislation regarding debt is about to change. Picture: John Devlin
Legislation regarding debt is about to change. Picture: John Devlin
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THE Bankruptcy and Debt Advice Scotland Bill – its BADAS acronym always managing to raise a smile even amongst insolvency practitioners – will come into effect this April.

The new rules will make bankruptcy an even tougher option but there are also concerns they could work against those who are owed money. We will see a triaging of debtors to help ensure they end up with an appropriate solution given their circumstances, attempting, where possible, to prevent them from having to enter into insolvency, but offering rehabilitation when they do.

Sequestration will become a much tougher option as discharge for debtors is no longer guaranteed after one year and any assets which they inherit or acquire can be seized for up to four years after declaring bankruptcy.

Debtors will also find their income and expenditure under greater scrutiny with a new tool in place to regulate allowable expenses and track any surplus income they may have.

Meanwhile, creditors will have to meet tighter guidelines on providing paperwork to support their claims. They will also face a six-week moratorium on diligence when an application is made for bankruptcy which could result in them incurring costs which they cannot recover. 

Debtors could therefore employ delaying tactics to discourage creditors taking action.

Insolvency practitioners will also now be responsible for determining the discharge of a debtor and whether they have any requirement for financial education.

In theory, these powers could help ensure greater cooperation from a debtor. While the intentions behind the Bill are sound, there are question marks as to how effective it will be in changing consumer behaviour in a society which is often heavily reliant on credit.

Like any new insolvency legislation, however, it will take careful interpretation of the new rules to ensure it will not become a charter for unscrupulous individuals to play the system.

• Donald McNaught is a restructuring partner at accountancy firm Johnston Carmichael#


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