Related Information
Changes to Bankruptcy Law in Scotland with effect from 1 April 2008
The Scots equivalent to The Insolvency Service is operated by the Accountant in Bankruptcy (AiB), who has publicised the changes that occur to Scottish "bankruptcy" law with effect from 1 April 2008.
More details on those changes are available on the AiB website.
If you have any queries on the changes, Sandy McFadyean of the AiB will gladly deal with them. Email Sandy McFadyean or call on 0845 612 6559.
The Scottish Debt Arrangement Scheme is a new voluntary scheme that will be introduced into Scotland in November 2004. Under the scheme anyone with debt problems (who has surplus income, more than one debt and is not otherwise excluded by the regulations) may volunteer to set up an arrangement. This will be done through a registered debt counsellor. A debt counsellor must be approved under the regulations and work in Scotland to register a debtor with the scheme. It is the intention that there will be approved advisers in place throughout Scotland.
Under the terms of the scheme the debtor will have a period in which they must pay back their debts at an agreed rate approved by the creditors. Creditors not responded to repayment proposals within 21 days will be deemed to have approved to the scheme. Typical periods might be around 5 years. Providing the debtor keeps up their repayments under the programme, creditors will not be able to enforce their debts through the courts. The debtor is not allowed any further credit, if the debtor fails to meet the agreed terms of the scheme (including any variations made during the life of that programme) then they forfeit the protection of the scheme.
The scheme starts at the end of November 2004.
An electronic feed for bulk users has been proposed, and is awaiting approval from the Minister concerned.
Experian already has a design project underway to design the Experian systems to receive the data. For the most part the scheme records will be treated in the same way as other bankruptcies and will appear as special types of Bankruptcies on systems. This means that the changes on client systems will be slight and mostly to do with policy rules settings, look up tables, help text and documentation.
Experian plans to introduce the new data at the same time as the new Enterprise act impacts the bureau in March 2005 as part of a core release. The number of arrangements granted between November and the availability of an electronic feed from the Accountants in Bankruptcy (AIB) is expected to be very small.
The Delphi scores will not be changed until we have seen the scheme in operation for a time and have had an opportunity to assess the behavioural change.
Impact on bankruptcy in England and Wales
From 1 April we will see the first significant change in personal bankruptcy rules for many years. These changes are enacted through the Enterprise Act 2002, which applies to England and Wales. Separate regulations will be operative in Scotland and Northern Ireland in due course.
One of the Government's aims is to provide a modern bankruptcy regime that encourages entrepreneurship and provides a fresh start to those who have failed through no fault of their own. As such it is hoped that much of the stigma associated with bankruptcy will be reduced.
Currently a Bankruptcy Order (BO) usually lasts for three years, but can be lifted after 2 years if the debt is below £20,000. However it can go on for longer if an individual has previously been made bankrupt.
From April, Bankrupts who have failed through no fault of their own and who co-operate with the Official Receiver will be discharged from their debts and released from restrictions after a maximum period of 12 months. Alongside this, a new Bankruptcy Restrictions Order (BRO) regime will be created, where the minority of bankrupts who have abused their creditors will face restrictions from between two and fifteen years.
The Government's hope is that because bankruptcy has been made less onerous, more entrepreneurs will take the step the start a business. If the business then fails, the entrepreneur will be encouraged to start again. However lenders fear that individuals will see this easier bankruptcy regime as a way out of their debts, leading to a huge rise in the number of people going bankrupt. Experian will be monitoring numbers closely from April to gauge the real impact of this.
The Enterprise Act as a whole, which in addition to reforming bankruptcy rules is also aimed at opening up markets, increasing competition and improving consumer protection and corporate rescue procedures, has met with a mixed press. Some commentators feel it runs the risk of satisfying neither businesses nor consumers. Others see a relaxation of the personal bankruptcy rules as being a catalyst for higher levels of bankruptcies, with the credit card and unsecured loans sectors in particular being expected to be hard hit.
Bankruptcies in the UK are already running at the highest level for more than a decade, with DTI figures for the third quarter of 2003 showing almost a 17% increase with the same three-month period a year ago. This is borne out by the increase in bankruptcies on Experian's business and consumer databases which have shown a steady year on year increase now running at around 24k new BOs per year. Of these around 65% relate solely to individuals, with the remaining 35% having a business association.
In the UK it is common for lenders to take bankruptcies into account in assessing applications for a loan, sometimes whether that BO has been discharged or not on the basis that it may be indicative of risk. Experian is currently analysing and profiling the characteristics of bankruptcy, using the power of its Consumer Indebtedness Index as a means of predicting levels of personal over-gearing which may contribute to a subsequent bankruptcy. Going forward it will be as important for lenders to be able to predict a potential bankruptcy position as to be aware of a BO once granted or discharged.
Notwithstanding the new regime, bankruptcy data will continue to be available on Experian databases for 6 years and in the case of BROs that extend for longer than 6 years, consideration is being given as to how they may best be supplied.
It is also important that steps are taken by the Insolvency Service to provide accurate and timely information on new and discharged BOs and the new BROs and BRUs in order for this data to be built into lending decisions in order for the Government's fresh-start philosophy to be supported. Experian is in dialogue with the Insolvency Service who is looking to streamline and automate the provision of data, including BO, BRO and Discharge.
Experian considers that while the level of personal bankruptcies in the UK may increase as a result of the relaxation of the rules, the fact that lenders take a BO into account in risk profiling means that there will be no easy access to credit even after the order has been discharged. Filing for bankruptcy should still be seen as a last resort.
Disclaimer: The information contained on this webpage is provided for general guidance only. It is not intended to provide you with professional advice nor is it intended to substitute you obtaining professional advice.