The UK Government has announced several new changes that it intends to introduce for Debt Relief Orders (DROs), that apply only in England, Wales, and Northern Ireland.
These solutions are like Scotland’s Minimum Asset Bankruptcy Procedure (MAPs) and offer consumers with little income, and little to no assets, a solution for dealing with their debts and writing them off after a relatively short period of time.
However, there are several key differences between the solutions and these differences will soon become more pronounced when changes proposed by the UK Government to Debt Relief Orders come into effect.
The Question is, then, is there more the Scottish Government should be doing to improve the Minimum Asset Procedure in Scotland?
Already, because of Covid 19, they have introduced emergency laws last year, that have now become permanent, and have improved the Scottish option in many areas, but still in one key respect, the level of income ignored, the Scottish solution still lags.
|Maximum Debt Level
- Proposed changes
- In Scotland, Student Loans are ignored when calculating the maximum debt level
- No single asset can be worth more than £1,000
- Application fees are waived when someone is in receipt of a benefit. The vast majority of MAP applicants will pay no application fee in Scotland
Maximum Debt Levels
Both options are similar in the maximum level of debt you can introduce, however, the new proposed changes to DROs in the UK will mean up to £30,000 in debt can be included, whereas the maximum debt that can be included in Scotland is only £25,000.
However, in Scotland, where you have Student Loans, which liability for is not discharged in either solution, these are ignored when calculating the maximum debt levels. This for some will mean a MAP is a viable option in Scotland, when they have higher non-student loan debts, than it will in the rest of the UK, even when their non-student loan debts are lower.
However, this will not help those in Scotland without student loan debt, who may find if they lived in England could do a DRO, but in Scotland cannot. This, however, won’t prevent them using a Full Administration Bankruptcy in Scotland, which may only last12 months, like a DRO in the rest of the UK.
This is one of the biggest differences between the two options, with DROs ignoring the first £75 of someone’s disposable income (what is left after their essential expenditure is taken off their income). In Scotland, no such provision is made, meaning if you have just £5 left each month from income that a contribution can be taken from, you cannot use the Minimum Asset Procedure.
It should be noted, however, that no contribution in either solution can be taken from benefits, so the only income that a contribution can be taken from is non-benefit income.
This undoubtedly is a shortcoming in the Scottish Solution, as what it means is in England, Wales, and Northern Ireland, where you have under £75 per month, you can keep it. In Scotland, not only can you not keep it, but you cannot use the Minimum Asset Procedure. You would then have to use the Full Administration Procedure (the equivalent to Bankruptcy in the rest of the UK) and unlike in England, Wales, and Northern Ireland, you would need to pay the money for four years and not just three.
Although in relation to both solutions these look the same, with the maximum assets you can own being anything up to £2,000, in Scotland, there is one key difference in that no one asset can be worth more than £1,000.
However, in Scotland’s defence the extent of assets that are disregarded for the purpose of MAPs are more extensive (see here).
Scotland since 2010, has set the value of a car that is exempt for the purposes of a MAP and Bankruptcy at £3,000 (although it has not increased since then), whereas in the UK the value of car exempt for a DRO will only be set at £2,000.
The only other caveat in Scotland worthy of note, is the applicant must show they have a reasonable requirement for the car.
This is the other big difference between the solutions, in that in a MAP in Scotland, the solution only last 6 months, and after that the consumer becomes debt free. In the rest of the UK, the solution lasts 12 months.
Although it should be noted, in Scotland, even if you have £5 disposable income per month, you will not be able to use the Process and instead will have to use Full Administration Bankruptcy and pay for 4 years.
The other big difference now, since Covid 19 emergency legislation was introduced, is the amount it costs someone to apply for the procedure. In the rest of the UK, the fee is £90 (as it was for Minimum Asset Bankruptcy prior to Covid 19). In Scotland, however, that fee has now reduced to £50 and where the applicant is in receipt of several different benefits, the fee is waived. This means almost no-one in Scotland will pay an application fee, whereas in the rest of the UK, even after the new changes are introduced, the fee will remain £90.
There are several differences between both solutions, as can be seen, but on the face of it where the Scottish solution lags, when considered more widely, it is not as far behind Debt Relief Orders as it may appear. In actual fact, in many respects, MAPs appear superior.
However, it does appear the big difference in relation to both is the difference in how disposable income is treated, with many consumers having to use Full Administration Bankruptcy in Scotland for relatively small sums of disposable income.
Considering this may result in them having to pay for four years, this appears to be disproportionate; and from a policy perspective may be counterproductive. It may result in low-income households giving up relatively small additional sources of income, like part time jobs, just to avoid being excluded from the Minimum Asset Procedure.
The arguments in favour of Scotland, therefore using a similar approach to the rest of the UK and disregarding the first £75 of disposable income, appears overwhelming