Scottish Debt Solution League Tables

Scottish Debt Solution League Tables

Information from the Scottish Government, covering the period from the 20th December 2020 and the 30th of September 2021, shows which organisations provided debt solutions to people struggling with problem debt over that period.

The Scottish Debt Arrangement Scheme

The Scottish Debt Arrangement Scheme is a formal debt repayment plan that allows people to repay their debts. Under the Scheme, those struggling with problem debt can propose to repay their debts to their creditors, using just one payment per month, through a Payment Distributor. Importantly, the Scheme is free to those in debts, although creditors who have their debts included in a Scheme have to pay 22% towards the cost of setting up and administering the Scheme.

The Scottish Government only report organisations that have done more than 25 DPPs. The rest are included in other.

Money Advice Organisation Number of Approved DPPs.
Carrington Dean Group2,035
Harper McDermott592
J3 Debt Solutions241
Interpath Advisory88
Wilson Andrews67
Begbie Traynors61
Citizen Advice Fife37
Wylie & Bisset30

Local Authorities and Citizen Advice Bureaux

Local Authority and Citizen Advice Bureaux, not for profit, local advice organisations also provide Debt Payment Programmes. In the list above (organisations that have done more than 25) only one of these types of organisations appeared, and that was Citizen Advice Rights Fife. Of those “Other” Organisations, 165 DPPs were carried out by Local Authorities and Citizen Advice Bureaux.

Organisation TypeNumber of DPPS Approved
Local Authorities69
Citizen Advice Bureaux96

Bankruptcy: Certificate of Sequestration

For people in Scotland to apply for their own Bankruptcy (also known as Sequestration), they first need to have a Certificate of Sequestration signed.  Between the 1st December 2020 and the 30th September 2021, the following organisations signed Certificates of Sequestration. 

There are two processes that can be used when someone is going Bankrupt in Scotland, one is Full Administration Bankruptcy and the other is using the Minimum Asset Procedure. The figures for Certificates of Sequestration are broken down into the two procedures used.

Money Advice OrganisationNumber of Certificate of Sequestrations (MAP)
Citizen Advice Rights Fife115
Christian Against Poverty44
South Lanarkshire Council – Money Matters39
West Lothian Council37
Inverness, Badenoch and Strathspey CAB30
Aberdeen Council28
North Lanarkshire Council27
Moray Council27
Haddington CAB25
Scottish Government only report organisations doing more than 25 Certificates of Sequestration
Money Advice OrganisationNumber of Certificate of Sequestrations (FAB)
Wylie and Bisset36
The Scottish Government only report Organisations that have done more than 25 COS

Protected Trust Deeds

Protected Trust Deeds are a type of personal insolvency in Scotland and must be administered by private insolvency practitioners.

Trustee OrganisationNumber of Protected Trust Deeds
Carrington Dean1,549
Harper McDermot1,349
J3 Debt Solutions473
Wilson Andrews249
Interpath Advisory197
Wylie and Bisset146
YEG Insolvency (formally AGT Insolvency)95
Begbie Traynors36
Hanover Insolvency34
Parker Phillips Insolvency26
Are Further changes Required for Minimum Asset Bankruptcies in Scotland?

Are Further changes Required for Minimum Asset Bankruptcies in Scotland?

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 LevelIncome IgnoredAsset LevelsCar ExemptionDuration Application Fee
MAP£25,000 (2)£0.00£2,000 (3)£3,0006 Months£50 (4)
DRO(1)£30,000£75£2,000£2,00012 Months£90


  1. Proposed changes
  2. In Scotland, Student Loans are ignored when calculating the maximum debt level
  3. No single asset can be worth more than £1,000
  4. 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.

Income Ignored

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.

Assets Levels

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).

Car Exemptions

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

The Accountant in Bankruptcy’s Shame: Bankruptcy Application Fees

The Accountant in Bankruptcy’s Shame: Bankruptcy Application Fees

New Research carried out for the Accountant in Bankruptcy (AIB), has provided an invaluable insight into Scotland’s Minimum Asset Bankruptcy procedure (MAP).

Importantly the research has also provided the first real insight into how consumers find the application fees that are required for them to apply for bankruptcy.

The fees are charged by the Accountant in Bankruptcy and are £90 and £200 respectively for Minimum Asset and Full Administration Bankruptcies.

The research carried out by EKOS, an Independent Economic and Social Research Consultancy based in Glasgow, investigated the experience of people using bankruptcy as a means of dealing with their over-indebtedness and focused on Minimum Asset Bankruptcies in particular.

What are Minimum Asset Bankruptcies?

Minimum Asset Bankruptcies are a type of Bankruptcies that allow people who cannot afford to contribute to their bankruptcy to use an administrative lite version of the Full Administration Bankruptcy process.

In addition to not being able to contribute anything financially to their bankruptcy, applicants must also have debts of less than £17,000 and cannot own any heritable property, such as a home.

In 2018-19 of the 4,873 bankruptcies awarded in Scotland, 44% were Minimum Asset Bankruptcies.

The Application Fee

Ever since 2008, Scots who have applied for their bankruptcy have had to pay an application fee. 

No fee waiver is available for application fees, even if the applicants are on a low income or wholly in receipt of social security benefits, which is almost always the case in relation to those that use Minimum Asset Bankruptcy.

This is in stark contrast to the position prior to 2008 when a legal fee waiver was available for those in receipt of an income-based benefit.

The research found that of those surveyed over one third of those who applied for Minimum Asset Bankruptcies had to either borrow the money or apply to a charity for the fee to be paid.

The report also found that almost three quarters of those surveyed found that paying the fee was either “somewhat hard”, “Hard” or “Very Hard”.

The research also provided an insight into the reason people who use MAP became over-indebted in the first place.

Only 31% attributed their problem debts to overspending, with the remaining 69% attributing the cause to changes in their circumstances that led to financial hardship. Importantly, 62% attributed the cause to health problems.

Additional insight was also provided by the research that shows of those surveyed 77% said they suffered mental health problems, whilst 48% said they had mobility issues and 35% said they had physical health problems that affected their stamina, breathing or left them feeling fatigued.

Despite the research painting a picture of people that on the whole appear to be suffering from low incomes and were suffering financial hardship as a result of changes in their circumstances, and who were struggling with both physical and mental health problems, disappointingly EKOS does not recommend an abolition of the bankruptcy fee or the introduction of a fee waiver.

Why, is unfathomable, as it would appear the only reasonable conclusion that can be reached is the application fee for both Minimum Asset and Full Administration Bankruptcies is causing some of the most vulnerable financial hardship.

EKOS, does state in defence of the application fees:

“There is a clear rationale for the upfront application fee. It makes a contribution towards the administration cost associated with processing MAP bankruptcy applications and awards. Further, the decision to apply for MAP bankruptcy should not be taken lightly, and the fee helps people consider this formal debt solution more seriously. It has appropriately been pitched lower than that which applies to Full Bankruptcy”

However, such a conclusion can only be treated with some cynicism.


First, EKOS has no expertise in the area of debt and bankruptcy.

Second, access to debt relief is an access to justice issue. Prior to 2008, Bankruptcy was a court process and it was only removed from the Courts for administrative purposes. When it was part of the court process, fee waivers were available through the legal aid system. The nature of bankruptcy has not changed, an as such as a legal remedy, it should be available to people regardless of whether they can afford it or not.

Thirdly, the idea that people who are bankrupt are being forced to borrow money on the eve of their bankruptcy is highly irresponsible. Particularly as by their own admission and that of their  money adviser or insolvency practitioner, they cannot pay their debts as they fall due.

Fourthly, it is nothing short of cruel and inhumane to force people, many of whom are suffering mental and physical health problems, to go through a process many find difficult financially, and clearly causes many further hardships. This is particularly the case when you consider many of those applying for Minimum Asset Bankruptcies will be having some of their debts (council tax arrears, benefit overpayment, Universal Credit Advances) recovered from their benefits, and these will not be stopped until the bankruptcy application is made.  These people are, therefore, trapped between a rock and hard place of having debts recovered from their benefits, so they cannot afford the application fee, and cannot stop the deductions until they do.

Fifthly, it is a sad indictment that both the Scottish Government and the Accountant in Bankruptcy are knowingly relying on funds intended for charitable purposes to pay for their administration of bankruptcies, when in 2018-19 they distributed £18 million to creditors from bankruptcies, whilst recovering over £2 million in various fees they charge to bankruptcies themselves.

Sixthly, the cost of application fees is not just one borne by the bankruptcy applicant, their family and friends or charities, but also by the free advice sector who have to undertake the work of assisting clients to make applications to charities for bankruptcy fees.

Seventh, the argument that a fee has a cautionary effect on consumers, is absolute nonsense.

As EKOS research showed 76% of those surveyed only found out about the Minimum Asset Procedure after they spoke to a money adviser, so this idea that applicants would recklessly be making applications for bankruptcy if it wasn’t for the fee is nonsense.

Also, no bankruptcy application can be made without the assistance of a money adviser or insolvency practitioner, which provides important safeguards. This is strongly supported by the result from those surveyed on how they found the advice process, with high numbers of people stating they felt they were properly informed and advised of all options.

The simple truth is applications fees cause varying degrees of hardship for many very vulnerable people and the fee has no cautionary value, but acts a financial obstacle to people getting relief from their debt.

It’s appears obvious because of EKOS’s lack of experience in this area, few of these points were considered in making their recommendations and unfortunately means what is a good report, ends in a whimper.

Equally,  the fact that such weak arguments are made by the Scottish Government, whilst they blind themselves to the effects of their policies, is nothing short of dishonesty.

This is about money and it is about the Scottish Government being prepared to raise that money from some of the most vulnerable in society, even if it causes them suffering and even if they must beg and borrow to raise it.

That is morally bankrupt.

Who is Providing Money Advice in Scotland?

Who is Providing Money Advice in Scotland?

Despite experiencing cuts of up to 45% in funding between 2014 and 2017, new statistics produced by the Accountant in Bankruptcy (AIB), released under Freedom of Information legislation, shows that locally based, face to face money advice services across Scotland continue to be major providers of formal debt solutions.

By Agency Type

The statistics show, by agency, who is providing access to the Debt Arrangement Scheme (DAS) and issuing Certificates of Sequestration (COS) (the primary route used to enter bankruptcy).

Although the largest agency, by far, is Stepchange, the national debt charity, what is also revealed is that local, face to face money advice agencies (which includes local authority services, Citizen Advice Bureaux, and independent advice agencies) continue to provide more access to these debt solutions combined than any other agency type.

Also, as the AIB only list agencies by name where they have done more than 25 solutions within the last year, with 1,251 solutions not being attributed to any agency, the numbers for local, face to face service is likely to be higher.

Stepchange 1,1515481,69930
Insolvency Practitoners52126778814
Local Face to Face3171,4021,71913
Christians Against Povertyn/a70701

The breakdown for face to face advice agencies can be seen below:

Local Authority 16457173543
Citizen Advice Bureaux15371186450

National Providers

Interestingly, the statistics also show that (excluding private sector insolvency practitioners and Stepchange) national helplines and national debt charities provide very few solutions for clients in Scotland.

Christians Against Povertyn/a70704

This is important, as it is believed up to half of the Financial Conduct Authority Debt Advice Levy for Scotland, historically has been going to fund national helpline providers.

Interestingly, organisations like Advice Direct Scotland (who operate Citizen Advice Direct) and the National Debt Line are absent from the statistics altogether and Christian Against Poverty’s statistic are not much more than those of many local advice agencies.

This is also important, as when The Common Financial Tool regulations were passing through the Scottish Parliament, the Scottish Government tried to argue the evidence led by many local, face to face advice agencies was unrepresentative of the sector. Instead they relied on evidence of organisations who either don’t appear in these statistics or only play a small part in providing clients with formal debt solutions in Scotland.

Informal Solutions

However, the true significance of the figures are only understood when they are viewed in the light of the statistics produced by the Improvement Services into local authority funded, money advice services in 2016-17 (this included Citizen Advice Bureaux, council services, and independent advice agencies).

These showed that across Scotland these services reported approximately 111,000 contacts with clients, and of those approximately 49,000 were with new clients.

However, of the 8,022 debt strategies agreed with clients in that year, sequestrations only accounted for 16% , and the Debt Arrangement Scheme 8%.

This clearly shows that formal debt solutions represent a small, albeit significant, percentage of the solutions that were suitable for clients who sought advice from free sector, face to face money advice services in Scotland.

Statistic produce by Improvement Service

FCA Debt Advice Levy

These figures don’t cover Trust Deeds, which are exclusively provided by insolvency practitioners (private sector ) (there were 5,958 protected in Scotland in 2017-18).

What is clear, however, is that local face to face money advice services continue to be a major provider of formal debt solutions across Scotland.

What is also clear is that with FCA Debt Advice Levy Funding now being devolved to the Scottish Government, and with suggestions that up to 50% of it historically has been going to national debt charities, it is now time for these spending committements to be reviewed.

The Scottish Government is  currently consulting on how the funding should be spent from 2020 onwards.

It can only be hoped the importance of locally based, face to face money advice services across Scotland will be acknowleged.

Statistics on Debt Arrangement Scheme 2017-18 can be found here.

Statistics on Certificates of Sequestration 2017-18 can be found here.

AIB must change Life Insurance Policy Practice

AIB must change Life Insurance Policy Practice

IT is ironic that as the Scottish Government make plans to introduce a new benefit to alleviate funeral poverty, one of its agencies, the Accountant in Bankruptcy (AIB), has been cashing in on life insurance policies of people that have passed away.

This has led to bereaved families being left with no funds to pay for the funeral costs of their loved ones, sometimes forcing them into funeral poverty.

The reason the AIB has been taking the money is because under Scottish bankruptcy law, the rules state that once someone is made bankrupt all their assets, including interests in life insurance policies, become the property of the trustee in bankruptcy.

So, if someone dies during their bankruptcy, their trustee can take the money from their life insurance policy.

However, because of changes to the law in 2008, it has now been held by the Scottish Sheriff Appeal Court, that between 2008 and 2015, when someone was released from their bankruptcy, the policy became theirs again. After 2015 it returns to them four years from the date of their bankruptcy.

Up until this decision of the court, however, the view of the AIB was the policies belonged to it, even after the deceased person was released from their bankruptcy.

In one case I dealt with, I challenged the Accountant in Bankruptcy’s interpretation of an obscure 105-year old law, arguing that a life insurance policy is what is known as a non-vested contingent interest.

My argument was that a life insurance policy wasn’t payable until someone died, and therefore, the sum assured could not belong to anyone until the death occurred.

The AIB, however, ruled in its own interests.

The only option available to my client was to challenge the AIB through the courts, which meant taking the risk that if she was unsuccessful, she would have to pay for her brother’s funeral and the AIB’s legal costs.

Understandably, the lady chose not to take the risk.

However, the Scottish Sheriff Appeals Court has now held that this obscure area of law does in fact mean that interests in life insurance policies are non-vested contingent interests and are the property of the debtor once they are released from their bankruptcy, if made bankrupt after April 1, 2008; or if made bankrupt after April 1, 2015, after four years.

The question now needs to be asked, how many policies have been cashed in by the AIB after the debtor was released from their bankruptcy?

How many families have been left penniless on the death of a loved one, suffering funeral poverty and possibly debt by a government agency that is supposed to help people in debt?

It is incumbent on both the AIB and the Scottish Government Minister, Jamie Hepburn, to carry out a review of all policies that have been cashed in over the last five years and seek out the families that were denied funds they were legally entitled to.

It cannot be correct that a governmental body be allowed to benefit from its own mistakes, especially when those mistakes left families destitute on the passing of their loved ones.

For a Government that has stated it is intent on tackling the issue of funeral poverty, the first thing it can do is give people back the money that they were entitled to.

First published in The Herald on the 1st September 2018.

Money Advice Update – August 2018

Money Advice Update – August 2018

John McGleish v Graham Cameron Tough and Maureen Leslie

This case, decided by the Sheriff Appeals Court considered an obscure area of bankruptcy law, which has not seen much discussion, nor had much judicial consideration since its introduction in the Bankruptcy (Scotland) Act 1913.

The provision, now contained in section 78 (9) and (10) of the Bankruptcy (Scotland) Act 2016, (previously section 31(5) of the Bankruptcy (Scotland) Act 1985), relates to the non-vested contingent interests of the debtor.

The facts of the case were Mr McGleish and his wife took out a life insurance policy with critical illness insurance in 2001. They were then sequestrated in 2008 and received an automatic discharge in 2009. In 2010, Mrs McGleish passed away and her trustee took the proceeds from her life insurance policy.

The reason for this was the deceased’s interest in her life insurance policy was believed to vest with the trustee and was, therefore, a realisable asset that the trustee could use for the benefits of her creditors.

However, the argument put forward for Mr McGleish and which the Sheriff Appeal Court upheld, was that the life insurance policy constituted a non-vested contingent interest and, therefore on the discharge of Mrs McGleish in 2009, because of changes introduced by the Bankruptcy and Diligence Etc. (Scotland) Act 2008 (2008 Act), reinvested in her post-insolvent estate.

The argument being that the interest in a life insurance policy, which is only payable on death, only vests in the debtor on the purification of the contingency, which is death. The interest, therefore, is a non-vest contingent interest.

It is known that what constituted a non-vested contingent interest was never clear and even when the 2008 Act was passing through the Scottish Parliament one Scottish Government solicitor described it as unfathomable.

However, the argument has previously been made to the Accountant in Bankruptcy (AIB) that life insurance policies were non-vested contingent interests.

In one case that this author was involved in, they even gave a direction ruling against such an interpretation. It is, therefore, known that policies have been taken by the AIB, where it now is clear they had no legal basis for doing so.

Non-vested contingent interests now re-invest in debtors, not on their discharge, but if sequestrated after the 1st April 2015, on the expiry of 4 years from the date of their sequestration.

The Debt Arrangement Scheme (Scotland) (Amendment) Regulations 2018

The Scottish Government have put before the Scottish Parliament the latest changes being proposed for the Debt Arrangement Scheme.

The Regulations, which will be considered by the Economy, Jobs and Fair Work Committee, are aimed at increasing access to the Scheme, which in recent years has seen a substantial drop in the number of consumers applying to it.

They are also designed to reduce the likelihood of Debt Payment Programmes (DPPs) under the Scheme being revoked, after it was revealed that 2016-17 was the first year, in the history of the Scheme, which commenced in 2004, where more DPPs were approved than revoked.

The primary changes that are being introduced, are first to remove the requirement that debtors need to include all their debts in proposals to creditors.

This requirement was first introduced in 2013 and meant that even mortgage and rent arrears had to be included, despite the fact that although DPPs are diligence stoppers, they do not step creditors or landlords raising actions for repossession or eviction.

Although, the proposed changes do not exclude the possibility such debts can still be included, they allow, where they are omitted, for money advisers working with debtors to work with the debtor’s secured creditors and landlords to avoid any action for repossession or eviction. It may be that such changes will allow such creditors to obtain a priority status again and allow these debts to be cleared off quicker.

The other fundamental change that will be introduced will allow debtors to not have to offer their full disposable income to creditors when proposing a Debt Payment Programme. This change, it is believed, will be more controversial and some creditors may be inclined to object where they are offered only part of the debtor’s disposable income.

However, with the average length of a DPP now being over 7 years, the concern is that debtors are being expected to live on quite austere budgets, which although sustainable over the 4 year payment period in sequestration and protected trust deeds, is not suitable for longer term repayment plans. The counter argument to creditors who object to such proposals being that they will recover more through the Debt Arrangement Scheme, not only over its lifetime, but even in the first four years.

If passed the Debt Arrangement Scheme (Scotland) Regulations 2018 will commence on the 29th October 2018.

Common Financial Tool (Scotland) Regulations 2018

At the same time the new Debt Arrangement Scheme Regulations were laid in front of parliament, the Common Financial Tool (Scotland) Regulations were also laid.

The Common Financial Tool (CFT), first introduced on the 1st April 2015, is the income and expenditure tool that is used to determine how much debtors can pay towards their bankruptcy or protected trust deed. The preferred CFT is currently the Common Financial Statement ( CFS) that is produced by the Money Advice Trust, but the new regulations proposed this should become the Standard Financial Statement (SFS), which is owned by the Money Advice Service.

The decision by the Accountant in Bankruptcy to recommend the adoption of the SFS as the new CFT has proven controversial, as it is believed in some circumstances it may result in debtors paying more than they were required to pay under the CFS, or being required to pay a contribution where they were not required to under the CFS.

This is important, as one of the requirements for a Minimum Asset Bankruptcy, where the application fee is £90, is that the debtor cannot afford to make a contribution towards their bankruptcy. Where they can make a contribution, they must not only pay that contribution for 4 years, but also must use the Full Administration Bankruptcy procedure which has an application fee of £200.

Both tools are also controversial because of the way they are designed and formulated. Both break down a debtor’s expenditure into categories, such as essential expenditure and household expenditure. These categories, except the essential expenditure category, then have trigger figure assigned to them, based on the household composition of the debtor, which act as a rebuttable presumption that any expenditure over that amount is unreasonable.

The trigger figures for both Schemes are arrived at by looking at the average expenditure of the lowest 20% group contained in the Living Costs and Food Survey produced by the Office of National Statistics.

The argument why this is an inappropriate methodology to use to calculate trigger figures is that such a group are already living in poverty, with many dependent on means tested benefits to survive. Also the survey only shows what people are able to spend, rather than what they require to spend to afford a reasonable standard of living. The flaws in the methodology were recently exposed when the update trigger figures for the Common Financial Statement actually had some of the trigger figures being reduced at a time when it was clear living costs are increasing.

The regulations, however, have been withdrawn, as due to a timing error, they would not have been passed until after the summer recess and would have commenced on the 29th October 2018, leaving insufficient time for money advice agencies to adapt case management software systems and for training to be provided.

The Scottish Government have indicated they will resubmit the regulations after the summer recess with a view to commence them in April 2019.

New Bankruptcy Fee Regulations Laid

The Accountant in Bankruptcy have laid new Bankruptcy Fee Regulations.

The Regulations, which are subject to the Negative Procedure of the Scottish Parliament are due to come into force on the 1st of June 2018.

They follow a consultation that was carried out by the Accountant in Bankruptcy, and unlike earlier Regulations that were withdrawn in 2017 (see here), are not expected to have any negative effects on debtors.

The Regulations can be found here.

Standard Financial Statement: Is it fit for purpose in Scotland?

Standard Financial Statement: Is it fit for purpose in Scotland?

The Credit Services Association (CSA), a trade body that represents debt recovery and purchase organisations, has raised its concerns that new guidelines for the Standard Financial Statement (SFS) may exacerbate the position many consumers find themselves in when struggling with problem debts.

The Standard Financial Statement, which the Accountant in Bankruptcy (AIB) have recommended be adopted as the new financial statement for formal debt solutions in Scotland, is produced by the Money Advice Service and is intended to be a common financial tool for all creditors and debt advisers to use in determining how much consumers can afford to pay towards their debts.

The CSA, which is part of the governing body for the SFS, is concerned that new trigger figures, which are used to create a rebuttable presumption that someone’s expenditure may be excessive, are concerned that new guidelines for the figures may be excessive after being updated by as much as 30% in some category areas.

Their fears are that by indicating some consumers have less to spend on their debts, consumers may enter repayment plans that may last longer and, therefore, keep the debtor in debt longer, whilst others may feel a type of insolvency may be a better solution for them, when it isn’t.

However, in Scotland, fears amongst money advisers and the AIB are that the figures are already too austere for consumers, who are in repayment plans, and the SFS’s predecessor, the Common Financial Statement (CFS) which adopts a similar methodology to the SFS, has been instrumental in large numbers of Debt Payment Programmes under the Debt Arrangement Scheme failing.

Scottish Government Minister Paul Wheelhouse has recently announced plans to introduce new rules that even if the SFS is used for the DAS in future, it will not be necessary for consumers to propose paying all their disposable income to their debts each month.

Comparative Studies

The problem with the Standard Financial Statement, like the Common Financial Statement is both seek to determine what is a “reasonable” level of expenditure by looking at the average expenditure of the lowest 20% in the Office of National Statistics Living Costs and Food Survey. This survey looks at what people are actually spending, rather than what they require to be spending to maintain a reasonable standard of living.

The consequences of this can be seen in the guidance notes for the Common Financial Statement 2018, which actually saw “trigger figures” for categories of expenditure reduced, despite inflation running at 3%.

However, as both the CFS and the SFS both look at what people are spending, rather than what is needed for a reasonable standard of living, the methodology used can result in expenditure amounts being downgraded at a time of rising living costs. This is for the simple reason that with stagnating income levels, rising living costs and much expenditure in recent years being driven by consumer borrowing, which is now becoming harder for lower income groups to access, people are now being forced to spend less.

This has led to some uprating of figures in the SFS, by removing for example, some of the lower income groups in the Living Costs and Food Survey sample group. This has included those in receipt of Universal Credit and has contributed to the uprating of the average expenditure overall within the study group.

Scotland’s Dilemma

The problem for Scotland is whether now to adopt the SFS, which the Accountant in Bankruptcy have recommended or whether to seek an alternative to the Common Financial Statement 2018 when it expires in 2019?

The problem is the SFS has proven volatile in the first year of it’s existence, with initial concerns in Scotland that the trigger figures for the SFS 2017 were too low and would have led to more consumers being presumed, albeit the presumption is rebuttable, as having unreasonable expenditure amounts.

There was also a concern many consumers who were wishing to utilise the Minimum Asset Route into bankruptcy may be found to have disposable income and, therefore, be deemed ineligible to apply, forcing them to use full administration bankruptcy procedures instead. This in turn leads to complicated debates as to what types of income can consumers legally be expected to pay their debts from. There is no question, for example, that consumers cannot be forced to pay towards bankruptcy from benefit only income, although the AIB do hold that contributions can be taken from child maintenance money (for a fuller debate on this issue, see here). The consequence is that people whose only income is benefits and child maintenance, may be forced to use full administration bankruptcy simply because the AIB believes it is legitimate to take a contribution from income that is paid to a child via their parent and the CFS or SFS help determine that the consumer can afford a contribution.

In support of adoption of the SFS 2018 guidelines, however, the AiB have released a comparative study of financial statements which they believe shows the SFS 18 guidelines are more favourable than the CFS 18 guidelines (although a smaller study by Money Advice Scotland suggests this may not be the case). What the AIB have not released, however, is a comparative study between SFS 18 and CFS 17, which still applied in Scotland until a few weeks ago, or any response to the recent downgrading of expenditure items in CFS 18 that resulted from the methodology that can see average expenditure amounts fall at times of increasing living costs.

In addition to this, no explanation has been provided as to why the CFS 18, in the guidance notes, was not given the same corrective treatment that SFS 18 received by removing lower income groups from the sample group.

The problem is now likely to be exacerbated as the Scottish Government have announced that even if SFS 18 is adopted in Scotland, new changes will not require applicants to the Debt Arrangement Scheme to propose 100% of their disposable income to repayment programmes. The fact the Credit Services Association already believes the SFS 18 is overly generous, it’s likely their members would not accept DAS proposals that only offer say 75% of a Debtor’s disposable income as payment, although the AIB will be able to force acceptance using their fair and reasonable test under the Scheme.

The Way Forward

The problem for the Scottish Government is there is no clear way forward.

It was only in 2016/17, for example, that for the first time more debt payment programmes were successfully completed than were revoked. One of the main reasons believed to be behind this being that consumers have been finding that they are being told to pay more than they can afford.

The AIB, however, are reluctant to see contribution levels in any formal solution reduce, as they themselves realise much of their operating costs from fees charged against cases where contributions are made and are expecting, because of a reduced number of cases, a shortfall of approximately £4.2 million in their funding.

The problem is, however, section 89 of the Bankruptcy (Scotland) Act 2016 (2016 Act) requires Scottish Ministers to establish a Common Financial Tool (CFT) to determine contribution levels, that allows for reasonable levels of expenditure by debtors. Whether that has been achieved by CFS 18 that has seen trigger figures reduced for certain categories at a time of rising living costs is questionable.

Whether designating the SFS as the new CFT will achieve this is also debateable, considering it’s volatility and the fact key stakeholders are already questioning the recent uprating of figures and calling for a further review as soon as possible.

The question now must be asked, as the CSA, is part of the governing body for the SFS and accepted the 2018 figures, whether other governing body members also have concerns?

The question also has to be asked if a further review of the SFS or even the CFS were to see a further downgrading of the figures at a time of rising living costs, whether Scottish Ministers would be fulfilling they obligations in creating a tool that allowed for reasonable expenditure by consumers?

The danger being that in designating either the CFS or the SFS as the Common Financial Tool, Scottish Ministers are delegating this legal responsibility that they have under section 89 of the 2016 Act, to a third party that does not have such a legal responsibility, is not accountable to Ministers or Parliament and does not publicly release it’s trigger figures for public scrutiny or comment.

Mis-Use of Trigger Figures

One argument is that much of the problem arises from a misunderstanding of how trigger figures should be used.

Creditor and AiB concerns are they are used as an allowance by money advisers for their clients, whereas money advisers complain they are used as a cap by the AIB and creditors to drive down the reasonable living expenditure of consumers, which if you wish to exceed places an increased administrative burden on the money adviser and evidential burden on the consumer.

You then get anecdotal stories from money advisers of clients having to provide evidential proof of purchasing incontinence pads, or having to explain how the Disability Living Allowance of their children is spent or of having to fight to ensure contributions are not taken from the child maintenance money of children to pay towards their parent’s debts.

The problem is there is a lack of understanding by the Money Advice Service as to how trigger figures are in practice used. They are clearly a key battle ground for the AIB, money advisers and creditors alike, as recently evidenced by the concerns raised by the Credit Services Association and their calls for them to be downgraded.

A Scottish Solution?

There is now a clear and comprehensive case for Scotland to devise it’s own Common Financial Tool.

There is no overwhelming case for a UK wide solution, albeit it is clear it would be preferable from the perspective of UK wide financial service organisations and also debt advice bodies.

However, there is no UK wide system of laws for dealing with debts; debt law historically always being different under Scotland’s legal system and being devolved to the Scottish Parliament.
Also, unlike the rest of the UK, the Common Financial Tool was placed on a statutory footing in Scotland in 2015 and carried with it particular legal responsibilities for Scottish Ministers that the Money Advice Service, who own the SFS and the Money Advice Trust, who own the CFS, don’t have either in Scotland or elsewhere in the UK.

In addition to that, it is clear that Scotland, with the recent proposals by Scottish Ministers as to how contributions in the Debt Arrangement Scheme are determined, has already begun to diverge further from what is likely to be considered good practice across the UK and by the SFS governing body.

Clearly it would now be more advisable for the Scottish Government to look to establish it’s own Common Financial Tool, that is best suited to the peculiarities of the Scottish system of debt laws, with 48 month payment periods in Bankruptcy and a Debt Arrangement Scheme, where not all a debtor’s disposable income has to be offered as a contribution in a payment plan.

Scottish Debt Policy is Broken

Scottish Debt Policy is Broken

Originally published in the Herald, as an Agenda piece, I make the argument that Scottish debt policy is broken, was explored.

Despite personal debt levels in the UK now having returned to pre-credit crunch levels, new figures released by the Improvement Service, reveal that free, local authority-funded debt advice services have now seen their funding cut by more than 44 per cent in the last three years. The latest figures paint a picture of services that are not only lacking capacity to deal with current demand, but should Scotland face another personal debt crisis, will not cope with future demand.

The tragedy of this is the modernisation and humanising of Scotland’s personal debt laws was one of the earliest and most notable achievements of the Scottish Parliament, from the abolition of poinding and warrant sales to the introduction of a new debt management scheme, known as the Debt Arrangement Scheme. Even Scotland’s bankruptcy laws were made more consumer friendly, making it easier for those with no other options to be permitted a fresh start, whilst free debt advice services were heavily invested in between 2003 and 2007.

By 2011, the progress that had been made meant it could reasonably have been stated Scotland had some of the most forward-thinking and progressive debt laws in Europe with well-funded advice agencies that could deal with the modern-day problems of over-indebtedness.

The benefits of this were all too evident in the aftermath of the credit crunch, when hundreds of thousands of Scots accessed both formal and informal debt solutions, and substantial levels of unmanageable consumer debt were addressed.

Then in 2012-13, the Scottish Accountancy in Bankruptcy (AIB), the agency which leads on debt policy for the Scottish Government, removed the wheels from these progressive policies that were driving such change. It concluded the law had become too debtor friendly and less than five years after the credit crunch, decided the law had to be re-tilted back in favour of banks and other financial institutions.

The effect was that within a year of the new rules being implemented in 2015, the numbers applying for bankruptcy fell by 44 per cent, whilst the numbers applying for the Debt Arrangement Scheme fell by 49 per cent.

It is now reasonable in my opinion to state the system is broken, incapacitated by funding cuts, but also by laws that have become the victim of “agency capture” by the AIB and are now developed to satisfy institutional needs of slotting everyone into formal solutions that can generate fees, rather than developing a system that benefits the whole of the community.

An example of this was evident last week, when the AIB declared the Debt Arrangement Scheme was a huge success, as it had recovered £200 million for creditors, whilst overlooking the fact more debt programmes had failed than had been successful.

Also, the Improvement Service produced another report that showed of the 49,000 people in 2016-17 who had sought advice from free, council-funded debt advice services, fewer than 21 per cent had their problems addressed through a formal solution, but more than 50 per cent had relied on their free sector advice agencies to negotiate solutions on their behalf.

It is now these free advice services that are facing cuts, with North Ayrshire Citizen Advice Service and Renfrewshire Law Centre only the latest to go in another round of cuts, closing their doors last week. More inevitably will follow.

Our debt laws may be world-recognised, but unless there are adequate resources and political will, they will not work.
The problem is they are no longer working and when Scotland faces another personal debt crisis, this will become all too obvious, but by then, it will be too late.

First published in The Herald, 4th April 2018

Scottish Labour to Vote on Bankruptcy Fees

On Friday the 9th March, the Scottish Labour Party will vote on a motion calling for the Scottish Government to accept the recommendations of the Money Advice Service (MAS) and re-introduce fee remissions and fee waivers for bankruptcy in Scotland.

Fee waivers were previously possible in Scotland, through legal aid, prior to 2008, but since then even people surviving on £73.32 per week, have to find £200 to apply for bankruptcy.

MAS in its report Debt Solutions in the UK: Recommendations for Change, recommended both the UK and Scottish Government look at reintroducing fee remissions for those who cannot afford the fee.

The Accountant in Bankruptcy, the Scottish Insolvency Service, is currently consulting on their fees, but has ruled out fee remissions for bankruptcy.

Currently, the application fee for a Full Administration Bankruptcy in Scotland is £200; whereas a Minimum Asset Bankruptcy is £90.