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.