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.

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.

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.

The Money Advice Service: has it over-reached itself in Scotland?

The Money Advice Service: has it over-reached itself in Scotland?

The UK Money Advice Service (MAS) has released a new report, Debt Solutions in the UK: Recommendations for Change.

Now as a Scot, I am instinctively suspicious of such reports. It is not the role of the Money Advice Service to make policy recommendations for formal debt solutions in Scotland.

These are devolved matters, exclusively for the Scottish Parliament to consider and are devolved under the Scotland Act 1998.

Policy Over-Reach?

The question needs to be asked, is this policy over-reach by the Money Advice Service?

We arguably have seen this before, with the Standard Financial Statement and the efforts to get it adopted as a UK wide tool (Is it Time to Call in the Common Financial Tool).

If it is, we need to be cautious. It would be the ultimate irony if, at this point in Scottish legal history, the independence of our debt laws were now eroded.

Scotland’s debt law have always been distinct, they even pre-date the Union. The Diligence Act of 1469 remains on the statute books, as does the 1661 Act of the same name, alongside the Adjudication Act of 1672.

This is legislation that existed not just prior to the modern day Scottish Parliament, but before the Act of Union and was made by the Parliament that sat in the current home of Scotland’s Court of Session, half a mile down the road from its successor. These laws survived 300 years of being in the custody of Westminister.

Even prior to devolution and the Accountant in Bankruptcy taking over as the policy lead in this area, this area of law has always been developed in Scotland, even if it was not made here. There are no shortage of historic Scottish Law Commision reports, concerning all areas of law in Scotland, relating to debt.

You could say we are not lacking in expertise.

There is certainly, however, a risk of erosion as the information revolution continues apace, and banks retreat from the High Street. With money now flowing seamlessly across borders and lenders increasingly lending on a volume basis, using algorithms to decide who to lend to, Scotland’s unique debts laws will increasingly feel like an inconvenience to them.

However, a country’s debt laws are a personal statement: how a society treats it’s debtors says something about that society.

This is what devolution was all about surely? About making these decisions ourselves. About steering our own path as the different parts of the UK continue to diverge.

However, I don’t believe this means we cannot learn from each other and even co-ordinate our direction of travel.

We have seen this before when England and Wales got one year bankruptcies with the Enterprise Act in 2003; followed by Scotland in 2008. Or that England and Wales followed the Scottish example of Low Income, Low Asset Bankruptcies with the adoption of Debt Relief Orders in 2009.

This legal dialogue has not just been restricted to the legal borders of the UK, however, but extended to the Republic of Ireland in 2012 with their Personal Insolvency Act and the creation of Debt Relief Notices and Debt Settlement Arrangements.

Maybe their Personal Insolvency Arrangements, which are used for mortgage debts, will find their way to our shores one day.

Another example of this exchanging of ideas and lessons can also be found in the Money Advice Service’s new report, with proposals for the introduction into England, Wales and Northern Ireland, of a form of the Scottish Debt Arrangement Scheme.

The report also makes other recommendations, such as a review in England, Wales and Northern Ireland of debtor fees in Bankruptcy, including the reintroduction of fee remissions when people cannot afford them.

This echoes a call that was made by Govan Law Centre after the UK Supreme Court decision on Employment Tribunal Fees (see here), which I supported.

The Accountant in Bankruptcy is currently consulting on their fees and how they are funded, and I largely support their policy objectives, as outlined in their consultation document.

However, I would urge them to now extend their consultation to accept the MAS recommendation for a debtor application fee review.

The Scottish Government cannot come to Money Advisers and ask them to accept Money Advice Service initiatives, such as the Standard Financial Statement, when, as it stands, it is likely to make our clients situation worse, and then ignore other recommendations, which may benefit them.

Likewise, the Money Advice Service need to be aware of the risks of policy over reach. They cannot produce financial tools that are detrimental to consumers, and which contain financial trigger figures that have to be kept a secret from consumers and then expect them to be rubber stamped through the Scottish Parliament.

As has always been the case and is a major feature of the UK: for the Union to succeed, there must be mutual respect between the different legal systems and traditions.

It has been that respect that has ensured there are still laws that predate Mary Queen of Scots on the statute books (although we do want to get around to repealing them).

Harmonisation of debt laws across the UK may not be possible, but to borrow a phrase from Brexit, broad regulatory alignment probably is and may even be desirable.

The Money Advice Service Report, Debt Solutions in the UK, can be downloaded here.

Do No Harm: Scotland’s New Financial Health Service

Do No Harm: Scotland’s New Financial Health Service

As the Scottish Government announces plans to launch their new Financial Health Service with the introduction of the Bankruptcy and Debt Advice (Scotland) Bill 2013, there is a real opportunity in Scotland to create a new system of debt management and relief.

The idea that should underpin such a service is that our legal system should contain provisions that allow for financially distressed debtors to be nursed back to health and no more than we would expect a doctor to amputate a broken leg, should we expect this new service to leave distressed consumers permanently disabled or disadvantaged.

On the face of it the Scottish Government appears to recognise this and in introducing the bill have identified three broad principles they want to underpin the new legislation, these are that:

• the people of Scotland should have access to fair and just processes of debt advice, debt management and debt relief; that
• those that can pay their debts, do pay their debts; and that
• the best returns for creditors are secured by balancing the rights of debtors with those of creditors and businesses.

At first glance, who could disagree?

However, the new bill does give rise for concern. The first problem is the Scottish Government views it as their response to not only the credit crunch, but the economic and social changes that Scotland has undergone over the last 28 years: from being a society where there was more social housing than in cold war Poland, to one where now over two thirds of homes are privately owned; and from a society where once credit was difficult to access, it is now widely available.

But the problem with this analysis is it is behind the times. We no longer live in a society where an abundance of credit causes problems, but one where the suffering caused by austerity and falling living standards makes it a harder for more and more consumers to maintain their financial commitments.

So the question needs to be asked, is the Scottish Government on the right page in their approach to bankruptcy and debt advice?
Well one of the major changes that will be introduced with the new bill will be the extension of the duration people in sequestration and protected trust deeds have to pay, from a three year minimum to four years. They will also introduce new provisions which will abolish the current low income, low asset route into bankruptcy and replace it with a more restrictive remedy known as a No Income, No Asset bankruptcy, only accessible to those with less than £10,000 of debt and who are in receipt of social security benefits.
Other measures that will be introduced will be a new Common Financial Tool that will aim to ensure people pay more to their debts than they currently do.

There will also be a significant transference in power from the courts to the Accountant in Bankruptcy (AIB), meaning in future more decisions will be executive decisions rather than judicial ones and not just in relation to non-controversial matters. This will include the right to award Bankruptcy Restriction Orders and make Debtor Contribution Orders and will reverse the current position where the Accountant in Bankruptcy has to apply to the courts for such powers. In future, if debtors disagree, they will have to incur the cost and trouble of appealing.

Other changes will include an end to automatic discharges for debtors in sequestration, introduced in 1985, ironically to deal with the numbers of debtors that were left lingering in bankruptcy for lengthy period of times without a discharge.

So is this a Financial Health Service that will nurse more debtors back to health? I don’t think so.

Personally I feel like there is an element of mis-representation taking place.

Why? Well I suspect the real purpose of the bill is to help the Scottish Government to realise its goal of making the Accountant in Bankruptcy’s office fully self-funding and I suspect it’s also because policy development has been left to the AIB’s office, which see it as an opportunity to implement self-serving reforms.

If I was to summarise the new Bankruptcy and Debt Advice (Scotland) Bill 2013, I would not call it a Financial Health Service. I would describe it as a drifting out of the tide of progressive debt reform in Scotland and a return to a system which debtors will view as being overly coercive and hostile.

The Scottish Government are correct, Scotland has changed, its economy has also changed – many times over since 1985 – but when other legal systems are looking to liberalise their bankruptcy laws, it appears bizarre Scotland is heading in a different direction.
I am reminded of the comments of Kenneth Galbraith in his book the Great Crash of 1929, that the best form of protection is memory, with the problem being once people forget they repeat their mistakes. I suspect we are displaying those signs just now and are in danger of forgetting many of the lessons that led to the Bankruptcy (Scotland) Act 1985.

Just don’t break your financial leg.