The Stage 3 debate on the Bankruptcy and Diligence (Scotland) Bill took place on Thursday 6 June 2024. The Bill would reform the law in relation to bankruptcy and formal debt enforcement options – broadly, the options creditors have to get money from people in debt once they have been to court.
A super-affirmative procedure for Mental Health Moratorium regulations
A key change to be delivered by the Bill is the creation of a Mental Health Moratorium. This would operate as a freeze on debt enforcement by creditors for people experiencing a serious mental health problem.
The Bill would give Scottish Ministers a wide regulation-making power to create a Mental Health Moratorium. However, no details of how the moratorium will operate appear on the face of the Bill.
The Scottish Government has written to the Economy and Fair Work Committee with draft Debt Recovery (Mental Health Moratorium) (Scotland) Regulations. These give an indication of policy direction but may change as a result of the public consultation process.
They suggest a Mental Health Moratorium which would:
- be available to people in compulsory mental health treatment, as well as those who are receiving similar crisis treatment on a voluntary basis
- stop most forms of debt enforcement and creditor contact for debts which have been run up before the moratorium comes into effect
- last for the length of mental health treatment, plus an additional six months to enable the person affected to start dealing with their debt problems.
However, the moratorium as proposed would not stop all forms of debt enforcement – eviction and existing earnings arrestments being two major examples. And it wouldn’t apply to arrears on debts which are built up after a moratorium is put in place. Finally, there is no provision for those who lack the legal capacity to consent to a moratorium (or a legal representative to do so for them) to access the process.
A Stage 3 amendment from the Scottish Government would put in place a super-affirmative procedure for consulting on regulations for a Mental Health Moratorium. Proposed regulations would be laid before the Scottish Parliament for 60 days before the finalised version was brought forward. In addition, Scottish Ministers would have to publish a statement outlining any changes made as a result of comments received during this process.
Scottish Government consultation on bank arrestments and earnings arrestments
The Stage 3 debate covered a range of amendments from Labour and Green members which sought to provide greater protection to people in debt from formal enforcement action by their creditors. Most of these amendments where either withdrawn or disagreed to.
However, amendment 10, in the name of Colin Smyth MSP, was agreed to. Its inspiration was protecting social security benefits paid into bank accounts from being seized by creditors in a bank arrestment. However, it has the potential to protect a wider range of assets.
Arrestment refers to the power to seize assets belonging to a debtor in the hands of a third party. It is most commonly used to seize money in a bank account.
The amendment would commit the Scottish Government to consulting – within one year – on protecting certain types of funds or property from arrestment by creditors. It also contains a regulation-making power which would enable the Scottish Government to:
- protect certain types of property or funds from arrestment
- allow certain funds to be disregarded when calculating the minimum sum which must be left in a bank account after an arrestment
- create a less formal process to enable property or funds to be released back to the debtor.
As part of this consultation, the Minister for Public Finance, Ivan McKee MSP, also agreed (col 86) to looking at an appropriate process to ensure regular uprating of the minimum amount of money which must be left in a bank account after an arrestment (currently £1,000).
Separately, the Minister committed (col 88) to further consultation on diligence against earnings. These are the processes by which a creditor can seize wages in the hands of an employer.
The Minister said that the consultation would be issued shortly and would look at the different thresholds at which debtors have to make increased payments. He stated that the amount creditors can take from the first £1,000 earned would be reduced by 50% (to roughly £32 per month at current rates).
Currently, monthly earnings up to £655.83 are protected entirely. Debtors pay 19% of earning above that figure up to £2,370.49, and an increasing proportion thereafter. The Stage 1 Report from the Economy and Fair Work Committee urged the Scottish Government to provide greater protection and noted that exempting earnings up to £1,000 seemed reasonable.
The Minister also committed (col 87) to bringing forward regulations which would increase the various deduction thresholds in earnings arrestments from April 2025.
What wasn’t taken forward?
Among the amendments which were not agreed to and were not the subject of further commitments by the Scottish Government were:
- Pre-action requirements on local authorities (amendment 16, in the name of Paul O’Kane MSP)
This amendment would have given Scottish Ministers a regulation-making power to set requirements around information to debtors, income maximisation and repayment agreements before local authorities could take formal enforcement action. It is in line with a recommendation from the Social Security and Social Justice Committee in their Robbing Peter to pay Paul report (2022).
- Electronic service of charges for payment (amendment 25 in the name of Maggie Chapman MSP)
A charge for payment is formal notification to a debtor from the courts that money must be paid. A charge for payment must usually be issued before a creditor can take any formal debt enforcement action.
The amendment would have required a charge for payment to be sent either by post or electronically, unless service by these methods was not possible. The aim was to cut the costs to the debtor of charges for payment being delivered in person by officers of the court. However, the Minister expressed concern that personal service helped to underline the significant consequences of ignoring this document.
Abigail Bremner, SPICe Research
Blog image: Howard Lake, licensed under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).