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.