In Context: Bankruptcy and Diligence (Scotland) Bill

What is it about?

The bill was introduced to parliament in April, bringing forward stakeholder-led recommendations to improve and clarify current debt solutions and debt recovery processes.

Provisions fall into three categories: technical amendments to bankruptcy legislation, updated legislation on diligence, and the introduction of a mental health moratorium. It is this latter part that has generated the most interest.

The proposed moratorium aims to create a so-called “breathing space” for those suffering from mental health disorders. It would prevent debt recovery action by creditors against debtors who are receiving specialist mental health treatment. 

Any debtor in Scotland can currently apply for what is known as a “standard moratorium” to delay recovery action for six months. The Bankruptcy (Scotland) Act of 2016 originally set this at six weeks, but the timeframe was increased during the Covid pandemic and was not changed back due to concerns over the ongoing cost-of-living crisis. 

This new legislation could in theory allow a moratorium to go on for a much longer duration, depending on how long treatment for a mental health problem lasts.

Why was the bill introduced?

The Bankruptcy and Diligence Bill was part of a 2019 commitment made by then Minister for Business, Fair Work and Skills Jamie Hepburn to carry out a policy review of Scotland’s statutory debt solutions. That followed a recommendation to do so by the Economy, Energy and Fair Work Committee.

The review was divided into three stages. The first stage focused on addressing the impact of Covid, whereas the second stage entailed a wider review of existing systems. The final stage – which is yet to begin – will carry out a long-term review to assess if the current statutory solutions meet the modern economy’s needs. 

The proposal for a mental health moratorium later featured in a Scottish Government consultation and received wider support from multiple stakeholders – 80 per cent of respondents were in favour. This was followed by a report by the Social Justice and Social Security Committee in 2022, which urged the government to “quickly implement this change”. MSPs agreed: “We believe that it is unfair for people experiencing a mental health crisis to be pressurised by creditors and continue to be charged interest on their debt.”

Research by the Royal College of Psychiatrists also reinforced the need for the scheme after revealing that half of adults in debt had a mental health problem, and one in four people with a mental health problem is in debt.

How is the bill progressing and what are the concerns?

The bill is currently undergoing Stage One scrutiny by the Economy and Fair Work Committee. It has already taken evidence from experts including Advice Scotland, Citizens Advice Scotland, and the Society of Messengers-at-Arms. During a recent meeting of the committee, members raised a number of issues with the minister, Tom Arthur. 

Convener Claire Baker voiced her concerns that the Scottish scheme would have the “narrowest” criteria and measures in the UK, as eligibility would be limited to those receiving compulsory treatment. South of the border, a similar scheme is open to those receiving crisis treatment and protects applicants from eviction.

Baker also raised issues relating to the possible development of a public register of scheme applicants, warning it could hinder their opportunities to access financial support later in life.

Colin Beattie, deputy convener, shared his worries on whether there would be resources made available for money advisers to undergo the training needed to deal with those applying for the mental health moratorium. He also pointed to geographical challenges in providing specialist support, suggesting that those in rural areas may have to rely on online meetings which “does not seem the right way to empathise with a person who has mental health issues”.

What next?

The committee will publish a report on the bill’s general principles ahead of the Stage One debate, which is expected to happen in February.

Alongside the parliamentary process, the Scottish Government is currently consulting on the actual process for implementing the mental health moratorium, including eligibility criteria and the application process. That consultation will stay open until 22 January.