How would a moratorium on debtors facing mental health crisis work?

With the consultation on the latest draft of Scotland’s Mental Health Moratorium Regulations soon coming to a close, Ahsan Mustafa takes an in-depth look at the proposed moratorium process.

People can get into debt for all kinds of reasons such as illness, economic climate or other factors beyond their control. Debt recovery without appropriate levels of care can cause stress and anxiety in most people, but susceptible individuals who may have a physical illness, mental health difficulties or are going through bereavement can be hit hard by the manner in which debt is recovered.

Anyone can have their resilience tested and find themselves in vulnerable circumstances. This is why the Financial Conduct Authority (FCA) has designated the protection and fair treatment of vulnerable consumers as an area of importance across regulated sectors (Consumer Credit sourcebook 7.2, FCA Handbook).

The Scottish Government is consulting on the provision of a moratorium on debtors who meet specific mental health criteria. Section 1 of the Bankruptcy and Diligence (Scotland) Act 2024 made provision to establish a mental health moratorium on debt recovery, based on recommendations by the Mental Health Moratorium Working Group. The detail of this process was to be provided in secondary legislation, leading to the production of the draft Debt Recovery (Mental Health Moratorium) (Scotland) Regulations 2025.

Definitions

Regulation 2 of the draft Regulations provides definitions used within the regulations, which is useful for calculating the moratorium period, and explains that the definition of a ‘bank holiday’ is to be construed in accordance with the Banking and Financial dealings Act 1971.

Regulation 3 defines how a moratorium debt is qualified – that is, by decree or document of debt; judicial or contractual interest; charges or penalties due under a contract on any default in respect, or breach, of that contract; lease or tenancy agreement; enactment; secured by a standard security; or enforcement expenses. A decree or document of debt has to be construed in accordance with section 10(5) of the Debt Arrangement and Attachment (Scotland) Act 2002, and a standard security means the form of heritable security enabled under section 9 of the Conveyancing and Feudal Reform (Scotland) Act 1970.

Meeting the criteria

Regulation 4 covers how an individual meets the mental health criteria and the eligibility of such an individual to apply for a mental health moratorium. An individual who is sequestrated, in a protected trust deed or in a debt payment programme does not qualify for a mental health moratorium.

Regulation 4(3) explains how an individual meets the debt criteria and the need for causation to be identified. It must be established that the individual has a problem or perceived problem with debt that is contributing to or has contributed to their mental illness; is likely to be contributing to or has likely contributed to their mental illness; is causing or is likely to cause their mental illness to deteriorate; or appears to be hindering their recovery from mental illness. It must also be established that the individual is unable (or it would be counterproductive in terms of their recovery) to deal with their debt as a consequence of that mental illness.

Application process

Regulation 5 details the application process. An application should be made to the Accountant in Bankruptcy (AiB) by the money adviser, including written confirmation from a mental health professional that the individual meets the mental health criteria and the debt criteria. AiB can request supporting evidence from the mental health professional that the individual meets the criteria. The money adviser must provide any new information – or any information correcting previously submitted information – as soon as reasonably practicable.

Regulation 6 provides that, if AiB is satisfied that the individual meets the mental health and debt criteria, it must, without delay, send notification of the start date of the moratorium to the individual or their legal representative, their nominated point of contact, the mental health professional who signed the application, the money adviser who signed the application and every creditor of the individual. The name of the individual and the moratorium start date must be entered into the moratorium register and guidance must be sent in accordance with regulation 6(2). Similarly, notifications must be sent by AiB if it considers that the mental health and debt criteria have not been met, along with reasons for the decision.

The register

Regulation 7 describes the mental health moratorium register. A key point from regulation 7 is that information on the register must be available only to those parties who are entitled to the relevant information about the debtor – that is, the parties to whom the AiB notification was sent. A creditor is not entitled to information about other creditors and other debts or the debtor’s place of residence, which may otherwise jeopardise the debtor’s safety or welfare. However, the debtor’s trading name and address of their business must be placed on the register.

If notice is received from a mental health professional stating that the individual’s recovery period has started, this start date must be placed on the register. Once a moratorium ends, the end date must be placed on the register. Any particular information which, in the opinion of AiB, may jeopardise the safety and welfare of any person must be excluded from the register. Further, an individual or their legal representative may apply to AiB under regulation 4(8) for specified information to be excluded from the register on the basis that its inclusion would be likely to jeopardise the safety or welfare of any person.

Taking effect

Regulation 8 specifies the effect a mental health moratorium would have regarding enforcement or diligence – in other words, what is permitted and what is not. Interestingly, an earnings arrestment order that came into effect before the start of the moratorium period can be competently executed. Any standard moratorium on diligence under section 197(2) of the Bankruptcy (Scotland) Act 2016 will end with immediate effect when the mental health moratorium takes effect.

Regulations 9, 10 and 11 specify the period of the mental health moratorium, the recovery period notification requirements and review of eligibility criteria. Before the elapse of six months from the start of the moratorium, AiB must request – from the mental health professional – confirmation of whether the individual still meets the mental health criteria, and thereafter must notify the creditors and the money adviser.

Regulation 12 details the individual’s obligations, including paying a continuing liability when due for payment and not obtaining credit beyond £2,000. Should the individual breach this, AiB may cancel the moratorium with a period of at least 28 days’ notice and having regard to the individual’s reasons and any representations from their representatives.

Regulations 13 and 14 detail a creditor’s obligations to notify AiB regarding details of the debt and whether it is an assigned debt, in which case the assignee must be notified by the assignor, and thereafter provide contact details of the assignee to AiB. A creditor will be liable for expenses to the debtor if the creditor takes any actions contrary to regulation 8.

Reviewing decisions

An individual can apply to AiB under regulation 15 to review a decision that the mental health and debt criteria have not been met. Following an unsuccessful review, the individual can appeal to the sheriff within 14 days of the notification having been sent. The decision of the sheriff will be final. A creditor can apply for a review of AiB’s decision, in accordance with regulation 16, within 14 days of the date the moratorium started.

A moratorium can be cancelled in accordance with regulation 17, following a review under regulation 16. AiB must have sufficient evidence that the moratorium unfairly prejudices the creditor’s rights or of material irregularity in relation to the application process. However, AiB is not required to cancel the moratorium if the individual’s personal circumstances would make the cancellation unfair or unreasonable. This decision can also be appealed to the sheriff within 14 days beginning with the day on which the notification of the decision is sent. The decision of the sheriff is final.

Regulation 18 specifies what occurs after the death of the individual; regulation 19 details notifications provided to and by AiB; and regulation 20 describes the interaction with standard moratorium on diligence.

There is an ongoing consultation on the draft Debt Recovery (Mental Health Moratorium) (Scotland) (Regulations) 2025. The deadline for a response to the consultation is 17 March 2025.

Written by Ahsan Mustafa, banking litigation associate at Aberdein Considine and member of the Law Society of Scotland’s Consumer Law Sub-Committee