Bankruptcy Act alters the enforcement landscape

The Bankruptcy and Debt Advice (Scotland) Act 2014 came into force on 1 April 2015 and has brought about important changes to the way debts can be enforced. We look in particular at two changes below:

Moratorium on diligence

Prior to 1 April 2015, a person with debts could only receive protection from creditors once they were sequestrated, had a Debt Arrangement Scheme (DAS) in place or had a protected trust deed. The 2014 Act now gives the debtor an additional period of protection.

Where a person gives notice to the Accountant in Bankruptcy of their intention to apply for sequestration, protected trust deed or a DAS payment plan, they will be granted a six week period where their debts cannot be enforced – called a “moratorium on diligence”.

A person is only entitled to this six week protection once in a 12 month period. This also applies to bodies such as trusts and partnerships which are capable of being sequestrated.

Debtors who are subject to a moratorium can be found on the Register of Insolvencies, which can be accessed here. This will let you know when a moratorium has been granted and when it will expire. Any attempt at recovering a debt owed will have to wait until this period has expired.

Landlords will be aware that where dealing with a tenant in arrears, any arrears accrued up to the date of sequestration will be included within the debtor’s sequestrated estate, and cannot be recovered in terms of a court order. Similarly, where a tenant has a moratorium in place, prior to a sequestration being granted, the landlord will also be unable to seek decree for payment of those arrears during that period.

Removal of automatic discharge

Another change brought about by the 2014 Act is the removal of automatic discharge. Previously, a debtor would be discharged from sequestration automatically after one year, unless a sheriff granted an extension. Now, the debtor’s trustee is required in all cases to submit a report to the Accountant in Bankruptcy, who will then make a decision on whether or not the debtor should be discharged.

This will mean that any debtors who have failed to cooperate with their trustee or engage in the sequestration process may have their discharge refused.