Changes to Bankruptcy Legislation

Today, 1st October, sees the introduction of the new ￡5,000 limit for bankruptcy.??From 1 October 2022 a creditor who is owed debts of ￡5,000 (or more) can petition to bankrupt (sequestrate) a debtor. ?This change is brought into force by The Coronavirus (Recovery and Reform) Scotland Act which was passed by the Scottish Government on 28 June 2022 and enacted on 10 August 2022 (the "Act").?

This has been a much-awaited change with many creditors having this final route to recovery of debt pushed out with their reach since the start of the pandemic.?Prior to the pandemic, the limit for bankruptcy was ￡3,000.?In order to protect individuals adversely affected by debt during the pandemic, the Scottish Government made a temporary increase of the minimum level of debt from ￡3,000 to ￡10,000.

The Act brings the minimum debt limit back down from ￡10,000 to this new limit of ￡5,000.?The minimum debt level of ￡5,000 brings Scottish bankruptcy into line with the provisions in England and Wales.

The Act also introduces a permanent change to Moratoriums.?A Moratorium is a period of debt relief during which creditors cannot take any action against debtors in respect of debts due. ?The period is intended to allow debtors to put a plan in place such as the Debt Arrangement Scheme, or a Trust Deed or apply for Bankruptcy. ?Prior to the pandemic, if a debtor applied for a Moratorium, this would be granted for a six-week period.?Again, temporary measures introduced at the start of the pandemic, to protect individuals, saw this temporarily increase to six months.?The new Act will see the Moratorium permanently increased to a six-month period.?Again, this provision comes into force on 1 October.

It is anticipated that the number of petitions for bankruptcy will increase following the reduction in the minimum debt level.?Should you require any advice on bankruptcy please contact your me.