The Scottish Parliament has passed a series of new debt laws that are intended to help people struggling with problem debt, as a consequence of the COVID-19 crisis.
The laws, which were passed on May 20, come as fears mount that Scotland is now entering the next stage of this crisis, with unemployment rising and more experiencing financial insecurity. It is believed many Scots will now be forced into problem debt.
Bankruptcy reform
It is hoped the new laws will protect Scots from being made bankrupt, by increasing the amount that they can be made bankrupt for, from £3,000 to £10,000.
However, the laws also acknowledge that for many Scots, bankruptcy may be unavoidable and tries to make it easier for them to use that option, where it is appropriate.
As such they have now increased the maximum amount of debt that can be included in a Minimum Asset Procedure (MAP) Bankruptcy from £17,000 to £25,000, with student loans no longer being included in that calculation.
The Scottish Government has also reduced the fees payable for bankruptcy, from £200 to £150, where it is a Full Administration Bankruptcy; and £90 to £50, where it is a MAP Bankruptcy.
In addition to that, new laws will also now make it possible for the application fees to be waived altogether, where someone is in receipt of certain social security benefits, even if those benefits are not their only source of income.
How do you avoid bankruptcy?
For many, however, the new laws will come as no comfort, as they struggle to avoid bankruptcy and have debts of more than £10,000.
However, for those in that situation, they should not despair, as Scotland does have other debt solutions that can help them, such as Protected Trust Deeds and the Debt Arrangement Scheme, but they must seek advice first.
The problem is many have been lured into a false sense of security with the lockdown.
Lenders have been offering payment breaks and debt collectors, sheriff officers and the courts have largely been out of action.
However, as we enter the next phase of this crisis, that will begin to change.
Can payment breaks continue?
The UK’s Financial Regulator, the Financial Conduct Authority (FCA), has announced, just today, it will encourage lenders to extend the mortgage payment breaks for another three months, where people have been financially affected by the COVID-19 Crisis.
It is also likely they will make similar announcements for credit cards, bank loans, and car finance agreements.
However, this doesn’t solve the problem that many are faced with: increasing debt against a backdrop of increased financial insecurity. Many will have to decide if applying for another payment break is the correct course of action to take. Many credit card companies and banks have continued to add interest and charges to their debts, whilst providing payment breaks. This means for many if they take another three months break, it will almost be six months since they have paid anything towards their balances. Meanwhile their debts have increased.
This will mean that for many, payments will be higher when they begin paying again and may be unmanageable.
Council tax arrears
In addition to this, the two months that many local authorities have allowed people to defer payments to their council tax bills will now be coming to an end, so it is likely that summary warrants will start being issued again, followed then by letters from Sheriff Officers.
This could mean wage arrestments and bank arrestments, even for those employees that are still furloughed. Wage arrestments can even be taken from contractual sick pay, where that amount is above £529.90 each month.
Get advice before seeking a payment break
People, therefore, should not delay in seeking advice, especially if they are concerned that a payment break may not be the correct option for them. For many it will be, but for others it won’t if interest and fees are still being added to their debts.
In the worst-case scenario, delaying getting advice now may reduce the options available later, with the possibility that bankruptcy will be the only option left.
Earlier advice may also mean other solutions, such as the Debt Arrangement Scheme, will remain open to them and will allow payments to resume, whilst ensuring all interest, fees, penalties, and charges are frozen.
