Back in 2018 (which seems like a lifetime ago now..) the Money Advice Service estimated that 14.2% of the Scottish population were over-indebted, which was explained as meaning that they'd missed payments to creditors in three or more of the past six months or found keeping up with repayments a "heavy burden". With enforced pay cuts and job losses biting, it's anticipated that the debt burden will substantially increase. It's now widely recognised that bankruptcy can be used as a debt relief tool since, at the end of the process, most of the debts that someone had going into the process are essentially written off and the creditors - via the trustee - have had access to the debtor's assets to hopefully make inroads (however small) to their debts.
With that in mind, the new Coronavirus (Scotland) (No 2) Bill will, when in force, make temporary reforms to certain aspects of the bankruptcy process:
- The maximum debt which is allowed for someone to enter the Minimal Asset Process (which is a simplified form of voluntary bankruptcy) will be increased from £17,000 to £25,000
- The fees charged for applying for bankruptcy will be reduced; and
- The current threshold for a creditor driven bankruptcy will increase from £3,000 to £10,000 so that a creditor will need to be owed at least that amount before they can competently apply for a person's bankruptcy.
The first two of those changes are designed to make it easier for those individuals who are seeking debt relief via bankruptcy to access the help they need. The third change is clearly designed to stop creditors from forcing a bankruptcy for (relatively speaking) small debts in circumstances where individuals are more likely to carry increased debt due to the economic situation we're now in. It's intended that the changes will last for a period between 6-18 months, although I wouldn't be surprised if the changes (at least to the debt thresholds for the Minimum Asset Process bankruptcy and creditor led bankruptcy) become permanent.
Of course, the bankruptcy regime applies to individuals, sole traders, partnerships and trusts. So it can be used by those in business using those vehicles. If they are being protected against creditor driven bankruptcy where their debts are anything up to £9,999.99 then it's slightly surprising that there's no change being made to the debt threshold for a creditor driven liquidation petition against a limited company which currently sits at a mere £750. Given that lots of businesses are also facing heavy debt burdens, perhaps the time has come for a (temporary) change to that limit too.