The Bankruptcy and Diligence (Scotland) Bill was passed by the Scottish Parliament on 6th June 2024. It is not yet known when it will come into force, but an important milestone has been passed.

The Bill brings into force an important  new measure in debt recovery in Scotland namely  the introduction of a Mental Health Moratorium. Separate Regulations as to how the Moratorium will work in practice were published in May 2024 and a public consultation will follow. Based on those Regulations, we are able to gain some insight at this stage as to how the Moratorium will work when available.

Applications will be submitted to the Accountant in Bankruptcy (‘AIB’) in Scotland and can only be submitted by a money adviser. The person for whom the application is being made cannot be in any other form of debt solution at the time and must meet both the mental health and the debt criteria set out in the Regulations.

The bar has been set high in terms of the mental health criteria which require to be satisfied to qualify for the moratorium. The individual has to either be subject to certain orders, certificates or directions under the Criminal Procedure (Scotland) Act 1995 and the Mental Health (Care and Treatment) (Scotland) Act 2003 or, if they are voluntarily or otherwise receiving equivalent emergency, crisis or acute care or treatment in the community form a specialist mental health service in relation to a mental illness of a serious nature, they will also qualify.

For the debt criteria to be satisfied, a mental health professional must confirm essentially that the individual is dealing with debts such that the debts are causing or contributing to their mental illness or affecting the individual’s recovery.

The mental health professional requires to sign the application for the moratorium and confirm the criteria have been met in writing.

If the application is granted, the AIB will issue notification of the start date to relevant parties including all creditors known to the AIB. If creditor details have not been provided in the application, a credit check will be carried out on the individual. The individual’s name will also be added to the new Mental Health Moratorium Register.

The moratorium will last for 6 months but the mental health professional who signed the application has a duty to notify the AIB if they become aware the individual no longer meets the criteria. The moratorium can be continued if the criteria are still met and the AIB must request confirmation from the mental health professional, before the end of the 6 months, whether the individual still meets the criteria and if so, the moratorium will continue.

Once in place, the impact on creditors is as follows:

  • No enforcement action can take place, and this includes trying to contact the individual;
  • No interest, fees or charges which may accrue during a moratorium period can be claimed;
  • The creditor must carry out a search of their records once notified of a moratorium to identify any debt owed to them by the individual and then notify the AIB of same. This includes any debt which may have been assigned;
  • A creditor has a right to request a review of the moratorium if the creditor believes it unfairly prejudices the interests of creditors or if there has been a material irregularity in the application process.

The impact on the individual is as follows:

  • Liability for continuing payments remains;
  • Applications for credit in excess of £2000 cannot be made.

The responses to the public consultation are awaited and the Regulations may of course be subject to change depending on those responses. The introduction of the mental health moratorium is, however, welcomed as a helpful tool for individuals with serious mental health issues in Scotland.

This article originally appeared in CCTA Magazine.