People signing debt relief agreements may have to repay more to creditors, and spend less on "essentials" such as satellite TV, under reforms intended to crack down on abuse of the bankruptcy system.
The Bankruptcy Scotland (2013) Act put before the Scottish Parliament this week introduces a standard Scottish-wide repayment test and a minimum four-year payment period.
Further legislation later this year will set a minimum £5000 debt to enter a trust deed, to avoid unscrupulous practitioners encouraging borrowers to ramp up debts then write them off. The Herald highlighted in 2010 how the Scottish option of Protected Trust Deeds was being abused through unregulated agents mis-selling deeds, regulated practitioners charging big fees but paying nothing to creditors, and solvent couples being persuaded to wipe out debts they could afford to repay.
A Scottish government working group later that year made 42 recommendations for reforming the trust deed system.
Meanwhile last year saw a 40% increase in use of the Debt Arrangement Scheme (DAS), launched in 2005 as a repayment alternative to bankruptcy, with 4600 agreements overtaking the 3400 personal insolvencies.
Last year, the Accountant in Bankruptcy, Rosemary Winter-Scott unveiled her agency's vision of a "Financial Health Service", enshrining the principles of mandatory financial education and "the principle that those debtors who can pay should pay their debts".
Fergus Ewing, the enterprise minister, said the new bill was "one of the most ambitious and far-reaching reforms ever considered by both the Scottish Government and Accountant in Bankruptcy".
Ms Winter-Scott commented later that it was "a significant milestone in our journey towards creating a Financial Health Service for Scotland" and would "better balance the rights and interests of both those in debt and their creditors".
Scottish credit unions, which took up the cudgels for creditors in the consultations, will welcome the new standardised assessment based on a 'common financial tool' and allowing only "reasonable expenses".
But the unions had argued for a minimum £10,000 debt for a trust deed, a minimum dividend of 10p in the £1, and the exclusion of any debts taken on in the 12 weeks prior to a DAS or trust deed being signed, without proof that the insolvency was unforeseen.
They also called for the mandatory money advice to come from an independent source, not from a practitioner who could benefit.
Kenny Macleod, chief executive of Scotwest credit union, commented: "They have had to water down the requirement for advice."
The bill however does impose a new requirement for debtors to cooperate with the trustee and creditors before being discharged, it enables the AiB to transfer debtors between products more easily, it makes reopening bankruptcy cases easier, and it introduces a more efficient online process.
The AiB's assistant chief executive Claire Orr said the imminent trust deed reforms would be "far reaching".
The trustee would have to show clearly that that a DAS was not suitable, while the new standardised assessment would "remove incentives for people to choose debt relief over debt management, as they will be asked to make the same contribution over the same period regardless of the solution".
She said: "We have seen evidence of people applying for trust deeds for fairly low debt which could all have been paid back through DAS."
AiB would also retain its power to act where spending by debtors in the lead-up to bankruptcy had been inappropriate.
She added: "It is also important there is a choice for people as to where they go for advice."
The current low-income form of sequestration, for people with no assets and on benefits, is also being overhauled to allow discharge after six months rather than a year.
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