Scotland Vs England – Who has the better insolvency system?
Scotland and England have long been rivals in all manner of respects, particularly football as demonstrated by their high-octane tussle at Celtic Park last month, but when it comes to matters off the pitch; namely their respective personal insolvency systems – whose is the best? Let’s take a closer look.
The underpinnings of the personal insolvency systems in both Scotland and England are very much the same with individuals who simply have no means of paying off their debts given some legal recourse to sort out their situation.
While the essential aims might be the same, the terminology used to describe insolvency solutions in Scotland and England are sometimes quite confusingly distinct. Crucially, in Scotland, the most serious form of insolvency is called sequestration, while in England a person in the same position is referred to as having become bankrupt.
IVAs Vs Trust Deeds
In England, the most popular form of personal insolvency involves entering into an Individual Voluntary Arrangement (IVA), which amounts to the creation of a deal between an individual and their creditors over how and when debts will be repaid.
In Scotland, Trust Deeds perform much the same function but they involve a little more flexibility. In England, IVAs only become effective when creditors accounting for 75 per cent debts owed agree to its terms. Whereas, north of the border, only enough creditors to account for 67 per cent of your debts are needed to give your Trust Deed the green light.
This difference may not seem all that significant but getting the support of enough of your creditors is a vital part of the debt management process and small margins can make a big difference.
Debt Arrangement Schemes
Debt Arrangement Schemes (DAS) are available to Scottish residents as a government-backed form of debt solution designed to give individuals a fighting chance of escaping their financial difficulties without becoming insolvent.
Similar informal deals and plans designed to settle debts can be done between creditors and debtors in England but there is no equivalent government-supported solution south of the border.
A DAS sets out the terms of a deal designed to see a person’s debts repaid gradually but they also generally ensure that those debts aren’t allowed to grow and get worse through interest fees and creditor charges. The schemes currently help thousands of people in Scotland become debt free every year.
Low income options
In Scotland, there are also specific laws that determine the terms and the framework of sequestration arrangements when a person with a low income and few assets becomes insolvent. So if you are earning no more than the National Minimum Wage for a 40-hour week then you can enter into a LILA (low income, low asset) sequestration, which takes account of the limited means with which you can potentially pay back creditors the money you owe them.
And the winner is…
Scotland were comfortably beaten by England in Glasgow last week but in terms of personal insolvency and the options available to those in debt, it’s a comprehensive victory for the Scots.
There is never a good time or place to become insolvent or feel like your debts are escalating beyond control, but Scots can take some comfort in their surroundings where debt recovery options are plentiful and the processes are more straightforward and well governed.
John Baird is a personal finance and insolvency expert from Scotland Debt Solutions. He specialises in advising people on how to manage their money and deal with their personal debt problems.