10.12.2009
Homeowners facing repossession could be protected by new measures welcomed today by the Local Government and Communities Committee in its Stage 1 Report on the Home Owner and Debtor Protection (Scotland) Bill.
However, the committee is critical of the lack of consultation on other proposals in the Bill which aim to increase access to bankruptcy.
Committee Convener Duncan McNeil MSP said: “The repossession measures in the Bill are particularly welcome at this time of economic difficulty. With increasing numbers of people losing their homes and with many more families in debt and worried about the consequences, the committee accepts the need to legislate quickly to help people in this position.
"However, we are concerned about disagreements over other provisions in the Bill which seek to improve people’s access to bankruptcy. From the evidence we took, these concerns are due to a lack of adequate consultation by the Scottish Government.
"The committee calls upon the Scottish Government to address the concerns set out in our report as a matter of urgency.”
The concerns include:
- the Accountant in Bankruptcy (AiB) being appointed as the trustee in all certificate of sequestration (bankruptcy) cases and whether the AiB has the capacity/resources to take on this work
- the differences of opinion about what the Bill is implementing and what will be subject to further consultation
- the financial assumptions that have been made by the Scottish Government
Background
The Committee recommends that the general principles of the Home Owner and Debtor Protection (Scotland) Bill should be agreed to.
According to the Council of Mortgage Lenders, 48,000 people in the UK will face repossession in 2009, a rise of 20% from 2008. In 2004, there were 8,200 repossessions in the UK.
- In January 2009, the Scottish Government set up the Debt Action Forum (DAF) whose membership included financial-services trade bodies, people with experience of the legal system, advice agencies and consumer interests. DAF’s remit was to examine current information and initiatives on debt relief, debt advice and repossessions and to recommend legislative and non-legislative measures to address these issues.
- A sub-group of DAF was then set up specifically to look at the issue of repossessions. This group was asked to look at the adequacy of the legal protection for home owners at risk of repossession and to make specific recommendations on ways in which legislation could be strengthened. Both DAF and the Repossessions Group reported in June 2009.
- The Cabinet Secretary for Health and Wellbeing and the Minister for Community Safety confirmed that the Scottish Government intended to introduce legislation at the earliest opportunity to take forward some of the recommendations from both groups.
Part 1 of the Bill would allow all repossession cases to be considered in court in the future. All lenders would be required to demonstrate to the court that they have taken reasonable steps to avoid repossession. It also enables the use of lay representation in court.
The Bill would allow approved individuals, other than solicitors, to represent people in court. The list of approved individuals is likely to include organisations with a current entry on the register of advice organisations such as Citizens Advice and Money Advice.
Part 2 of the Bill would allow a new route into bankruptcy; extending the protection of the family home in bankruptcy. It would enable certain assets and liabilities, including a family home, to be excluded from a Trust Deed (see below) while still allowing it to be protected.
Trust Deeds
A Trust Deed is a legally binding voluntary arrangement, available only in Scotland, which offers debtors an alternative to bankruptcy (sequestration).
It enables those who cannot repay their debts a way to establish, with the aid of a Trustee, a monthly repayment schedule based on what the debtor can afford to pay. The Trust Deed will last for a specified period, usually three years. When the specified term of the arrangement comes to an end, any remaining debts are written off.
Trust Deeds are only applicable where a debtor does not have enough disposable income (the surplus money after day-to-day living expenses) to meet his/her unsecured contracted credit repayments.
If other criteria are met, a Trust Deed can be registered as "protected". Protection has the added benefit of preventing creditors from taking legal action against the debtor and also ensures that interest will be frozen on their debts.