Debt Advice Handbook Scotland - 1st editionChapter 6: Statutory debt solutions in Scotland5. Full Administration Bankruptcy Making an application
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Making an application
An application for FAB is made by an authorised debt adviser (or insolvency practitioner) via BASYS, the AiB’s electronic application system. The application must be accompanied by a completed Certificate for Sequestration or proof of apparent insolvency.
Appointment of trustee
Under the FAB rules, there are two ways to have a trustee appointed.
    •The first is to make an application and not to nominate a trustee. In this case, the AiB is the trustee. The AiB may then allocate the case to one of their contracted insolvency providers for administration, but they remain the trustee.
    •The other way is to get the agreement of an insolvency practitioner and nominate them to be the trustee. This can be advantageous as the client can contact them before making the application and discuss how the bankruptcy will be run, how much the DCO may be and how assets will be dealt with.
If the client has a reasonable contribution to make, it may be better if they appoint a trustee to look after their case.
Debt advisers should have a couple of insolvency practitioners to run cases by before making any applications. Remember to set up proper referral procedures and ensure you get feedback from both the insolvency practitioner and the client on the progress and administration of their case.
The insolvency practitioner must agree to be the trustee and complete Form 12. This form is included in Part 2 of the application. A copy can also be found at aib.gov.uk/publications/debtor-application-part-2.
Included and excluded debts
In a bankruptcy, the general rule is that all debts must be included, but not all will be discharged.
Hire purchase debts do not need to be included where the client is making regular payments. They should be entered as ongoing expenditure.
Student loans do not discharge but must be entered on the application.
The client is also not discharged from:
    •any liability to pay a fine or other penalty due to the Crown;
    •any liability to pay a fine imposed in a justice of the peace court (or a district court);
    •any liability under a compensation order (within the meaning of section 249 of the Criminal Procedure (Scotland) Act 1995;
    •any liability to forfeiture of a sum of money deposited in court under section 24(6) of the Criminal Procedure (Scotland) Act 1995;
    •any liability incurred because of fraud or breach of trust;
    •any obligation to pay:
      ◦aliment, or any sum of an alimentary nature, under any enactment or rule of law; or
      ◦any periodical allowance payable on divorce by virtue of a court.1s145 B(S)A 2016
 
1     s145 B(S)A 2016 »
Debt advice
A client must take advice from an authorised debt or money adviser (or insolvency practitioner) who will assist them in making the application. A client cannot make an application on their own.
The client must also be issued with a Debt Advice and Information Pack (DAIP).1Reg 11 B(S) Regs
 
1     Reg 11 B(S) Regs »
Fees
The application fee for FAB is currently £150.
Fee waivers are available for clients with no disposable income1Reg 7B BF(S) Regs or if they have been in receipt of certain benefits for the past six months – eg, universal credit, pension credit, employment and support allowance, child tax credit and working tax credit (in certain circumstances).2Reg 7A BF(S) Regs
 
1     Reg 7B BF(S) Regs »
2     Reg 7A BF(S) Regs »
BASYS
FAB applications are processed via BASYS, the AiB’s online tool.
Advisers can be registered by their organisation to use the system once they have received the appropriate training.
BASYS training
Training on BASYS can be accessed by Scottish advisers via the MATRICS learning programme.1moneyadvicescotland.org.uk/matrics-learn
The AiB also has a useful training tool which can be accessed on their website.2aib.gov.uk/systems/basys Advisers will have to register to gain access.
The application is in two parts.
Part 1 contains, among other things, the client’s personal details, their income and expenditure, assets and liabilities.
Part 2 requires the client to sign several legal statements, including the statement of understanding and the statement of truth. It also contains a warning:
’It is a criminal offence under section 8(4) or 218(1) and (2) of the Bankruptcy (Scotland) Act 2016 for you to make a false statement in this form in relation to your assets or business or financial affairs, to not disclose any material fact in this statement or make a material misstatement unless you can show that you did not know that statement was false and had no reason to believe it was false.
On summary conviction, you may be liable to a fine of up to £5,000 or to imprisonment for a maximum period of three months or to both. If you deliberately do not disclose all relevant information or if you deliberately make a false statement when completing this form, you may become subject to bankruptcy restrictions.’
If the client deliberately does not disclose all relevant information, or if they deliberately make a false statement when completing the form, they may become subject to bankruptcy restrictions, a fine or even imprisonment.
Therefore, the client has stated that they have been given advice and that they will comply with the trustee following the award of bankruptcy. Ensure you point this out to the client before you make the application.
Try to ensure that your client is aware of what they are signing. Some advisers get the client to sign a copy of the warning as well as the statements of undertakings and truth for their records.
BASYS allows an adviser to enter all the details of income, expenditure, assets and liabilities as well as other necessary information for the application.
Once the application is made, it is assessed by the Insolvency Registration Team at the AiB which decides the application and if it qualifies for the MAP or FAB process.
If the application is incomplete, it can be returned to the adviser for more information. They have 21 days to update the information. It also allows the adviser to upload documents such as the Certificate for Sequestration, charge for payment, wage slips, bank statements and any other information required by the AiB.
 
1     moneyadvicescotland.org.uk/matrics-learn »
2     aib.gov.uk/systems/basys »
Statement of undertakings and statement of truth
When making the application, the client must sign a Statement of Undertaking and a Statement of Truth to confirm they have understood the process and their legal obligations. See Appendix 3 for the text of the statements.
Debtor contribution order
In FAB cases, there can be a zero contribution (or the client must be in receipt of benefits only for the previous six months). The fee can be waived (see here).
Completing a full, comprehensive and sustainable budget is important because if the CFT is not completed correctly, the AiB may vary the contribution when it awards the DCO, making the client worse off and having to make an un-affordable and un-realistic contribution.
 
Variation of the debtor contribution order
The client has a duty to notify the trustee of any change in income and expenditure and if they acquire any assets during the 48-month period after bankruptcy is awarded.
If your client has a drop or increase in income and expenditure, they can have the DCO varied. This includes reducing the DCO to zero. If their income increases or their expenditure decreases, their DCO may be increased.
In a FAB, a payment of £0 counts as a contribution. This zero contribution counts as a payment and the bankruptcy still finishes at the end of the 48-month period. This is one benefit of bankruptcy over a trust deed where missed payments are added on at the end.
A variation can be applied for by contacting the trustee or by returning a completed debtor statement of affairs.1s95 B(S)A 2016
 
Payment break
Where a client is struggling to make payments due under a DCO, they can apply to the trustee for a payment break of up to six months.2s96 B(S)A 2016
Only one payment break is allowed during the the DCO.
A client can request a payment break if:
    •there has been a reduction of at least 50 per cent in the client’s disposable income (as determined using the CFT) as a result of:
      ◦unemployment or a change in employment;
      ◦a period of leave from employment because of:3s96 B(S)A 2016
        •the birth or adoption of a child;
        •the need to care for a dependant;
        •a period of illness of the client;
        •divorce, the dissolution of civil partnership or separation from a person to whom the client is married or with whom the client is in civil partnership;
        •the death of a person who, along with the client, cared for a dependant.
    •the client has not previously applied for a payment break in relation to a DCO applying after the sequestration of their estate.
An application for a payment break must specify the period during which the client wishes payments to be deferred.
The length of the payment break lengthens the period of the DCO accordingly – eg, if the client takes a break for three months, the DCO is extended from 48 months to 51 months.
If the trustee thinks the application to be fair and reasonable, they can grant the payment break and impose any conditions they think are reasonable.
The trustee will notify the client, creditors and any relevant third party of the decision. The client can ask for a review of the decision not to award a payment break within 14 days of the decision. The AiB Independent Review Team will review the decision and issue their guidance to the trustee within 28 days.
Any further appeal must go to the sheriff court within 14 days of the review decision. The sheriff’s decision is final.
Payment break or variation?
The client has an option to apply to the trustee to vary to DCO to zero or to ask for a payment break. The client may be better off registering a zero contribution rather than taking a payment break, as the zero contribution does not lengthen the timescale.
 
Debtor’s account of current state of affairs
Every six months the client is sent a ‘Debtor’s account of current state of affairs’ on Form 27.4legislation.gov.uk/ssi/2016/397/schedule/1
On receipt of this, the trustee reviews the DCO.
If your client’s situation has changed make sure they complete and return the form properly as it will be used to reassess the DCO.
It is good practice for the client to come back to you for help with this on the first few occasions.
 
1     s95 B(S)A 2016 »
2     s96 B(S)A 2016 »
3     s96 B(S)A 2016 »
4     legislation.gov.uk/ssi/2016/397/schedule/1  »