The 2024 Act came into force in stages. In January 2025, a mental health moratorium was introduced and will be set up via secondary legislation for which the consultation closed in March 2025. This will give people experiencing a serious mental health crisis temporary protection from debt recovery action. It mirrors similar protections already available in England and Wales and brings Scotland in line with best practice. The 2024 Act also introduces significant changes to the recall of sequestration process. The application process is now clearer and there’s a new provision which removes the requirement to pay interest on debts if the full amount is repaid within six months of sequestration. This applies to both new and existing cases from June 2025.
Trustees are provided with clarity and flexibility, particularly where a debtor can't be located. There's now a streamlined process which allows trustees to resign in such cases, with the Accountant in Bankruptcy (AiB) stepping in where necessary. There’s also a larger emphasis on transparency and informed consent, especially in relation to Protected Trust Deeds. New documentation requirements are now in place to help debtors fully understand what they're signing up for. The changes are not just about protecting debtors, they’re also about improving the efficiency and consistency of the insolvency process. These updates were shaped by consultation responses from across the a wide range of stakeholders.
Modifications to the Bankruptcy (Scotland) 2016 Act via the 2025 Regulations - changes coming into Force on 25th June 2025
These regulations, laid out in the 2025 Commencement No.2 and Transitional Provisions, bring specific sections of the 2024 Act into force and directly amend parts of the 2016 Act and clarify the process for recall of sequestration. From 25th June 2025 onwards, debtors applying for recall will follow an updated, more transparent process that’s been incorporated into the 2016 Act. The waiving of interest has been changed. If a debtor repays their debts in full within six months of the sequestration award, they no longer have to pay interest. This applies to new and existing awards, provided repayment occurs after 25th June 2025. The regulations also provide a new framework for trustee resignation, particularly when a debtor isn’t co-operating or can’t be located. Trustees may now resign in these situations, and the Accountant in Bankruptcy (AiB) can be appointed as the replacement trustee. This new process has now been amended into the 2016 Act.
Regulation 9 of the Bankruptcy (Applications and Decisions) (Scotland) Regulations 2016 has been amended to remove ambiguity in the notification process when the AiB, acting as trustee, applies for recall. The 2025 regulations also introduce new statutory forms to support these procedural updates, such as trustee resignation and AiB appointment. These forms will be required under the modified 2016 Act from June onward.
The amendments enhance both fairness and administrative clarity and they reflect ongoing efforts to modernise Scotland’s insolvency system while protecting vulnerable debtors. These regulations ensure that the winder bankruptcy framework functions smoothly once the June 2025 provisions of the 2024 Act take effect.
What Will the Impact Be?
Improved Accessibility and Fairness
The Act enhances access to justice and fairness for debtors and makes provision for the establishment of a mental health moratorium. This introduces breathing space for individuals in crisis, and reflects a more compassionate approach to debt recovery.
Removing the requirement to pay interest when debts are fully repaid within six months will make recall of sequestration more attainable, especially for those who act quickly and want responsible resolution.
Greater Efficiency and Clarity
The updated rules on trustee resignation, recall and AiB appointment fill in long-standing gaps and make the system more predictable and manageable.
The introduction of new statutory forms and revised procedures will also help reduce administrative errors and improve consistency in how cases are handled.
Enhanced Confidence in the System
A more reliable framework is a result of the changes and this will lead to less delays and fewer disputes. There will be broader public confidence in the insolvency process by ensuring that it is fair, proportionate and up to date.
Long-Term Modernisation
This legislation aligns the Scottish approach more closely with best practices elsewhere in the UK, while still respecting Scotland’s unique legal framework.
Why were the changes necessary?
There were practical shortcomings in the existing law and broader social and policy shifts.
Dated Procedures
The Bankruptcy (Scotland) Act 2016 provided a comprehensive framework, but parts of it were becoming dated. Processes like trustee resignation, recall of sequestration, and debtor engagement weren’t always clear and efficient.
This created inconsistencies in practice and occasionally led to procedural disputes or unnecessary delays.
Mental Health Gap
One of the clearest gaps was in protections for people with serious mental health conditions. Unlike England and Wales, Scotland had no formal mental health moratorium.
This meant vulnerable individuals in crisis could still be pursued by creditor. This could potentially worsen their condition and undermine rehabilitation.
Stakeholder Feedback
Feedback was received during public consultations, including responses from insolvency practitioners, money advisers, the third sector, and the legal profession. Stakeholders called for greater clarity, streamlined processes, and modern protections. The Scottish Government was clear that the law needed to reflect practical reality.
Encouraging Early Resolution
The six-month interest-free repayment window in recall cases will encourage debtors to repay quickly. This will benefit both them and their creditors and will help prevent financial exclusion.
Alignment and Modernisation
The changes support wider goals of modernising Scotland’s insolvency regime, making it more accessible and aligned with the best aspects of systems in England and Wales, while retaining our distinct legal structure.
These reforms aim to improve fairness, clarity, and practical outcomes for everyone involved in the debt recovery process.
The changes are a necessary response to issues raised by those working in and affected by the Scottish insolvency system.
