People can get into debt for all kinds of reasons such as illness, economic climate or factors beyond their control. Debt recovery without appropriate levels of care can cause stress and anxiety in most people, but susceptible individuals who may have a physical illness, mental health difficulties or going through bereavement can be hit hard by the manner in which debt is recovered. Anyone can have their resilience tested and find in vulnerable circumstances and this is why the Financial Conduct Authority has placed the protection and fair treatment of vulnerable consumers as a key focus across regulated sectors (CONC 7.2 FCA Handbook).
The Scottish Government recently ran a consultation on the provision of a moratorium on debtors who meet a specific mental health criteria. Section 1 of the Bankruptcy and Diligence (Scotland) Act 2024 made provision to establish a mental health moratorium on debt recovery, based on recommendations by The Mental Health Moratorium Working Group. The detail of this process was to be provided in secondary legislation, leading to the production of the draft Debt Recovery (Mental Health Moratorium) (Scotland) Regulations 2025.
Regulation 2 of the draft regulations provides definitions used within the regulations which is useful for calculating the moratorium period and explains that the definition of a bank holidays is to be construed in accordance with the Banking and Financial dealings Act 1971. Regulation 3 defines how a moratorium debt is qualified, ie by decree or document of debt, judicial or contractual interest, charges or penalties due under a contract on any default in respect, or in breach of that contract, lease or tenancy agreement, enactment, secured by a standard security or enforcement expenses. Regulation 4 explains that a decree or document of debt has to be construed in accordance with section 10(5) of the Debt Arrangement and Attachment (Scotland) Act 2002 and a standard security means the form of heritable security enabled under section 9 of the Conveyancing and Feudal Reform (Scotland) Act 1970.
Regulation 4 covers how an individual meets the mental health criteria and the eligibility of such an individual to apply for a mental health moratorium. An individual who is sequestrated, is in a protected trust deed, or in a debt payment programmed does not qualify for a mental health moratorium. Regulation 4(3) explains how an individual meets the debt criteria and the need for causation between the problem or perceived problem with debt, is contributing to or has contributed to the individual’s mental illness or the likelihood of the problem or perceived problem with debt contributing to or to have contributed to that individual’s mental illness or appears to be hindering the individual’s mental illness to deteriorate or appears to be hindering the individual’s recovery from mental illness and is unable (or it would be counterproductive in terms of the individual’s recovery) to deal with their debt as a consequence of that mental illness).
Regulation 5 details the application process and an application has to be made to the Accountant in Bankruptcy along with written confirmation from a mental health professional to the money adviser meets the mental health criteria and the debt criteria. The Accountant in Bankruptcy can request supporting evidence from the mental health professional that the individual meets the mental health criteria and the debt criteria. The money advisor must provide any new information or any information correcting previously submitted information if that was inaccurate or mistaken as soon as reasonably practicable. Regulation 6 provides that, if the Accountant in Bankruptcy is satisfied that the individual meets the mental health criteria and the debt criteria, it must, without delay, send notification of the start date of the moratorium to the individual or their legal
representative, their nominated point of contact, the mental health professional who signed the application, the money adviser who signed the application and every creditor of the individual. The name of the individual and moratorium start date must be entered into the moratorium register and guidance must be sent in accordance with regulation 6(2). Similarly, notifications must be sent by the Accountant in Bankruptcy if it considers that the mental health criteria and debt criteria are not met along with reasons for the decision.
Regulation 7 describes the mental health moratorium register. The key points from regulation 7 are it details the only parties who are entitled to information about the debtor, ie the parties to whom the notification was sent. A creditor is not entitled to information about other creditors and other debts or the debtor’s place of residence which may jeopardise the debtor’s safety or welfare. However, the debtor’s trading name and address of his or her business must be placed on the register. If notice from the mental health profession is received that the individual’s recovery period has started, this start date must be placed on the register. Once a moratorium ends, the end date must be placed on the register. Any particular information which, in the opinion of the Accountant in Bankruptcy, may jeopardise the safety and welfare of any person must be excluded from the register. Further, an individual or their legal representative may apply to the Accountant in Bankruptcy under regulation 4(8) for specified information to be excluded from the register on the basis that its inclusion would be likely to jeopardise the safety or welfare of any person.
Regulation 8 specifies the effect a mental health moratorium would have regarding enforcement or diligence ie, what is permitted and what is not. Interestingly, an earnings arrestment order which came into effect before the day on which the moratorium period in relation to the individual can be competently executed. Any standard moratorium on diligence under section 197(2) of the Bankruptcy (Scotland) Act 2016 will end with immediate effect when the mental health moratorium takes effect. Regulations 9, 10 and 11 specify the period of the mental health moratorium, the recovery period notification requirements and review of eligibility criteria. Before the elapse of 6 months from the start of the moratorium, the Accountant in Bankruptcy must request confirmation of whether the individual still meets the mental health criteria, from the mental health professional, thereafter notify the creditors and the money adviser. Regulation 12 details the individuals obligations including paying a continuing liability when due for payment and not obtain credit beyond £2,000. Should the individual breach this, the Accountant in Bankruptcy may cancel the moratorium with a period of at least 28 days notice and having regard to the individual’s reasons and any representations from his or her representative.
Regulations 13 and 14 detail the creditor’s obligations to notify the Accountant in Bankruptcy regarding details of the debt and whether it is an assigned debt in which case the assignee must be notified by the assignor, thereafter provide contact details of the assignee to the Accountant in Bankruptcy. A creditor will be liable for expense to the debtor if the creditor takes any actions contrary to regulation 8. An individual can apply to the Accountant in Bankruptcy under regulation 15 to review a decision that the mental health and debt criteria have not been met. Following an unsuccessful, the individual can appeal to the sheriff within 14 days of the notification having been sent. The decision of the sheriff will be final. A creditor can apply for a review of the Accountant of Bankruptcy’s decision, in accordance with regulation 16, within 14 days of the date the moratorium started. A moratorium can be cancelled in accordance with regulation 17, following a review under regulation 16. The Accountant in Bankruptcy must have sufficient evidence that the moratorium unfairly prejudices the creditor’s rights or of material irregularity in relation to the application process. However, the Accountant in Bankruptcy is not required to
cancel the moratorium if the individual’s personal circumstances would make the cancellation unfair or unreasonable. This decision can also be appealed to the sheriff within 14 days beginning with the day on which the notification of the decision is sent. The decision of the sheriff is final.
Regulation 19 specifies what occurs after the death of the individual and regulation 20 describes the interaction with standard moratorium on diligence.
