The moratorium period for individuals, partnerships and trusts has been extended to six months in Scotland to offer relief during the coronavirus (COVID-19) pandemic. Lucy McCann of Brodies LLP explains the changes.

What is a personal moratorium?

A personal moratorium is a period of debt relief during which creditors temporarily cannot take any action against you for debts you owe to them. This gives more time for individuals, partnerships and trusts to sort out how they can repay debts.

What are the personal moratorium rules in Scotland?

Until now, a six-week relief period existed for individuals, partnerships and trusts in Scotland who were facing financial distress or liquidity issues. However, that six-week 'allowance' has now been increased to six months, in recognition of an anticipated spike in the number of personal insolvencies triggered by the impact of coronavirus (COVID-19).

Previously, sections 195 to 198 of the Bankruptcy (Scotland) Act 2016 provided a six-week moratorium as a form of breathing space, to allow parties to be protected from their creditors while they take advice and consider what debt relief options might be available to them. Applications for the moratorium were restricted to once in any 12-month period.

However, the Coronavirus (Scotland) Act 2020 has introduced two significant changes to the provisions:

1. the moratorium has been increased from six weeks to six months
2. the limitation on multiple applications during any 12-month period has been suspended 

How can you apply for personal moratorium in Scotland?

To benefit from the moratorium, a party must make a simple application via the Accountant in Bankruptcy's Register of Insolvencies using either:

• Form 33 for an individual or the executor of a deceased's estate
• Form 34 for partnerships and trusts

Generally, few people are aware of the personal moratorium and take advantage of the protection it can offer. The intention is that where a party is under pressure from their creditors, they can apply for the moratorium to allow them to take money advice, to determine what form of debt relief might be best suited to them. That period of relief prevents any diligence being done against them, or from their sequestration being awarded while it is in force.

What are the conditions of a personal moratorium?

It's important to note that the protection the moratorium offers is extensive, but specific. In particular, it prevents a creditor from:

• serving a charge for payment
• commencing or executing any diligence
• sequestrating the debtor

However, it is still permissible for the creditor to:

• auction attached articles, if appropriate notice has already been given
• implement a decree of forthcoming
• implement a decree or order for sale of a ship (or share of a ship) or cargo
• execute an earnings arrestment, a current maintenance arrestment, or a conjoined arrestment order, so long as it came into effect before the moratorium began

How will the new personal moratorium rules affect people in Scotland?

These changes to Scotland's bankruptcy laws will bring welcome relief to many individuals, partnerships and trusts who are experiencing serious financial worries as a result of the coronavirus (COVID-19) crisis.

There is, however, a concern that the moratorium could be abused by unscrupulous parties who are seeking to delay the inevitable, and do not have any real intention of taking advice and implementing one of the debt solutions envisaged by the Bankruptcy (Scotland) Act 2016.

About the author

Lucy McCann is a partner in corporate restructuring and insolvency at Brodies LLP.

See also

A brief guide to sequestration in Scotland

What you need to know about protected trust deeds in Scotland

What is the Debt Arrangement Scheme (DAS) in Scotland?

Find out more

Bankruptcy (Scotland) Act 2016 (Legislation)

Coronavirus (Scotland) Act 2020 (Legislation)

Register of Insolvencies (AiB)

Image: Getty Images

Publication date: 14 May 2020

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.