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Media Releases
2005

12 January
2005

New debt recovery scheme expected to lessen the New Year financial hangover

The Debt Arrangement Scheme (DAS), introduced by the Scottish Executive in November 2004, will have benefits to both debtors and creditors when post-Christmas debt begins to take its toll according to one of Scotland's leading law firms, Shepherd and Wedderburn.

However, with consumer debt continuing to spiral and the Scottish Executive set to make bankruptcy an easier option for individuals with money problems, there are some fears among the business community that the Debt Arrangement Scheme will not be enough to stop an increasing amount of their revenue being written off to bad debt.

Joanna Clark, a specialist in debt recovery at Shepherd and Wedderburn, believes the new legislation will provide more choice to the consumer but it is yet to be proven whether creditors will see any benefit.

Joanna commented:
"The Scottish Executive has two main aims. Firstly they want to ensure that creditors are paid lawful debts by encouraging debtor responsibility. Secondly, they want to protect the rights of debtors and encourage an entrepreneurial spirit in Scotland by reducing the burden caused by bankruptcy.

"While their cause is a noble one, the Scottish Executive is walking a fine line which may ultimately result in businesses losing out on even more revenue due to bad debt.

"The Debt Arrangement Scheme has been created in order to give consumers more flexibility to pay off their outstanding debts. Rather than face bankruptcy, individuals now have the ability to enter into Debt Payment Programmes (DPPs) which will give them more time to pay. If approved, the DPP will condense all debts into one monthly payment, split between all creditors. While this will ensure the creditor will receive payment, the DPP could run for up to 10 years, which may not be in a company's interest if they are looking for immediate cash flow.

"In addition, the Scottish Executive is looking to reduce the period of bankruptcy from three years to one year through the 'Bankruptcy and Diligence Bill'. While this is due to be implemented in order to help encourage entrepreneurs, it may also give debtors an easy option when it comes to escaping debt. Rather than enduring ten years restrictive DPP payments, a debtor could declare themselves bankrupt and be free of their debt within one year.

"In this scenario, Scottish businesses may find that they are facing increasing levels of lost revenue along with slow repayments from consumers paying off DPPs. With consumer debt continuing to rise, we will see a lot more people being forced into DPPs or bankruptcy. This could have a knock on effect on Scottish companies if they don't have adequate legal advice on financial matters."


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