23 April 2024

Individuals grappling with mental health issues will soon be able to apply for a temporary halt on creditor actions.

The Bankruptcy and Diligence (Scotland) Bill, presented to the Scottish Government in April 2023 and currently undergoing Stage 3 consideration, aims to overhaul the existing bankruptcy and diligence framework in Scotland. One significant aspect of this proposed legislation is the introduction of the Mental Health Moratorium, which seeks to provide protection and relief for individuals dealing with mental illness and struggling with debts.

The Bill proposes that individuals struggling with mental health issues can apply for a temporary halt on creditor actions such as arrestment and asset seizures. The regulations will set out eligibility criteria, the time period for a moratorium, the obligations of the individual subject to the moratorium and the actions creditors cannot take during the moratorium period.

As currently drafted, the Bill lacks a definition for mental illness and details of the application process for the moratorium. These it is understood will be provided for in secondary legislation. As part of the Scottish Government Consultation process it has also been recommended that there will be no minimum debt level and recommendation will be required from a mental health professional, rather than a debt adviser, as to the effects of the debt on the debtor.

The somewhat inelegantly titled Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, which came into force in May 2021, may offer some insights, particularly regarding the definition of mental health crisis treatment and the duration of moratoriums, which are likely to influence the Scottish legislation.

In particular, under the Debt Respite Scheme, an individual is suffering from a mental crisis if they have:

1. Been detained in hospital for assessment under sections 2 or 4 of the Mental Health Act 1983,
2. Been detained in hospital for treatment under section 3 of that Act,
3. Been removed to a place of safety by a police constable under sections 135 or 136 of that Act,
4. Been detained in hospital for assessment or treatment under sections 35, 36, 37, 38, 45A, 47 or 48 of that Act, or
5. Received any other crisis, emergency or acute care or treatment in hospital or in the community from a specialist mental health service in relation to a mental disorder of a serious nature.

A mental health crisis moratorium in England will last for the length of time treatment the debtor is receiving, plus an additional 30 days following the end of that treatment. It appears likely that the Bill in Scotland will follow similar requirements although the relevant Scottish legislation will include the Mental Health (Care and Treatment) (Scotland) Act 2003 and the Criminal Procedure (Scotland) Act 1995.

Under the Debt Respite Scheme, creditors retain the right to seek a review or cancellation of a mental health crisis moratorium if they believe it unfairly prejudices their interests or if eligibility criteria are not met.

In Bluestone Mortgages Limited v Stoute & Anor [2024] All ER (D) 46 (Mar), the Claimant sought an order from the court to enforce their rights concerning a mortgaged property based on several grounds: firstly, that the debts owed to them were not subject to the mental health crisis moratorium as they did not qualify as "qualifying debts"; secondly, that the mental health crisis moratorium should be cancelled; and/or thirdly, that the Claimant did not in any event require the court's permission to enforce their right to possess the mortgaged property.

The Judge determined that due to an error in including a portion of the debt as a "moratorium debt," there existed a "material irregularity" warranting the court's authority to cancel the mental health moratorium under regulation 17(2). However, the Judge deemed it unfair to the defendants to solely cancel the mental health moratorium based on this circumstance. The Judge held that as the security held by the claimant (i.e. the mortgage) related to both protected and unprotected debts the claimant could not enforce its rights without the permission of the court. As the claimant had not made submissions as to why it should be given permission to enforce its rights, the Judge adjourned consideration of this issue to a hearing of an anticipated application to cancel the moratorium on the grounds that the defendant had not been eligible to obtain it.

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Creditors should stay informed and adaptable to changes in the legal landscape to effectively navigate the complexities of the Mental Health Moratorium. Proactive engagement with legal experts and industry peers can provide valuable insights and strategies for addressing challenges that may arise. 

Moreover, individuals struggling with mental health issues should familiarise themselves with their rights under the proposed legislation and seek appropriate support and guidance when considering applying for a moratorium. 

While the Bankruptcy and Diligence (Scotland) Bill holds promise for modernising the bankruptcy and diligence processes in Scotland, the introduction of the Mental Health Moratorium presents unique challenges and considerations for both creditors and individuals. By staying informed, proactive, and adaptable, stakeholders can navigate these complexities effectively and ensure fair and equitable outcomes for all parties involved.

If you are seeking advice about debt enforcement, please do not hesitate to get in contact with BTO’s highly experienced insolvency team.

Lucy Dunlop, Senior Solicitor: ldu@bto.co.uk / 0141 221 8012