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| This study examined the views of people who had had experience of the procedures introduced by the Debtors (Scotland) Act 1987: those who had used the new time to pay directions and time to pay orders; and those who had been subject to earnings arrestments and poindings and warrant sales. The study was based on interviews with a sample of 100 debtors identified from court records in 5 sheriff courts and was conducted between May 1993 and May 1994. The study is one part of an evaluation of the reforms of the Act and considers only the views of debtors. |
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| Main Findings |
- Almost all the debtors interviewed had fallen into arrears after a change in personal circumstances, such as loss of job, illness or the breakdown of a relationship.
- With only one exception, debtors reported that they had contacted the creditor at some point in an attempt to settle the dispute or negotiate repayment of the debt.
- A majority of debtors did not respond to the court summons. Some debtors did not understand the summons and were unsure of their response. Others could not afford to apply for a time to pay direction, or did not think responding would make any difference to the outcome of their case.
- The introduction of time to pay directions had had only a limited impact in helping debtors who were unable to pay their debts outright: debtors were unaware of the option; had not understood how to make an application; could not afford an application; or had not applied because they did not think their offer would be accepted.
- The majority of debtors did not understand the implications of the charge.
- Debtors subject to earnings arrestments found the level of deductions difficult to cope with. This situation was compounded when debtors had other debts to pay and when debtors were given no warning of the arrestment to allow them to prepare for the reduction in income.
- There was universal opposition to poindings and warrant sales. Debtors subject to this diligence were frightened and distressed. There was low awareness of the protections provided by the Act in this area.
- Awareness of time to pay orders was low, although they were well received by those who used the procedure.
- Only a minority of debtors in the sample sought advice in connection with their debt.
- Despite the reforms of the Act, the research suggests that debtors unable rather than unwilling to pay their debts continue to have diligence instructed against them and continue to suffer economic hardship and personal distress. Creditor behaviour, low awareness of procedures, and multiple indebtedness all contributed to this situation.
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| Introduction |
| This study forms part of a programme of work designed to evaluate the Debtors (Scotland) Act 1987 (the Act). This Act, implemented in 1988, introduced major changes to the procedures for enforcing debts in Scotland. The Act dealt with 3 main areas: the introduction of new measures allowing debtors unable to pay their debts outright to do so over time (time to pay directions and orders); the introduction of 3 new diligences against earnings (earnings arrestments, conjoined arrestment orders and current maintenance arrestments); reforms to poinding and warrant sale procedure, including the introduction of a revised list of exempt goods and new rights allowing debtors to protect themselves from the harsher aspects of the diligence. |
| The study aimed to evaluate the success of the Act in allowing debtors unable to pay their debts outright to do so over time, and in protecting debtors from the harsher aspects of diligence. Specifically, the study sought to provide information on: |
- awareness of, and views on, time to pay directions and orders;
- the success of time to pay directions and orders in paying off debts;
- the use made by debtors of the various protections included in the Act;
- the ease with which debtors made use of the provisions of the Act;
- views on forms and leaflets used;
- details of advice sought.
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| Pre-court stage |
| Almost all the debtors interviewed reported that they had fallen into arrears after a sudden unforeseen change in circumstances: eg, redundancy or the break- up of a relationship. Having fallen into arrears, all but one of the debtors said that they had contacted the creditor in an attempt to settle the dispute or make arrangements for repaying the debt. Many of the debtors, however, had found creditors to be awkward, unsympathetic and unpredictable in their negotiations. It was commonly reported that creditors followed demand for full payment with threats of litigation or bankruptcy. At this stage, creditors were seen as attempting to shock people into paying up. |
| Where alternative payment arrangements were agreed between the creditor and debtor, there were reports of creditors unilaterally changing arrangements or of court action being raised despite adherence to an agreed payment arrangement. |
| Ten of the debtors in the sample disputed the debt with the creditor but only one defended the action at court. The others did not do so, either because they could not afford a solicitor or because they were unsure about the procedures for defending an action. |
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| Court stage |
| Court action is the first step in the formal debt recovery process. All the debtors interviewed had had a decree awarded against them and so all had experience of the court stage of debt recovery. In view of the efforts they had made to negotiate with creditors and repay the money owed, the majority of debtors thought that court action had been raised against them with unnecessary urgency. |
| Around a fifth of interviewees stated that they had received no formal notification of the court action. In fact, many were unaware that an action had been raised against them and so had only a vague idea of what had happened in their case. |
| In general, those debtors who said they had received a summons or initial writ understood that an action had been raised against them. However, a substantial group of interviewees, who understood that they were being taken to court, did not fully understand the implications of this. In over half the cases where interviewees were unsure about how to respond to the summons, difficulties in understanding the language used were reported. |
| The majority of debtors did not respond to the summons. The possible responses at this stage include applying for a time to pay direction. Some stated that they did not know they were expected to respond because they did not know what was happening to them. Importantly, such debtors were unaware of the option of applying for a time to pay direction. Others, who were aware of the option, did not make an application either because they could not afford to, or because they were already overstretched with existing commitments to repay other creditors. Others did not apply for time to pay because they did not believe their offer would be accepted. |
| The majority of debtors did not attend court. This option is available to all defenders, and interviewees chose not to do so for a variety of reasons: fear, lack of confidence, lack of awareness of the option, the belief that there was no point. Those that did attend typically described the experience as terrifying, and found the hearings to be formal and difficult to understand. |
| A majority of interviewees had been unaware of the outcome of their case until diligence commenced. |
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| Time to pay directions |
| Twenty-five interviewees had applied for a time to pay direction, of whom 21 had their applications granted (2 at a rate higher than they had requested). Several debtors had applications granted at rates which creditors had previously rejected during informal negotiations. There was evidence to suggest that those who had sought advice were more likely to be successful in their application. Those that applied for time to pay were generally positive about the application form. |
| Slightly under half of those granted time to pay directions maintained the payments; those who had sought advice with their application were more likely to maintain payments. Diligence was instructed against most of those who had defaulted. |
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| Diligence |
| The charge |
| Before an earnings arrestment or poinding can be executed, a document known as a 'charge for payment' must be served on the debtor. Only around half of the debtors could recall this taking place, and no debtor appeared to understand the significance or the implications of the charge. |
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| Earnings arrestments |
| The sample of debtors studied included 24 people with experience of earnings arrestments and conjoined arrestment orders 1. The majority of debtors, regardless of the level of their earnings, had difficulty coping with the deductions made, especially if they were also making payments to other creditors under informal agreements. |
| In most cases respondents said they had received little or no warning that their earnings were to be arrested and felt that a statutory period of warning would help prepare for the reduction in income. However, having received the schedule of arrestment, most understood it and found it helpful in checking deductions. |
| Earnings arrestments were not said to cause friction between debtors and employers. |
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| Poindings and warrant sales |
| The diligence of poinding and warrant sale involves the valuing of a debtor's possessions for future sale, with the proceeds of the sale being credited against the outstanding debt. Thirty-nine of those interviewed had experienced either a poinding or a poinding and warrant sale. For many, the diligence was a frightening and intimidating ordeal. Several people reported health problems which they attributed to the levels of mental stress they experienced. Interviewees generally thought the diligence was outmoded and should be abolished. |
| Interviewees revealed a low awareness of poinding procedures. Unless they had been guided by an advice worker, any knowledge was gained from sheriff officers conducting the poinding. Very few respondents were aware of their rights under the Act (for example, the right to apply for the release of poinded goods on various grounds). The only debtor who had made use of the protections of the Act did so with the assistance of an advice worker. This was despite a number of complaints about the types of item which had been poinded and the values which sheriff officers had placed on goods. |
| A significant proportion of interviewees did not see the diligence as an effective way of recovering debts. In particular they noted the effect of the diligences expenses in increasing the total amount owed, often quite significantly. In only one of the 5 warrant sales carried out did the proceeds of the sale cover the total debt. Debtors were generally of the view that the diligence was used as a threat, as a punishment, or to make an example of an individual. |
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| Time to pay orders |
| Time to pay orders allow debtors time to pay after the onset of diligence. Sixteen interviewees had applied for time to pay orders - none of the other debtors was aware of the option. Most of those who had applied for a time to pay order had done so after an earnings arrestment had commenced or after a poinding had taken place. All had been unaware of the option until being informed of it by another party, usually after seeking general advice about their predicament. |
| Just over half of those granted time to pay orders maintained their payments. Assistance from an advice worker made maintenance of the order more likely. In the case of half of those who had orders granted, creditors had rejected previous informal offers to pay at the same or a higher level. |
| Applicants generally found the pre-designed forms for applying for a time to pay order easy to use and understand. |
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| Seeking advice |
| Despite low knowledge levels and difficulties in understanding documentation and using the procedures of the Act, only a third of those interviewed had sought advice 2. Those that did not gave a variety of reasons including cost; not knowing where to obtain advice; the wish to maintain privacy; and the belief that seeking advice would not help their situation. Those who sought advice were generally positive about the advice received. |
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| Conclusions |
| In summary, despite the reforms introduced by the Act, debtors subject to diligence continue to suffer from economic hardship and personal distress. Economic hardship was associated with earnings arrestments while those subject to poindings and warrant sales suffered personal distress. Significantly, most of the debtors who had diligence instructed against them were apparently unable rather than unwilling to pay their debts, and further, made little use of the protections available to them (including time to pay orders) once diligence had commenced. |
| The new time to pay directions and orders have not been wholly successful in protecting debtors unable to pay their debts outright from diligence. Non-use of these measures was identified as a major problem. This was particularly so in relation to time to pay orders where awareness of the measure amongst debtors was extremely low. However, where the measures were used, debtors were generally positive about the forms, and the debtors who successfully maintained their payments were afforded protection from diligence as intended. |
| Knowledge of the rights available to debtors during the poinding and warrant sale procedure was also low. Debtors were thus unable to protect themselves from the harsher aspects of the diligence, as had been intended by the Act. |
| The following factors combine to make it difficult for the Act to achieve the objective of debtor protection: |
- the rights-based system introduced by the Act, which relies on debtors taking the initiative to protect themselves, and the disadvantage to debtors (with their low levels of knowledge and understanding) of such a system;
- the failure of debtors to seek advice when appropriate;
- the problem of multiple indebtedness which hinders the effectiveness of time to pay directions and orders and earnings arrestments;
- the behaviour of creditors.
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| About the study |
| The Debtors (Scotland) Act 1987 aimed to strike an equitable balance between the interests of creditors and debtors by providing effective machinery for the recovery of debts, while at the same time ensuring that debtors were protected from undue economic hardship and personal distress. The Act dealt with 3 main areas: firstly, it introduced 2 new procedures - time to pay directions and time to pay orders - to give debtors time to pay their debts free from the threat of diligence; secondly, it introduced reforms to the procedures for poindings and warrant sales; and thirdly, it introduced 3 new diligences against earnings - the earnings arrestment, the conjoined arrestment order and the current maintenance arrestment - replacing the previous system of arrestment of earnings and action of furthcoming. |
| Scottish Courts Administration commissioned a programme of research to evaluate how the Act was working in practice and the extent to which it was meeting its main objectives. The research consisted of 7 separate studies. Four qualitative studies sought information on the views and experiences of commercial creditors, individual creditors, debtors and facilitators (solicitors, advisers, sheriffs, sheriff officers) and 3 quantitative studies examined the characteristics of payment actions, the characteristics of poindings and warrant sales, and trends in the use of the measures introduced by the Act. Findings from each of the studies, as well as an Overview, have been published by The Scottish Office Central Research Unit (SOCRU) as follows: |
- Headrick, D. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Individual Creditors. (Report and Research Findings No.10)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Commercial Creditors. (Report and Research Findings No.11)
- Whyte, D. (1999) Evaluation of the Debtors (Scotland) Act: Study of Debtors. (Report and Research Findings No.12)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Facilitators. (Report and Research Findings No.13)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Poindings and Warrant Sales. (Report and Research Findings No.14)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Payment Actions in the Sheriff Courts. (Report and Research Findings No.15)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Analysis of Diligence Statistics. (Report and Research Findings No.16)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Overview. (Report only)
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| 'Evaluation of the Debtors (Scotland) Act 1987: Study of Debtors', the research report summarised in this Research Findings, is available priced £5. Cheques should be made payable to the Stationery Office and addressed to: |
The Stationery Office Bookshop, 71 Lothian Road, Edinburgh, EH3 9AZ.
Telephone: 0131-228 4181 or Fax: 0131-622 7017
http://www.thestationeryoffice.co.uk |
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| This Research Findings may be photocopied or further copies may be obtained from: |
The Scottish Office Home Department
Central Research Unit
Room J1-0
Saughton House
Broomhouse Drive
EDINBURGH
EH11 3XA |
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| This document and other Research Findings and Reports may be viewed on the internet at http://www.scotland.gov.uk/cru/ |
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| Footnotes |
| 1 The current maintenance arrestment was excluded from the scope of the study as it was not relevant to consumer debts. |
| 2 This figure is likely to overstate the actual proportion of debtors who seek advice as some interviewees were referred by advice agencies. Just 15% of those not referred by such agencies sought advice. |