TEMPORARY DEBT PROTECTION
Page last updated on 11/09/2020
What has not changed?
- Entering into Temporary Debt Protection is an act of bankruptcy. Creditors can use this act of bankruptcy to make the person bankrupt without needing to obtain a court judgment or issue a bankruptcy notice. From 25 March 2020 until 31 December 2020 the amount of time a person has to respond to a Bankruptcy Notice (forced Bankruptcy) has been increased from 21 days to six months. see Bankruptcy
- Once the person applies for Temporary Debt Protection, they cannot apply again for 12 months
- Creditors can still conduct debt collection activities, including demanding repayment and starting fresh legal proceedings in court (and get a court judgment)
Why a Temporary Debt Protection should be avoided
- You always need to consider whether your client’s best option is bankruptcy (or not). If your client plans to avoid bankruptcy it is better to avoid committing any act of bankruptcy.
- The protections are actually very narrow. The circumstances where a Temporary Debt Protection may be of assistance to your client is when the client is at risk of a garnishee (or is already being garnisheed) or is at risk of a Sheriff seizing goods.
- Seizure of goods by the Sheriff are likely to be limited due to worker health and safety requirements (due to the pandemic) but do check with the court.
- Before considering a Temporary Debt Protection do consider negotiating with the creditor to stop a garnishee or the seizure of assets. The creditor may be more flexible given the pandemic.
- If the client is considering bankruptcy, there is usually no need for a formal Temporary Debt Protection. Asking for a stop on enforcement can buy the client the time needed to consider whether bankruptcy is the best option.
- As bankruptcy is now an online process, there should be no delay while the bankruptcy forms are processed. (In the past, a declaration of intention to present a debtor’s intention was used urgently to prevent the seizure of goods or a garnishee of wages while an application for bankruptcy was processed)
- If the client is solvent, the best option is to make affordable repayment arrangements.
What do the changes mean?
Temporary Debt Protection provides a limited stay of enforcement for six months after 25 March 2020. It is still an act of bankruptcy.
What do you do differently?
- You should not be doing anything differently. A Temporary Debt Protection should not be considered except in very specific circumstances.
- There are usually better options than Temporary Debt Protection and you need to give people advice about them.
What is Temporary Debt Protection?
- It stops the Sheriff from seizing goods under a court order
- It stops the court ordering the garnisheeing of wages or money from a person’s bank account
- The name Temporary Debt Protection is a bit misleading as it offers very limited protection