Blog: Morally bankrupt fees are illegal
The Scottish Government is wrong to maintain application fees for bankruptcy, writes Alan McIntosh of Govan Law Centre.
The Scottish Government’s decision to reject calls by Govan Law Centre for a fee waiver for consumers wanting to go bankrupt, is not only disappointing, but ultimately likely to be an expensive mistake, resulting in £8.6 million of fees having to be repaid if legal challenges are successful.
There have always been application fees for people who want to go bankrupt; however, prior to 2008 the process was carried out by the courts, and as such, where someone was not able to afford the fee and in receipt of certain benefits, they could get a fee waiver or apply for legal aid.
In 2008 this changed, when the function was transferred to an officer of the court, the Accountant in Bankruptcy (AiB). With that change, fee waivers and legal aid were removed. The effect of this is we have people crippled with debt, surviving on £73.10 per week, who must find £90 to apply for their bankruptcy, or £200 where their debts are over £17,000.
The nature of the remedy has not changed, so why abandon the principle of helping people access justice when they cannot afford it? An AIB spokesperson has said that they are “fully satisfied that fees for accessing bankruptcy are fully compliant with the law”, but provide no explanation as to why,in light of the Supreme Court ruling in relation to Employment Tribunal Fees.
We do not know how many people who apply for bankruptcy can afford to do so and the AiB have never explained it, particularly when they are on benefits. The irony is that once a debtor is bankrupt and their only income is Jobseekers Allowance or Income Support,they are not required to pay anything towards their debts, as their income is too low, yet we expect them to find £200.
They can pay the application fees in instalments, but considering the subsistence lifestyle of many, there is irrefutable evidence that this causes hardship.There is also evidence many are forced to borrow money, which is a reckless situation for the Scottish Government to create, knowing as they do, that those wanting to apply for bankruptcy cannot afford to repay the debts they already have.
The problem with the Scottish Government bankruptcy fees are they do not recognise some people cannot afford to pay them and don’t offer any form of fee waiver or remission on the grounds of affordability. That is what is likely to make them illegal. They lack proportionality.
This inevitably will mean, considering the Supreme Court ruling, there will be challenges and if it is found the fees are unlawful, the AiB may have to refund the £8.6 million in fees they have collected since 2008.
Or they could just join their clients in bankruptcy.
- Alan McIntosh is project manager of Govan Law Centre’s Personal Insolvency Unit.