BANKRUPTCY LAW REFORM in SCOTLAND

Transcription

1 BANKRUPTCY LAW REFORM in SCOTLAND research conducted by Zero-credit for sponsored by Philip Gill & Co

2 TRUST DEED FORUM BANKRUPTCY LAW REFORM Contents ABOUT THIS REPORT... 7 The Trust Deed Forum...7 Zero-credit...8 INTRODUCTION... 9 EXECUTIVE SUMMARY RESPONDENT PROFILE Current Circumstances Age Gender Tenure Dependent Children THE GOVERNMENT CONSULTATION Current Circumstances Age Gender Tenure Dependent Children DEBT STIGMA Stigma In General Current Circumstances Age Gender Tenure Dependent Children BANKRUPTCY Current Circumstances Age Gender Tenure TRUST DEEDS Current Circumstances Age Gender Tenure Dependent Children RECENT DEBTS THE SPECIFIC PROPOSAL Zero-credit Ltd, January

3 4.1.1 Current Circumstances Age Gender Tenure Dependent Children THE MODELLED PROPOSAL Current Circumstances Age Gender Tenure Dependent Children MINIMUM TERM THE SPECIFIC PROPOSAL Current Circumstances Age Gender Tenure Dependent Children A RATIONAL DECISION-MAKING MODEL Age Gender Tenure Dependent Children AN IRRATIONAL DECISION-MAKING MODEL Current Circumstances Age Gender Tenure Dependent Children OUTCOMES OF IRRATIONAL DECISION-MAKING Current Circumstances Age Gender Tenure Dependent Children FINANCIAL EDUCATION PROPOSAL FOR A COURSE Current Circumstances Age Gender Tenure Zero-credit Ltd, January

4 6.1.5 Dependent Children THE SKILLS MODEL Current Circumstances Age Gender Tenure Dependent Children TRUST-DEED.CO.UK SATISFACTION Current Circumstances Gender Tenure Dependent Children CONCLUSIONS & RECOMMENDATIONS Appendix A Questionnaire Appendix B Recruitment s Zero-credit Ltd, January

5 Charts Chart 1: Comparison of Scottish Advice Seekers Age Ranges at StepChange...9 Chart 2: Comparison of Age Ranges for DMP Clients at StepChange Chart 3: Comparison of Age Ranges in the Trust Deed Forum Survey Sample Chart 4: Q3 What is your personal situation now? Chart 5: Q14 Trust-Deed.co.uk Age Ranges by Current Circumstances Chart 6: Q17 Gender by Current Circumstances Chart 7: Q3 Personal Situation Now by Tenure Chart 8: Q3 Personal Situation Now by Dependent Children Chart 9: Q15 May we ask your age group? Chart 10: Q14 Trust-Deed.co.uk Age Ranges by Current Circumstances Chart 11: Q15 Age Ranges by Tenure Chart 12: Q17 Gender by Current Circumstances Chart 13: Q17 Gender by Dependent Children Chart 14: Q16 Housing Status by Current Circumstances Chart 15: Q16 Housing Status by Age Chart 16: Q16 Housing Status by Dependent Children Chart 17: Q18 Dependent Children by Current Circumstances Chart 18: Q18 Dependent Children by Tenure Chart 19: Q1 Debt Solution Stigma (rating averages) by Gender Chart 20: Q1 Debt Solution Stigma (rating averages) by Tenure Chart 21: Q1 Debt Solution Stigma (rating averages) by Dependent Children Chart 22: Q2 Personal Feelings about Bankruptcy by Tenure Chart 23: Q4 Personal Feelings about Trust Deeds by Age Chart 24: Q4 Personal Feelings about Trust Deeds by Gender Chart 25: Q4 Personal Feelings about Trust Deeds by Tenure Chart 26: Q13 Justified Recent Spending on Credit before Entering a Debt Solution by Current Circumstances Chart 27: Q13 Justified Recent Spending on Credit before Entering a Debt Solution by Age Chart 28: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Current Circumstances Chart 29: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Age Chart 30: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Tenure Chart 31: Q11 Actions without Trust Deeds as an Option by Current Circumstances Chart 32: delays to decision-making Chart 33: delays to decision-making - Worst Case Scenario Chart 34: Q11 Actions without Trust Deeds as an Option by Tenure Chart 35: Q11 Actions without Trust Deeds as an Option by Dependent Children Chart 36: Q12 Feelings without Trust Deeds as an Option by Current Circumstances Chart 37: Q12 Feelings without Trust Deeds as an Option by Age Chart 38: Q9 Support for Financial Education before Discharge from Insolvency by Current Circumstances Chart 39: Q9 Support for Financial Education before Discharge from Insolvency by Age Chart 40: Q5 Skills to Avoid Financial Difficulty in the Future by Current Circumstances Chart 41: Q5 Skills to Avoid Financial Difficulty in the Future by Age Chart 42: Q5 Skills to Avoid Financial Difficulty in the Future by Gender Chart 43: Q14 Trust-Deed.co.uk Ratings by Current Circumstances Zero-credit Ltd, January

6 Tables Table 1: Q18 Dependent Children - in a Trust Deed by Gender Table 2: Q18 Dependent Children - completed a Trust Deed by Gender Table 3: Q1 Debt Solution Stigma (rating averages) by Current Circumstances Table 4: Q1 Debt Solution Stigma (percentages) by Age Table 5: Q1 Debt Solution Stigma (rating averages) - in a Trust Deed by Gender Table 6: Q1 Debt Solution Stigma (rating averages) - completed a Trust Deed by Gender Table 7: Q2 Personal Feelings about Bankruptcy by Current Circumstances Table 8: Q2 Personal Feelings about Bankruptcy - in a Trust Deed by Age Table 9: Q4 Personal Feelings about Trust Deeds by Current Circumstances Table 10: Q10 Preferred Options based on Average Debt Value & Disposable Income - in a Trust Deed by Gender Table 11: Q12 Feelings without Trust Deeds as an Option by Tenure Table 12: Q9 Support for Financial Education before Discharge from Insolvency - in a Trust Deed by Gender Table 13: Q5 Skills to Avoid Financial Difficulty in the Future - in a Trust Deed by Gender Table 14: Q5 Skills to Avoid Financial Difficulty in the Future - completed a Trust Deed by Gender Zero-credit Ltd, January

7 ABOUT THIS REPORT This report focuses on debtors opinions of Scottish Government proposals to reform Bankruptcy Law. Only 20 private individuals volunteered a response to the Scottish Government consultation for Bankruptcy Law Reform and the records show few attempts to broaden access to the process. Since transferring responsibility for debt policy from the Social Inclusion Directorate to the Accountant in Bankruptcy in late 2011, the Government seems less consistent in balancing the rights and needs of debtors with those of creditors. This is regrettable because a recent survey by YouGov for the Money Advice Service suggested that debtors in Scotland were: 73% more likely to be out of unmanageable debt within 12 months than someone living in another part of the UK. In November 2012, approached Zero-credit to conduct an online survey of Forum members. The purpose of the survey was to explore their opinions of proposals for reform, because so many professionals were questioning these. We took great care throughout the design phase to avoid a critique of the Scottish Government, because effective research needs to be robust and unbiased. However, the budget was small and the timescale to lobby for extended consultation was tight. Under Zero-credit s direction, Forum staff conducted eight mini in-depth interviews with members over the telephone, to shape both the survey questions and sequence. Far from the common portrayal of those who seek debt relief as unwilling to repay, we found consideration of creditors rights balanced with a desire for Trust Deed sustainability. There was clear recognition of debtors responsibilities on entering a Trust Deed and that some aspects of financial education could contribute to financial health in the longer term. The questionnaire aimed to capture a range of evidence to indicate support for or against the proposals, both directly and indirectly, and there is a copy of it in Appendix A. 309 out of 1687 Forum users took part, giving a response rate of 18.3%. More than 90% of response was to a personalised and the remainder participated through a link on the Forum website. A prize draw of one 50 and eight 25 shopping vouchers served as an incentive to take part and the survey ran from Monday 26 th November to Sunday 2 nd December. A handful of respondents completed only a small part of the questionnaire and we destroyed these records to maintain data integrity. All 309 respondents reported here completed the survey in full, with some ing to give further clarification about their answers. It was clear that the opportunity to comment on proposals to reform Scottish Bankruptcy Law was welcome. The Trust Deed Forum Trust-Deed.co.uk has operated since It connects members of the public in Scotland with insolvency/debt professionals via an online forum. Members and visitors are able to quickly obtain highquality information, advice and support in respect of protected trust deeds and other debt resolution options. Representatives from four licenced insolvency firms based in Scotland answer the questions posed by visitors to the forum. In addition the site has its own internal advice team made up of three professionally qualified debt advisers. Zero-credit Ltd, January

8 Trust-Deed.co.uk has nearly 2,000 members, has answered more than 3,000 questions in its forum, and contains nearly 25,000 forum posts from both members and subject-experts. Accordingly it has become a unique and valuable resource for anyone seeking information about how to go about resolving their debt concerns. Zero-credit Zero-credit is a co-operative that seeks to improve our understanding of borrowing. Its Members believe that experiences of debt should inform debt prevention and that all borrowers have something of value to share. The co-operative aims to end debt stigma by creating a strong consumer voice for borrowers through: helping people to make informed choices about their finances through digital tools and signposts promoting a culture of self-advocacy, irrespective of financial circumstance encouraging participation in its research, development and decision making celebrating best practice and challenging consumer protection issues striving to build people s confidence, skills and experience through voluntary and employment opportunities and training To finance the above and more particularly, to influence the provision and regulation of personal finance, Zero-credit trades in information, gathered through participatory techniques that: encourage borrowers to own a share in the business as Members of its co-operative ask professionals and organisations to engage with its co-operative as Subscribers publish resources that distinguish between best and poor practice from the consumer perspective contribute to the forums where financial services design, delivery and regulation are discussed conduct research and development for clients who share its co-operative principles and values Zero-credit Ltd, January

9 INTRODUCTION In whichever medium we may conduct a survey, whether by post, at a meeting, or online, self-completion questionnaires do not achieve a statistically representative sample because respondents choose to take part. We may weight data to reflect a random sample, using resources such as National Statistics, but when the target population is a community of interest, the reliability of data modelling can be a challenge. People experiencing unmanageable debt can be particularly complex to consult. Debt stigma is such that many people prefer not to talk about personal experiences of financial difficulty, choosing to air their opinions within the safety of a like-minded forum or group. is one such place. In the last week of November 2012, Zero-credit conducted an online survey of Trust Deed Forum members, to record views about proposed reforms to Scottish Bankruptcy Law. Around 18% took part, achieving a sample of 309 respondents. Of these, 162 were currently using a Trust Deed, 91 had completed a Trust Deed, and 29 were using another debt solution. A handful had either completed another solution or preferred not to comment on their current circumstances. Clearly, respondents from a specialist forum like can pose a bias that reflects their interests, so the findings of this research may not be entirely representative of the debtor population across Scotland as a whole. However, their relevance to a discrete group within this community is noted and on this basis, it is important to assess the extent to which results may be indicative of others opinions, before attempting to project the impact of proposed reforms to Scottish Bankruptcy Law. One of the key demographics to change in the profile of people seeking debt advice since 2007 is that of age. Across the entire UK, advice agencies have been reporting an increase in the average age of clients and Scotland is no exception. A longitudinal dataset, compiled from its client base by StepChange Debt Charity, is therefore our starting point for a benchmark. In the pie charts below, we can see that people in the age range have continued to dominate demand for debt advice in Scotland, increasing from 46% of initial advice seeking at StepChange in 2007, to 50% in % 9% 11% 8% 35% 31% 46% 50% Chart 1: Comparison of Scottish Advice Seekers Age Ranges at StepChange Source: StepChange Debt View Base = 3536, 2011 Base = 5021 Note: The Clients Advised measure in Debt View is a different measure to the Advice Sessions measure in the StepChange Debt Charity Statistical Yearbook publications. A client who requires more than one Advice session in a calendar year is only counted once in the Debt View measure, where as each session is accumulated in the Statistical Yearbook measure. Zero-credit Ltd, January

10 The pattern of higher age range recurs in the profile of debt management clients at StepChange also % 7% 10% 5% 36% 36% 47% 49% Chart 2: Comparison of Age Ranges for DMP Clients at StepChange Source: StepChange Debt View Base = 1201, 2011 Base = 608 Note: New Debt Management Plan data relates to StepChange Debt Charity Telephone and On-line Clients. Whilst it is not possible to compare date ranges for accessing debt advice or solutions from this survey, we can achieve some approximation of these. Comparing respondents who stated that they are currently using a Trust Deed with those who have completed a Trust Deed gives us two sets of experiences that average some three years apart. The pie charts below illustrate a similar pattern to the StepChange datasets, with people in the age range, dominating demand. There is some evidence of increased uptake for Trust Deeds among people in the age range also, and this may be attributable to the appeal of this solution among established households, who often have career commitments, dependents and / or some level of home ownership. Further research is necessary to confirm this hypothesis. completed Trust Deed in a Trust Deed 7% 9% 4% 4% 40% 46% 38% 52% Chart 3: Comparison of Age Ranges in the Trust Deed Forum Survey Sample Sample: Base = 91 completed Trust Deed, 162 in a Trust Deed The similarity of age ranges, between advice seekers and DMP clients at StepChange Debt Charity and respondents from the Trust Deed Forum, is sufficient to establish that we may make reasonable inference Zero-credit Ltd, January

11 from the results of this sample. All that remains is to ascertain an assumed margin of error, to protect against any over generalisation from our findings. At the end of 2011, almost 11,500 bankruptcies were filed, around 6000 Debt Arrangement Schemes were in progress, and just under 25,000 Trust Deeds had been registered since Taking the likelihood of debt management plans and self-negotiated repayments into account also, we can safely estimate a Scottish debtor population of at least 50,000 people. A random sample of 309 respondents from a population of 50,000 (or indeed up to several million) would require us to consider a margin of error approaching six per cent. Similarly, should we assume that the 162 respondents currently in a Trust Deed are representative of the 25,000 or so in the wider population, we might expect our subset data to be accurate to plus or minus some eight per cent. With these broad guidelines for accurate interpretation in mind, it is fair to say that our analysis of this survey needs to focus on significant differences between variables, ratings and subsets. In short, we can only be interested in highly apparent patterns and trends as an indicator that further consultation for the proposed reforms is necessary. Zero-credit Ltd, January

12 EXECUTIVE SUMMARY Demographics Between the large subsets of respondents, who were in a Trust Deed (162) and who had completed one (91), there was evidence that the demographic profile of people entering Trust Deeds has been changing to reflect a squeezed middle. Among respondents who had completed a Trust Deed, just under two fifths were women. Among respondents in Trust Deeds, this rose to almost half. By Tenure, Home Owners with a mortgage accounted for just over a third of respondents who had completed a Trust Deed, compared to more than half of respondents who were in one. There was a significantly higher proportion of Private Tenants among Trust Deed users than is present in the general population around a quarter compared to fewer than one in ten (2001 Census). There also seemed to have been an increase in families using Trust Deeds, significantly more than half of those in Trust Deeds had dependent children, compared to just over two-fifths of those who had completed a Trust Deed. Consultation Fewer than 1% of respondents took part in the Government Consultation and almost half had only learned about reform proposals through trust-deed.co.uk. Among Social Tenants, currently in a Trust Deed, this rose to 70%. Stigma Debt solutions perceived as having a lot of stigma were: Bankruptcy 87.7% Trust Deeds 46.9% DAS 23.0% DMPs 19.4% Self-managed repayments 7.8% Women tended to feel more stigma from all types of debt solution than men did. Just under threequarters of respondents would hate other people to know they were bankrupt, rising to more than four out of every five among Home Owners with a mortgage. This compared to just over two-fifths of people who would hate others to know they were in a Trust Deed, rising to well over half among Home Owners with a mortgage. Recent Debts More than half of respondents rejected the proposal to exclude very recent debts from insolvency solutions and just under a third were unsure about it. Rejection rose to almost two-thirds amongst Private Tenants. Almost seven out of ten respondents felt that emergency travel costs could be justified spending on credit and more than half felt that travel to work could be justified also. Zero-credit Ltd, January

13 Minimum Term Over a third of respondents accepted the proposal for a minimum four year term, compared to just over two fifths who rejected it and a fifth who were unsure about it. When asked which solution they would choose if a minimum term and dividend applied to an average debt, almost half said they would opt for a Trust Deed. However, almost a fifth said they would declare bankrupt, compared to less than one sixth who would use the DAS. Limited Trust Deed Alternatives When presented with a scenario that denied access to a Trust Deed, more than a fifth of respondents said they would declare bankrupt immediately and just over a third said they would use the DAS. However, delays to decision making were a particular concern as these showed that between two- (stated) and three-fifths (inferred) of people would remain undecided about which option to choose. By tenure, Home Owners with mortgages were more likely to delay, and Private Tenants more likely to declare bankrupt, than others were. A quarter of respondents with children said they would declare bankrupt immediately, if a Trust Deed were not an option. Limited Trust Deed Outcomes We explored the impact of limiting access to Trust Deeds and found that more than three quarters of respondents felt that their mental health would suffer because of this. More than half said they would experience physical illness too and around two fifths answered that there would be difficulties at work and with friends and family. Home Owners with a mortgage were most likely to report mental health concerns. Financial Education More than half of the respondents to this survey supported the introduction of financial education to the successful completion of a debt solution, rising to around three fifths of those who had completed a Trust Deed, or who were women, or respondents with children. Respondents in a Trust Deed tended to want to improve every day and emergency budgeting skills, whereas those who had completed one tended to have more interest in finding reliable advice, products and services in the future than other groups. There was widespread evidence of appropriate self-evaluation and awareness of skills relevant to life stages. Trust-Deed.co.uk Satisfaction Overall 96% of respondents were happy with trust-deed.co.uk and significantly more than half considered the site excellent. Zero-credit Ltd, January

14 1 RESPONDENT PROFILE Just under one-fifth of respondents had circumstances other than being in or having completed a Trust Deed and it was clear that all respondents had some personal experience of considering or using a debt solution. The large subsets for people using Trust Deeds were sufficient to compare responses between these respondents. 1.1 Current Circumstances In some instances, it is appropriate to compare the responses of people currently using another debt solution, although this subset was significantly smaller, with only 29 people currently managing their debts through another solution. 4% 4% 4% 3% 2% 1% 1% 52% in a trust deed completed a trust deed thinking about how to deal with my debts managing my debts on my own I d prefer not to say using the Debt Arrangement Scheme (DAS) 29% currently bankrupt using a debt management plan discharged from bankruptcy Chart 4: Q3 What is your personal situation now? Contrary to what we might expect from the time taken to complete a debt solution, the age profile of respondents who had completed a Trust Deed was younger than those who were in a Trust Deed. This would tend to indicate a changing demographic profile for people entering Trust Deeds, which reflects the experiences of many debt professionals. For instance, in their Consumer Debt and Money Report for Quarter 4, 2011, StepChange stated: We predict CCCS s share of clients over the age of 45 to rise from a historic 28 percent in January 2005 to a projected 47.6 percent by December Zero-credit Ltd, January

15 in a Trust Deed completed Trust Deed ALL under % 8.8% 7.4% % 38.5% 35.3% % 31.9% 36.6% % 14.3% 15.2% % 6.6% 4.9% over % 0.0% 0.0% I d prefer not to say 0.0% 0.0% 0.6% Chart 5: Q14 Trust-Deed.co.uk Age Ranges by Current Circumstances Another significant difference in the profile of people in Trust Deeds compared to those who had completed one was gender. To some extent, this may mark a departure from recording men as head of a household. However, Payplan reported a growing trend in demand for debt help among women, earlier this month. It is therefore reasonable to suggest that this sample reflected wider changes to the profile of people seeking debt advice. in a Trust Deed completed Trust Deed in another solution ALL male 51.9% 60.4% 48.3% 52.4% female 47.5% 39.6% 48.3% 46.0% I'd prefer not to say 0.6% 0.0% 3.4% 1.6% Chart 6: Q17 Gender by Current Circumstances Zero-credit Ltd, January

16 By tenure, 47.9% of respondents were Home Owners without a mortgage, rising to 51.9% among those who were in a Trust Deed, from 36.3% of respondents who had completed one. Among the subset of respondents, who were Private Tenants, it was noteworthy to see a higher proportion in a Trust Deed, almost 60%. From the 2001 Census data, Private Tenants accounted for around 8% of households in Scotland (projections for the 2011 Census look set to be higher). However, the proportion of Private Tenants in this sample was more than three times this, at just under a quarter of all respondents and rising to just over a quarter among those in a Trust Deed. In October this year, the Money Advice Trust reported that National Debtline had seen a 99% increase in the number of Private Tenants getting into debt since 2007, with tenants who have debt problems now accounting for half of all first time calls. Together, these findings related to respondents tenure support the likelihood that this research reflects a changing demographic among Scottish debtors. home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family using a debt management plan 0.0% 1.4% 1.4% 2.3% 0.0% 1.3% discharged from bankruptcy 0.0% 1.4% 2.7% 0.0% 0.0% 1.3% currently bankrupt 0.0% 2.0% 1.4% 0.0% 0.0% 1.6% using the Debt Arrangement Scheme (DAS) 0.0% 4.7% 0.0% 4.7% 0.0% 2.9% managing my debts on my own 11.1% 4.1% 1.4% 2.3% 0.0% 3.6% I d prefer not to say 22.2% 2.7% 1.4% 0.0% 8.0% 3.6% thinking about how to deal with my debts 0.0% 4.7% 4.1% 4.7% 0.0% 3.9% completed a trust deed 33.3% 22.3% 28.8% 39.5% 52.0% 29.4% in a trust deed 33.3% 56.8% 58.9% 46.5% 40.0% 52.4% ALL Chart 7: Q3 Personal Situation Now by Tenure The split between respondents with and without dependent children was almost even, with 153 having dependents and 150 not. On this basis, it was all the more pertinent to see a significantly higher proportion of respondents with dependent children who were in a Trust Deed (almost 60%), compared to parents and carers who had completed a Trust Deed (almost 50%). This was yet another strong indication that the profile of people opting for Trust Deeds after seeking advice is changing. Zero-credit Ltd, January

17 children no children ALL using a debt management plan 1.3% 1.3% 1.3% discharged from bankruptcy 1.3% 1.3% 1.3% currently bankrupt 0.7% 2.0% 1.6% using the Debt Arrangement Scheme (DAS) 3.9% 1.3% 2.9% managing my debts on my own 2.0% 4.0% 3.6% I d prefer not to say 3.3% 4.0% 3.6% thinking about how to deal with my debts 5.2% 2.7% 3.9% completed a trust deed 24.2% 35.3% 29.4% in a trust deed 58.2% 48.0% 52.4% Chart 8: Q3 Personal Situation Now by Dependent Children The differences between respondents in a Trust Deed compared to those who had completed one, are significant. In the wider UK arena, debt professionals have been reporting changes in demand for advice for some time. As economic uncertainty becomes embedded in the mainstream fabric of our society, it is apparent that older, more established households will suffer some level of indebtedness through income shock, where previously they were less vulnerable. Similarly, single income households are particularly susceptible to indebtedness through under- or unemployment because there is no partner to buffer against this. To some extent, this may have contributed to the rise in women seeking debt advice. Reluctance to lend has created an increase in households seeking private rented accommodation, which in turn affects the numbers of Private Tenants struggling with debt. In addition, less able to accommodate change to household spending commitments than other households, people with dependent children may have no alternative but to seek a debt solution to address a change in economic circumstances. In short, much of the change reported across the debt sector points to a rise in demand from the squeezed middle. This normalisation of experiences of debt means that there may be many more can t pays than won t pays, so a vision of Bankruptcy Law fitting for the 21 st Century needs to recognise this. Zero-credit Ltd, January

18 1.2 Age More than two thirds of respondents were aged between 30 and % 0.6% 7.4% 15.2% under % I d prefer not to say 36.6% Chart 9: Q15 May we ask your age group? There was a shift in the age profile of respondents towards respondents in later middle age by current circumstance. Q14 Trust-Deed.co.uk Ratings by Current Solution in a Trust Deed completed Trust Deed ALL under % 8.8% 7.4% % 38.5% 35.3% % 31.9% 36.6% % 14.3% 15.2% % 6.6% 4.9% over % 0.0% 0.0% I d prefer not to say 0.0% 0.0% 0.6% Chart 10: Q14 Trust-Deed.co.uk Age Ranges by Current Circumstances Zero-credit Ltd, January

19 Reflecting the changing tenure that Census observers are predicting, younger respondents tended to be Private Tenants also. home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family under % 3.4% 9.6% 9.3% 28.0% 7.4% % 33.8% 45.2% 27.9% 48.0% 35.3% % 43.2% 35.6% 30.2% 12.0% 36.6% % 15.5% 8.2% 18.6% 8.0% 15.2% % 3.4% 1.4% 14.0% 4.0% 4.9% over % 0.0% 0.0% 0.0% 0.0% 0.0% I d prefer not to say 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% ALL Chart 11: Q15 Age Ranges by Tenure 1.3 Gender The proportion of women in a Trust Deed was significantly higher than women who had completed a Trust Deed. in a Trust Deed completed Trust Deed in another solution ALL male 51.9% 60.4% 48.3% 52.4% female 47.5% 39.6% 48.3% 46.0% I'd prefer not to say 0.6% 0.0% 3.4% 1.6% Chart 12: Q17 Gender by Current Circumstances Zero-credit Ltd, January

20 Overall, women were less likely to have dependent children than male respondents were. children no children ALL male 55.6% 48.0% 52.4% female 42.5% 51.3% 46.0% I'd prefer not to say 2.0% 0.7% 1.6% Chart 13: Q17 Gender by Dependent Children 1.4 Tenure Proportionately, there were more Home Owners with a mortgage in current solutions than among respondents, who had completed a Trust Deed. in a Trust Deed completed Trust Deed in another solution ALL home owner without a mortgage 1.9% 3.3% 3.4% 2.9% I d prefer not to say 1.2% 4.4% 10.3% 3.6% living with friends or family 6.2% 14.3% 0.0% 8.1% council or housing association tenant 12.3% 18.7% 13.8% 13.9% private tenant 26.5% 23.1% 10.3% 23.6% home owner with a mortgage 51.9% 36.3% 62.1% 47.9% Chart 14: Q16 Housing Status by Current Circumstances Zero-credit Ltd, January

21 Home Ownership with a mortgage was highest in the age range, whereas respondents under 29 tended to be either Private Tenants or living with friends or family. under ALL home owner without a mortgage 0.0% 0.0% 3.5% 6.4% 13.3% 2.9% I d prefer not to say 0.0% 1.8% 2.7% 10.6% 0.0% 3.6% living with friends or family 30.4% 11.0% 2.7% 4.3% 6.7% 8.1% council or housing association tenant 17.4% 11.0% 11.5% 17.0% 40.0% 13.9% private tenant 30.4% 30.3% 23.0% 12.8% 6.7% 23.6% home owner with a mortgage 21.7% 45.9% 56.6% 48.9% 33.3% 47.9% Chart 15: Q16 Housing Status by Age Respondents with dependent children were more often Home Owners with a mortgage than those without children. children no children ALL home owner without a mortgage 2.0% 4.0% 2.9% I d prefer not to say 2.6% 4.0% 3.6% living with friends or family 2.6% 14.0% 8.1% council or housing association tenant 15.0% 13.3% 13.9% private tenant 22.9% 24.0% 23.6% home owner with a mortgage 54.9% 40.7% 47.9% Chart 16: Q16 Housing Status by Dependent Children Zero-credit Ltd, January

22 1.5 Dependent Children Overall there was an even split of respondents with and without children. However, the proportion of parents and carers among those currently in a Trust Deed was considerably higher than among those who had completed a Trust Deed. Given the significant evidence of a changing demographic profile among debtors and Trust Deed applicants, it is important that reform recognises the vulnerability of households where there are children. in a Trust Deed completed Trust Deed in another solution ALL yes 54.9% 40.7% 41.4% 49.5% no 44.4% 58.2% 44.8% 48.5% I'd prefer not to say 0.6% 1.1% 13.8% 1.9% Chart 17: Q18 Dependent Children by Current Circumstances More of the respondents who were in a Trust Deed had children than those who had completed a Trust Deed and this trend was especially marked among women, where a third of women who had completed a Trust Deed had children, rising to more than half of women in a Trust Deed. Q18 Dependent Children male female in a Trust Deed yes 56.0% 53.2% 54.9% no 42.9% 46.8% 44.4% I'd prefer not to say 1.2% 0.0% 0.6% BASE Table 1: Q18 Dependent Children - in a Trust Deed by Gender Zero-credit Ltd, January

23 Q18 Dependent Children male female completed a Trust Deed Yes 45.5% 33.3% 40.7% No 52.7% 66.7% 58.2% I'd prefer not to say 1.8% 0.0% 1.1% BASE Table 2: Q18 Dependent Children - completed a Trust Deed by Gender Respondents living with friends or family were least likely to have children, whereas Home Owners with mortgages and Social Tenants were most likely to have children. Among Private Tenants who were far more prevalent in this sample than in the Scottish National population as a whole, there was an almost even split between respondents with and without children. home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family yes 33.3% 56.8% 47.9% 53.5% 16.0% 49.5% no 66.7% 41.2% 49.3% 46.5% 84.0% 48.5% I'd prefer not to say 0.0% 2.0% 2.7% 0.0% 0.0% 1.9% ALL Chart 18: Q18 Dependent Children by Tenure Zero-credit Ltd, January

24 2 THE GOVERNMENT CONSULTATION Question 6 was a multiple-choice question, which asked Besides Trust-Deed.co.uk, where have you heard about the new proposals for debt solutions in Scotland? Only three out of 309 respondents took part in the Scottish Government consultation about Bankruptcy Law reform, fewer than 1% of this sample. Almost half (48.5%) were only aware of proposals through trust-deed.co.uk. Furthermore, the literature review conducted for the design phase of this research shows that the Accountant in Bankruptcy may have overlooked guidance, which is clear that the Scottish Government: attaches great importance to involving customers and stakeholders in developing new policies and laws Specifically, AiB records show few attempts to encourage public access to the consultation process, or to identify groups at risk of exclusion from the consultation and steps to remedy this (SCOTTISH GOVERNMENT: CONSULTATION GOOD PRACTICE GUIDANCE, May 2008). Echoing much of the consultation response that proposals could limit debtors choice of relief, several respondents commented on the despair that reform could cause: I do know it is an extremely stressful life when you have a lot of debt and if Trust Deeds were not available, some people may take their own life due to the stigma of bankruptcy. This would be a terrible situation. Debts cause so much misery - the Trust Deed was a lifeline - to not have that as an option could send some people over the edge if they don't have access to good advice and good workable solutions. In the Summary of Responses to the Consultation, there is no evidence of input from the stakeholder events held in Glasgow on 11 th April or in Aberdeen on 18 th April, despite the original commitment for stakeholder events in: Opening up the floor to colleagues and customers ( see also - AiB Stakeholder Events - purpose aims etc) Minutes from the Debt and Insolvency Services Stakeholder Forum on 10 th May 2012, eight days before the consultation closed, state: Consultation out now and actively engaging with as many stakeholders as we can. Chair offered for AiB to come out and talk to stakeholders if required Yet one respondent to this survey suggested that reforms restricting access to Trust Deeds made him feel: Like a second-class citizen. The results of this survey show that the majority of debtors feel stigmatised by their circumstances. More Zero-credit Ltd, January

25 particularly, the Money Advice Liaison Group, of which the AiB is a member, has been promoting research into the psychology of debt and its relationship to mental health for some time. Indeed, the AiB presented its reform proposals at the very conference, where MALG launched the third version of its Debt & Mental Health Evidence Form. It is therefore regrettable that the AiB has such a strong reputation for debtor engagement, when the results of this survey show that this consultation has not followed the AiB s usual exemplary practice. 2.1 Current Circumstances There were few significant differences by current circumstances. 2.2 Age 55% of respondents aged had only heard about Bankruptcy Law reform through trust-deed.co.uk. Other than this, there were few significant differences by age. 2.3 Gender There were few significant differences by gender. 2.4 Tenure 55.8% of Social Tenants had only heard about Bankruptcy Law reform through trust-deed.co.uk. This rose to 70% among Social Tenants currently in a Trust Deed. 2.5 Dependent Children 52.9% of respondents with dependent children had only heard about Bankruptcy Law reform through trust-deed.co.uk. This rose to 55.1% among parents and carers currently in a Trust Deed. Zero-credit Ltd, January

26 3 DEBT STIGMA 3.1 Stigma in General Question 1 asked, Imagine you needed to choose a debt solution for the first time. How much stigma would you personally feel about choosing [solution]? Without exception, bankruptcy was most often perceived as having more stigma than any other debt solution, with 87.7% of respondents saying that choosing bankruptcy to resolve their debts would make them feel a lot of stigma Current Circumstances Generally, respondents who were in a Trust Deed felt more stigma from all debt solutions than those who had completed a Trust Deed. This seems to indicate desensitization to feelings of stigma, as people progress from selection to completion of a debt solution. However, the views of people at the start of the advice-seeking process are essential to mapping how debtors will respond to reforms of the options available to them. Q1 Debt Solution Stigma (rating averages) in a Trust Deed completed Trust Deed Bankruptcy a Trust Deed a Debt Arrangement Scheme a debt management plan managing repayments on your own BASE Table 3: Q1 Debt Solution Stigma (rating averages) by Current Circumstances ALL Age Respondents in the range were most sensitive to feeling stigmatised by debt solutions and their rating averages for stigma were higher for every debt solution except managing repayments on your own. However, as the distribution of responses revealed, respondents in the age range tended to feel a lot stigma from bankruptcy and Trust Deeds, compared to a little stigma from informal debt solutions. The views of respondents aged contrasted most with those of older respondents. Zero-credit Ltd, January

27 Q1 Debt Solution Stigma (percentages) Bankruptcy under ALL a lot 87.0% 89.9% 84.1% 93.6% 80.0% 87.7% a little 4.3% 5.5% 8.8% 0.0% 6.7% 5.8% None 8.7% 2.8% 4.4% 2.1% 13.3% 4.2% don't know 0.0% 1.8% 2.7% 4.3% 0.0% 2.3% a Trust Deed a lot 39.1% 41.3% 42.5% 76.6% 40.0% 46.9% a little 39.1% 47.7% 46.0% 17.0% 40.0% 41.4% None 21.7% 10.1% 10.6% 4.3% 20.0% 10.7% don't know 0.0% 0.9% 0.9% 2.1% 0.0% 1.0% a Debt Arrangement Scheme a lot 26.1% 19.3% 21.2% 36.2% 20.0% 23.0% a little 47.8% 58.7% 61.9% 53.2% 46.7% 57.6% None 21.7% 15.6% 15.0% 6.4% 20.0% 14.9% don't know 4.3% 6.4% 1.8% 4.3% 13.3% 4.5% a debt management plan a lot 21.7% 12.8% 17.7% 36.2% 26.7% 19.4% a little 52.2% 68.8% 61.9% 51.1% 46.7% 61.2% None 26.1% 13.8% 19.5% 10.6% 13.3% 16.5% don't know 0.0% 4.6% 0.9% 2.1% 13.3% 2.9% managing repayments on your own a lot 4.3% 9.2% 6.2% 8.5% 13.3% 7.8% a little 39.1% 16.5% 20.4% 29.8% 46.7% 23.3% None 56.5% 70.6% 69.9% 53.2% 33.3% 64.7% don't know 0.0% 3.7% 3.5% 8.5% 6.7% 4.2% BASE Table 4: Q1 Debt Solution Stigma (percentages) by Age Zero-credit Ltd, January

28 3.1.3 Gender Women were another group to feel higher levels of stigma across all debt solutions except for managing repayments on your own. This is worth noting because only 46% of respondents to this survey were women, compared to more than half of StepChange advice-seekers and DMP clients. Earlier this month, Payplan reported a substantial increase in the numbers of women advice seekers across the UK since mid 2011, and this is widely considered a trend to watch. male female ALL bankruptcy a trust deed a Debt Arrangement Scheme a debt management plan managing repayments on your own Chart 19: Q1 Debt Solution Stigma (rating averages) by Gender The comparison of women s perceptions is noteworthy, because not only did the in a Trust Deed subset have a higher proportion of women (48%) compared to those who had completed a Trust Deed (40%), women in a Trust Deed were more likely to record feelings of stigma from most debt solutions than women who had completed a Trust Deed. Q1 Debt Solution Stigma (rating averages) male female in a Trust Deed Bankruptcy a Trust Deed a Debt Arrangement Scheme a debt management plan managing repayments on your own BASE Table 5: Q1 Debt Solution Stigma (rating averages) - in a Trust Deed by Gender Zero-credit Ltd, January

29 Since this survey may under-represent the views of women debtors as a whole, it will be important for the Scottish Government to ensure that reform does not prejudice against a shift in the demographic profile of debtors. Q1 Debt Solution Stigma (rating averages) Male female completed a Trust Deed bankruptcy a Trust Deed a Debt Arrangement Scheme a debt management plan managing repayments on your own BASE Table 6: Q1 Debt Solution Stigma (rating averages) - completed a Trust Deed by Gender Tenure Social Tenants seemed less likely to feel stigma from bankruptcy than others were. This appeared to be the case for Home Owners without a mortgage also. However, the latter were a small group of nine respondents, whose views may not be entirely representative of others in the wider population. home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family bankruptcy a trust deed a Debt Arrangement Scheme a debt management plan managing repayments on your own ALL Chart 20: Q1 Debt Solution Stigma (rating averages) by Tenure Zero-credit Ltd, January

30 3.1.5 Dependent Children Lower stigma from bankruptcy was true of respondents who were parents and carers also. The potential impact of this on future generations perceptions of debt (and how to resolve it) should be noted. children no children ALL bankruptcy a trust deed a Debt Arrangement Scheme a debt management plan managing repayments on your own Chart 21: Q1 Debt Solution Stigma (rating averages) by Dependent Children 3.2 BANKRUPTCY Question 2 was a multiple-choice question, which asked And how do you personally feel about bankruptcy? Overall, more than 90% of respondents saw bankruptcy as a last resort and more than 70% replied I would hate people to know I was bankrupt Current Circumstances Again, respondents who were in a Trust Deed were more inclined to record bankruptcy as a last resort and to reply I would hate people to know I was bankrupt than those who had completed a Trust Deed. This reiterated a possible desensitization to feelings of stigma as people progress through debt solutions. Zero-credit Ltd, January

31 Q2 Personal Feelings about Bankruptcy in a Trust Deed completed Trust Deed ALL none of these 0.0% 0.0% 0.6% I wouldn t mind telling people I was bankrupt 3.1% 3.3% 4.5% It helps people pay back as little as possible 6.8% 3.3% 6.1% It makes it easier to give up on managing your own money 7.4% 7.7% 8.1% It is fair to debtors and creditors 11.1% 6.6% 11.0% It makes it easier to manage your own money 11.1% 13.2% 12.0% It helps people pay back what they can 29.6% 30.8% 29.1% I would hate people to know I was bankrupt 79.6% 67.0% 73.5% It is a last resort 91.4% 91.2% 90.3% BASE Table 7: Q2 Personal Feelings about Bankruptcy by Current Circumstances Age Respondents in the age range continued to appear less perturbed by any stigma from bankruptcy, because just over half replied I would hate people to know I was bankrupt compared to almost three quarters of respondents across the sample as whole. However, it was interesting to see that respondents aged 50-59, who had previously recorded that they felt a lot of stigma from bankruptcy at Question 1, were less inclined to record I would hate people to know I was bankrupt when answering this question. Often, our use of the term stigma to describe how people feel about debt assumes a common interpretation or understanding. However, in defining stigma as a mark of disgrace associated with a particular circumstance, quality, or person, the Oxford Dictionary does not distinguish between internal or external perceptions of such a mark. Thus, people may feel stigmatised by how others perceive them, and / or how they feel about themselves. Clearly, an online survey is not an appropriate medium through which to make such distinctions. However, it is essential that reforms recognise how advice seekers understand the choice of debt solutions available to them, to avoid delays to decision-making and ultimately, debt resolution. Q2 Personal Feelings about Bankruptcy under in a Trust Deed none of these 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% I wouldn t mind telling people I was bankrupt 14.3% 1.6% 1.7% 8.0% 0.0% 3.1% It helps people pay back as little as possible 14.3% 6.3% 5.1% 8.0% 14.3% 6.8% It makes it easier to give up on managing your own money 14.3% 7.8% 5.1% 8.0% 14.3% 7.4% It makes it easier to manage your own money 28.6% 10.9% 6.8% 16.0% 14.3% 11.1% It is fair to debtors and creditors 28.6% 17.2% 5.1% 8.0% 0.0% 11.1% It helps people pay back what they can 28.6% 34.4% 25.4% 32.0% 14.3% 29.6% I would hate people to know I was bankrupt 85.7% 87.5% 81.4% 68.0% 28.6% 79.6% It is a last resort 85.7% 90.6% 91.5% 92.0% 100% 91.4% BASE Table 8: Q2 Personal Feelings about Bankruptcy - in a Trust Deed by Age Zero-credit Ltd, January

32 3.2.3 Gender Responses by gender showed little variation between subsets Tenure However, respondents tenure seemed to have a significant bearing on how respondents felt about bankruptcy. Home Owners with a mortgage were most likely to reply I would hate people to know I was bankrupt. home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family none of these 0.0% 0.7% 0.0% 0.0% 4.0% 0.6% I wouldn t mind telling people I was bankrupt 11.1% 1.4% 6.8% 9.3% 4.0% 4.5% It helps people pay back as little as possible 22.2% 4.1% 6.8% 4.7% 12.0% 6.1% It makes it easier to give up on managing your own money 11.1% 7.4% 5.5% 14.0% 8.0% 8.1% It is fair to debtors and creditors 22.2% 11.5% 6.8% 11.6% 16.0% 11.0% It makes it easier to manage your own money 0.0% 12.2% 11.0% 11.6% 12.0% 12.0% It helps people pay back what they can 22.2% 28.4% 30.1% 30.2% 28.0% 29.1% I would hate people to know I was bankrupt 55.6% 81.8% 69.9% 72.1% 64.0% 73.5% It is a last resort 77.8% 94.6% 87.7% 81.4% 88.0% 90.3% ALL Chart 22: Q2 Personal Feelings about Bankruptcy by Tenure Dependent Children Responses by dependent children showed little variation between subsets. 3.3 TRUST DEEDS Question 4 was a multiple-choice question, which asked, How do you personally feel about trust deeds? Feelings about Trust Deeds were far more positive than feelings about bankruptcy. More than threequarters of respondents felt They help people pay back what they can. Significantly fewer than half recorded I would hate people to know I was using one and almost a fifth indicated I wouldn t mind telling people I was using one Current Circumstances Yet again, respondents who were in a Trust Deed were more inclined to record negative perceptions of a Zero-credit Ltd, January

33 debt solution than those who had completed a Trust Deed, echoing our hypothesis of desensitization to debt stigma, as people progress through solutions. Q4 Personal Feelings about Trust Deeds in a Trust Deed completed Trust Deed in another solution ALL none of these 1.9% 3.3% 3.4% 2.9% they help people pay back as little as possible 3.1% 3.3% 6.9% 4.2% they make it easier to give up on managing your own money 5.6% 2.2% 13.8% 5.5% I wouldn t mind telling people I was using one 16.7% 24.2% 24.1% 19.1% they are fair to debtors and creditors 36.4% 29.7% 34.5% 33.0% they are a last resort 40.7% 39.6% 27.6% 39.8% they make it easier to manage your own money 45.1% 46.2% 34.5% 42.1% I would hate people to know I was using one 50.0% 35.2% 31.0% 44.0% they help people pay back what they can 80.2% 79.1% 69.0% 77.0% BASE Table 9: Q4 Personal Feelings about Trust Deeds by Current Circumstances Age Perceptions of Trust Deeds as a last resort seemed to increase with age, whilst perceptions that they help people pay back what they can decreased with age. Respondents in the age range were the most inclined to answer I would hate people to know I was using one (53.2%). There was a similar difference between this and feelings of stigma from Trust Deeds (76.6%) and I would hate people to know I was bankrupt (68%) compared to feelings of stigma from bankruptcy (93.6%). One reason for the different perceptions of insolvency solutions among respondents aged compared to other age ranges could be that this age range is more likely to anticipate retirement and therefore to perceive insolvency as lifechanging from the perspective of lost or failed achievements. under ALL none of these 0.0% 1.8% 3.5% 2.1% 6.7% 2.9% they help people pay back as little as possible they make it easier to give up on managing your own money I wouldn t mind telling people I was using one 0.0% 1.8% 4.4% 6.4% 20.0% 4.2% 0.0% 5.5% 4.4% 8.5% 13.3% 5.5% 21.7% 19.3% 20.4% 19.1% 6.7% 19.1% they are fair to debtors and creditors 43.5% 34.9% 33.6% 23.4% 33.3% 33.0% they are a last resort 30.4% 37.6% 38.1% 48.9% 53.3% 39.8% they make it easier to manage your own money 56.5% 42.2% 42.5% 38.3% 33.3% 42.1% I would hate people to know I was using one 43.5% 46.8% 38.9% 53.2% 40.0% 44.0% they help people pay back what they can 91.3% 83.5% 74.3% 72.3% 53.3% 77.0% Chart 23: Q4 Personal Feelings about Trust Deeds by Age Zero-credit Ltd, January

34 3.3.3 Gender It was interesting that despite little variation between male and female respondents in the feelings recorded about bankruptcy, this was not the case for Trust Deeds. Women were significantly more likely to record they are a last resort and I would hate people to know I was using one than men were. For bankruptcy and Trust Deeds to be perceived differently within and between subsets points to some complexity in the psychology and emotions relating to insolvency procedures. These require a far deeper understanding than an online survey can deliver, for the impact of reform on debtors decision-making to be clear. male female ALL none of these 1.9% 2.8% 2.9% they help people pay back as little as possible they make it easier to give up on managing your own money I wouldn t mind telling people I was using one 4.3% 4.2% 4.2% 5.6% 5.6% 5.5% 21.0% 16.9% 19.1% they are fair to debtors and creditors 34.0% 33.1% 33.0% they make it easier to manage your own money 42.0% 43.7% 42.1% they are a last resort 36.4% 43.7% 39.8% I would hate people to know I was using one 40.7% 48.6% 44.0% they help people pay back what they can 77.8% 78.2% 77.0% Chart 24: Q4 Personal Feelings about Trust Deeds by Gender Tenure As found in relation to respondents feelings about bankruptcy, tenure seemed to have a significant bearing on how people felt about Trust Deeds. Home Owners with a mortgage were most likely to reply I would hate people to know I was using one, yet the extent to which they replied they make it easier to manage your own money was similar to other subsets by tenure. This made it very clear that debt solutions can be both negative, in terms of perceptions attributed to non-debtors, yet positive, in terms of how they contribute to recovery from debt. Home Owners with a mortgage together with Private Tenants were the largest subsets by tenure, so the differences between them are worth noting. These were most apparent in relation to other people s opinions of the solutions debtors use. Private Tenants were far less concerned about others knowing they were using a Trust Deed and to a lesser extent, they were less concerned about others knowing they were bankrupt too. Whether reform will make bankruptcy more appealing to Private Tenants requires careful consideration, not least as the demographic trend points to increased demand for debt advice and solutions from Private Tenants. Zero-credit Ltd, January

35 home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family none of these 11.1% 2.7% 1.4% 2.3% 8.0% 2.9% they help people pay back as little as possible they make it easier to give up on managing your own money I wouldn t mind telling people I was using one 11.1% 4.7% 4.1% 0.0% 4.0% 4.2% 11.1% 6.1% 5.5% 4.7% 0.0% 5.5% 11.1% 16.2% 19.2% 20.9% 24.0% 19.1% they are fair to debtors and creditors 22.2% 31.1% 34.2% 37.2% 36.0% 33.0% they are a last resort 33.3% 39.2% 37.0% 37.2% 44.0% 39.8% they make it easier to manage your own money 22.2% 42.6% 39.7% 46.5% 40.0% 42.1% I would hate people to know I was using one 22.2% 53.4% 39.7% 41.9% 28.0% 44.0% they help people pay back what they can 55.6% 77.7% 75.3% 83.7% 80.0% 77.0% ALL Chart 25: Q4 Personal Feelings about Trust Deeds by Tenure Dependent Children Other than they are a last resort, there were few major differences of opinion between respondents with and without dependent children. Among those with children, 35.9% felt Trust Deeds were a last resort, compared to 43.3% of respondents with no children. When extending the subset analysis to respondents current solution, however, it was clear that those in a Trust Deed and with children were more inclined to see Trust Deeds as fair to creditors and debtors (41.6%) than respondents in Trust Deeds with no children (30.6%). This was significantly different to feelings about bankruptcy, where 11.2% of those in Trust Deeds with children, and 11.1% of those in Trust Deeds without children, indicated the solution was fair to creditors and debtors. Zero-credit Ltd, January

36 4 RECENT DEBTS 4.1 THE SPECIFIC PROPOSAL Question 7 asked, One proposal is to exclude very recent debts from Trust Deeds and bankruptcy, so that debtors are still responsible for repaying these after discharge. Would you support this? More than half (54.0%) of the respondents to this survey rejected proposals to exclude recent debts from insolvency solutions and almost three out of (29.4%) ten were unsure Current Circumstances Respondents who were in another solution besides a Trust Deed were more inclined to answer that they were unsure about this proposal (44.8%) than to reject it (37.9%) Age In all but the age range, a majority of respondents rejected the proposal to exclude recent debts. 42.6% of year olds recorded no and a significant minority of 36.2% were unsure Gender There were few significant differences by gender Tenure Private Tenants were significantly more likely to reject the proposal (63.0%) than other subsets by tenure. A significant minority of Social Tenants (46.5%) and respondents living with friends or family (44.0%) rejected the proposal, whilst 34.9% of Social Tenants and 44.0% of those living with friends or family were unsure about it Dependent Children There were few significant differences by dependent children. 4.2 THE MODELLED PROPOSAL Question 13 asked, Imagine you needed to choose a debt solution for the first time and still had access to credit. Which, if any, of the following would you feel was justified spending on credit? The qualitative research design phase identified pros and cons to excluding recent debts from insolvency solutions. The main concern was that debtors destined for insolvency could be trapped in credit use, simply to meet every day bills or to cover an urgent, emergency expense. For some, and especially those on lower incomes, the exclusion of recent debts could result in continued indebtedness after discharge, reactivating the vicious cycle of indebtedness. This was not an outcome research design interviewees felt that the Government intended. Question 13 therefore sought to present a scenario, in which respondents could select circumstances in which credit use before an insolvency solution might be justified. Zero-credit Ltd, January

37 4.2.1 Current Circumstances For just over two thirds of respondents, emergency travel costs were justified credit use. However, travel to work had higher priority among Trust Deed respondents than those in other solutions. It is therefore interesting to note that around one in ten respondents in another solution felt that a week s holiday was justified, compared to 2.5 % of those in a Trust Deed and not one who had completed a Trust Deed. in a Trust Deed completed Trust Deed in another solution a weekend away with family or friends 1.2% 1.1% 3.4% 1.6% a week s holiday 2.5% 0.0% 10.3% 2.3% none of these 13.6% 15.4% 13.8% 14.2% travel to work 57.4% 58.2% 41.4% 54.7% emergency travel costs e.g. lost travel card / breakdown 68.5% 67.0% 69.0% 68.6% ALL Chart 26: Q13 Justified Recent Spending on Credit before Entering a Debt Solution by Current Circumstances Age Younger respondents gave priority to emergency travel costs, whereas those aged felt travel to work was a justified expense. under ALL a weekend away with family or friends 4.3% 1.8% 0.9% 0.0% 6.7% 1.6% a week s holiday 4.3% 0.9% 2.7% 4.3% 0.0% 2.3% none of these 13.0% 10.1% 12.4% 25.5% 26.7% 14.2% travel to work 47.8% 58.7% 54.9% 57.4% 33.3% 54.7% emergency travel costs e.g. lost travel card / breakdown 82.6% 78.0% 67.3% 44.7% 60.0% 68.6% Chart 27: Q13 Justified Recent Spending on Credit before Entering a Debt Solution by Age Zero-credit Ltd, January

38 4.2.3 Gender There was little variation in response by gender Tenure 8% of respondents living with family or friends considered a weekend away to be justified credit use, compared to almost no respondents in other subsets by tenure Dependent Children There was little variation in response by dependent children. Zero-credit Ltd, January

39 5 MINIMUM TERM 5.1 THE SPECIFIC PROPOSAL Question 8 asked, The minimum term for Trust Deed payments, and the full term for bankruptcy payments, are both three years. These could increase to four years in the future. Creditors may therefore receive more from the original debts. Would you support this extension to four years? Overall, 34.6% of respondents supported this, compared to 45% who rejected it and 20.4% who were unsure Current Circumstances There were few significant differences by current circumstances Age There was more support for this proposal among respondents aged between 30 and 59, peaking at 41.6% of those aged The youngest (60.9%) and oldest (66.7%) respondents to this survey were most likely to reject the proposal. However, these subsets were very small Gender There were few significant differences by gender, which was significant because women tended to record significantly higher levels of stigma from debt solutions Tenure There was more support for this proposal among Social Tenants (46.5%) and those living with friends or family (40.0%), whereas 77.8% of Home Owners without a mortgage rejected the proposal. However, the subset for the latter two were very small Dependent Children 37.3% of respondents with children accepted the proposal, compared to 30.7% of respondents with no children. Incidence of I m not sure was almost identical for both subsets, at just over a fifth of respondents. 5.2 A RATIONAL DECISION-MAKING MODEL Question 10 was a multiple-choice question, which asked, Imagine you needed to choose a debt solution for the first time, had debts of 24,000 and were able to repay 200 a month. Which one of the following options would you personally be most likely to choose? Some professionals, concerned about the potential for Bankruptcy Law reform to limit debtors choice have modelled repayments across a number of debt solutions, using the minimum dividend and minimum term that the AiB have suggested. This question attempted to present respondents with a scenario where there was an average debt level and an average disposable income from which to make repayments under Zero-credit Ltd, January

40 these conditions. To some extent, we expected respondents to do the maths and pick the solution, which gave the greatest relief. In this respect, the question was potentially leading. However, the prevalence of such models in current debate was such that it would have been inappropriate to avoid this line of questioning and other questions posed throughout the survey served to counter this Current Circumstances There seemed to be a strong sense of brand loyalty to Trust Deeds, especially among those currently using them. As is often the case in behavioural economics, consumers can say and do entirely different things. A truer reflection of the uptake of Trust Deeds under the reform proposals might be achieved by taking an extended citizens jury approach with consumers who have no experience of seeking advice. That said, it is important to recognise that the proportion of respondents who were in or had completed a Trust Deed and who would opt for bankruptcy under the prescribed circumstances was almost identical. When around a fifth of Trust Deed clients suggest that they would have opted for bankruptcy in a post reform scenario, the need for further research and modelling to ensure against a negative impact is apparent. in a Trust Deed completed Trust Deed in another solution none of these 7.4% 9.9% 3.4% 8.1% I m not sure 11.1% 17.6% 13.8% 13.6% Debt Arrangement Scheme with a potential repayment term of 10 years Bankruptcy with a potential repayment term of 4 years Trust Deed with a potential repayment term of 6 years 12.3% 9.9% 27.6% 14.2% 17.9% 17.6% 24.1% 18.1% 51.2% 45.1% 31.0% 46.0% ALL Chart 28: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Current Circumstances Zero-credit Ltd, January

41 5.2.2 Age Respondents under 39 and over 60 were more likely to opt for bankruptcy than other age ranges. under ALL none of these 8.7% 5.5% 8.0% 10.6% 20.0% 8.1% I m not sure 8.7% 12.8% 16.8% 12.8% 6.7% 13.6% Debt Arrangement Scheme with a potential repayment term of 10 years Bankruptcy with a potential repayment term of 4 years Trust Deed with a potential repayment term of 6 years 4.3% 14.7% 10.6% 19.1% 26.7% 14.2% 26.1% 22.9% 15.0% 8.5% 26.7% 18.1% 52.2% 44.0% 49.6% 48.9% 20.0% 46.0% Chart 29: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Age Gender Overall, there were few significant differences by gender. However, among respondents in a Trust Deed, men were more likely to opt for bankruptcy than women were. Q10 Preferred Options based on Average Debt Value & Disposable Income male female in a Trust Deed none of these 9.5% 3.9% 7.4% I m not sure 10.7% 11.7% 11.1% Debt Arrangement Scheme potential repayment term of 10 years 14.3% 10.4% 12.3% Bankruptcy potential repayment term of 4 years 21.4% 14.3% 17.9% Trust Deed potential repayment term of 6 years 44.0% 59.7% 51.2% BASE Table 10: Q10 Preferred Options based on Average Debt Value & Disposable Income - in a Trust Deed by Gender Tenure Almost a third of Social Tenants indicated that they would opt for bankruptcy. This is significant given the commitment made by Credit Unions to financial inclusion and more particularly so, in the context of Universal Credit. Zero-credit Ltd, January

42 home owner without a mortgage home owner with a mortgage private tenant social tenant living with friends / family none of these 33.3% 8.1% 8.2% 4.7% 8.0% 8.1% I m not sure 11.1% 13.5% 11.0% 14.0% 16.0% 13.6% Debt Arrangement Scheme with a potential repayment term of 10 years Bankruptcy with a potential repayment term of 4 years Trust Deed with a potential repayment term of 6 years 22.2% 16.9% 11.0% 9.3% 8.0% 14.2% 11.1% 16.2% 19.2% 32.6% 12.0% 18.1% 22.2% 45.3% 50.7% 39.5% 56.0% 46.0% ALL Chart 30: Q10 Preferred Options based on Current Averages Trust Deed Debt Value and Disposable Income by Tenure Dependent Children There were few significant differences by dependent children. 5.3 AN IRRATIONAL DECISION-MAKING MODEL Question 11 was a multiple-choice question, which asked, If a Trust Deed was not available to you, how would you act? Debtors often take time to come to terms with the fact that they have a debt problem. Short term and consolidation loans can seem an attractive proposition for keeping the wolf from the door, and these can exasperate an underlying debt problem. When inappropriate borrowing makes a debt problem worse, people may feel even more stigmatised by their circumstances and their sense of guilt can be crippling. Other people simply feel so embarrassed about debt that they do nothing for months or even years, from the outset. Either way, delays to solving a problem invariably cause debt levels to increase, yet ironically, the longer a debtor delays, the more likely it is that insolvency is the only option. Awareness that there is a range of options for resolving debt can encourage people who are struggling to act sooner. Whilst restrictions to accessing solutions serve as an important barrier to debtors who won t pay, these may have undesirable effects on people who can t pay. The changing demographic profile of debt advice seekers tends to indicate that many more people now seeking debt solutions can t pay. The normalisation of debt, coupled with a popular culture that promulgates urban myth, such as everyone knowing that an individual is bankrupt, are therefore important considerations for effecting informed and rational choice. On this basis, Question 11 set the extreme scenario of Trust Deeds being unavailable in order to model the kinds of knee jerk reactions debtors can have under duress. Whilst Question 10 asked outright, which Zero-credit Ltd, January

43 solution respondents would choose if faced with an average debt level and disposable income, this question assumed that the proposed minimum dividend and minimum term precluded a Trust Deed from being a sustainable option. In short, this question served to model the worst-case scenario, and was designed as multiple-choice because it was important not to incite debtors into conflict with the AiB. The avoidance of social and personal harm is an underlying principle of the Respect Code of Practice for socioeconomic research Current Circumstances Overall, just over a third of respondents indicated that they would use the Debt Arrangement Scheme as an alternative to having a Trust Deed, up by almost 20% on answers to Question 10. Just over a fifth recorded I would declare bankrupt immediately, which was slightly higher than the answers given to Question 10. Assuming the profile of people currently entering Trust Deeds does not change significantly, this would tend confirm our hypothesis that around a fifth of this population would automatically declare bankrupt should the Bankruptcy Law reform go ahead. However, there is a possibility that the proportion of typical Trust Deed applicants opting for bankruptcy could be even higher than this. Whereas respondents opting for bankruptcy had been almost identical between those in and those who had completed a Trust Deed at Question 10 (almost 18%), a higher proportion of respondents in Trust Deeds opted for bankruptcy in the Question 11 scenario (24.7%). The proportion of respondents who answered I m not sure to Question 11 increased considerably also, from 13.6% to 21.7% for the sample as a whole, and among those in Trust Deeds, it almost doubled, from 11.1% to 21.6%. in a Trust Deed completed Trust Deed in another solution I would carry on using credit 3.1% 2.2% 0.0% 2.9% anything else - seek advice 2.5% 1.1% 0.0% 1.6% I would wait for my creditors to make me bankrupt 6.2% 11.0% 3.4% 7.1% anything else - other 1.9% 2.2% 3.5% 1.9% none of these 2.5% 1.1% 6.9% 2.6% I would declare bankrupt immediately 24.7% 19.8% 20.7% 22.0% I m not sure 21.6% 24.2% 20.7% 21.7% I would take more time to decide how to deal with my debts I would use a Debt Arrangement Scheme immediately 27.2% 31.9% 24.1% 28.8% 34.0% 31.9% 41.4% 34.6% ALL Chart 31: Q11 Actions without Trust Deeds as an Option by Current Circumstances Clearly, delays to decision-making are a significant outcome of the scenario set by Question 11. At this point, it is important to recall that this question was multiple-choice. Defined courses of action were responses that indicated entering DAS or bankruptcy immediately, or indeed refusing to accept any of the options posed by this question, including respondents suggesting their own. To calculate the probable extent of delays to decision-making, we combined responses which were not exclusive to each of I would use a Debt Arrangement Scheme immediately, I would declare bankrupt Zero-credit Ltd, January

44 immediately and none of these. This modelled the best-case scenario for a perceived lack of access to Trust Deeds and the pie charts below show that around two fifths of typical Trust Deed applicants would delay debt resolution under the reform proposals. In a Trust Deed (162) Completed Trust Deed (91) All (309) 17% 2% 25% 19% 1% 23% 17% 3% 26% 37% 19% 39% 18% 37% 17% Chart 32: delays to decision-making The worst-case scenario illustrates possible delays by combining the delayed and mixed decision responses above, on the premise that if a respondent chose DAS or bankruptcy and another response option (other than none of these), he or she could reasonably be assumed to be uncertain of how to progress and therefore at risk of delaying a decision. The pie charts below show that more than half of typical Trust Deed applicants could delay debt resolution under the reform proposals. In a Trust Deed Completed Trust Deed (91) All (309) 2% 25% 1% 23% 3% 26% 54% 19% 58% 18% 54% 17% Chart 33: delays to decision-making - Worst Case Scenario It is important to recall that under the more rational circumstances of Question 10, only 13.6% of respondents were unsure how they might respond to options reformed by a minimum dividend and term. However, an irrational perception of these restrictions could go so far as to quadruple uncertainty. The real question is therefore how rationally debtors may respond to Bankruptcy Law reform Age By age, there was greater uncertainty among those under 29, and indications of DAS uptake at around a third of respondents across all other age ranges. Respondents under 49 tended to be more inclined to opt for bankruptcy than those over % of those aged answered I would take more time to decide Zero-credit Ltd, January