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Notes for Guidance - Common Financial Tool

Notes for Guidance explaining the information and evidence requirements to support debt solution applications.

1. Introduction

The Bankruptcy and Debt Advice (Scotland) Act 2014 and The Common Financial Tool etc. (Scotland) Regulations 2014 (the CFT Regulations) introduced some important changes to the process of personal insolvency administration in Scotland. One of the primary changes was the adoption of a Common Financial Tool (CFT) for the purpose of assessing a debtor’s contribution in all of the available statutory debt solutions.

The requirement to use the CFT was continued with the implementation of the Bankruptcy (Scotland) Act 2016 and the Bankruptcy (Scotland) Regulations 2016.

The policy aim of the legislation and the use of a single tool are to help achieve consistency and transparency in relation to any determination of the level of contribution that a debtor might pay in respect of Scottish statutory debt solutions. This supports one of the core policy principles that underpin the Scottish Government and Accountant in Bankruptcy’s (AiB) programme of bankruptcy reform - namely that those who can pay their debts, should pay.

Money advisers, who advise debtors on Scottish statutory debt relief and management options, are obliged to use the CFT when assessing a debtor’s financial situation and their ability to pay a contribution. A trustee must use the CFT to determine the amount of contribution payable in a protected trust deed and bankruptcy and a money adviser must use the CFT to determine the expected contribution payable under the Scottish Government’s Debt Arrangement Scheme and on submission of a debtor’s application for bankruptcy.

The Common Financial Statement (CFS) is a partnership initiative facilitated by the Money Advice Trust (MAT), supported by UK Finance. The CFS was published in 2002 and represents a commitment from its sponsors in the credit and advice sectors to create a uniform approach to how individual and household budgets are prepared and to encourage consistent responses from creditors to offers of debt repayment.

Regulation 15 of the Bankruptcy (Scotland) Regulations 2016 and Regulation 3 of the CFT Regulations set out the basis of the contribution payable by a debtor in a Scottish statutory debt solution.

This stipulates that the contribution shall be the debtor’s whole surplus income in excess of the lower of the debtor’s expenditure, or the trigger figures which are maintained by the Money Advice Trust.

The debtor may be allowed an amount of expenditure that exceeds the trigger figures. However, in these circumstances the money adviser/trustee is required to demonstrate the rationale for the increased expenditure by providing an explanation for each individual occurrence. Evidence should be retained and made available on request by AiB.

There is a requirement to obtain primary evidence associated with the categories included with essential expenditure during the pre-application stage.

Regulation 15 of the Bankruptcy (Scotland) Regulations 2016 and Regulation 3 of the CFT Regulations also make reference to the need for any person applying the common financial tool to have regard to guidance issued by AiB on –

  • the treatment of types of income and expenditure to be taken into account
  • how income and expenditure are to be verified by the money adviser and the trustee
  • the conduct of money advisers in carrying out their functions under the Bankruptcy (Scotland) Act 2016 or the Bankruptcy (Scotland) Act 1985 (as amended) in relation to the CFT

This guidance sets out an approach that is designed to help achieve consistency in the application of the CFT and debtor contribution calculations that are fair and reasonable to all parties concerned.

The guidance was co-produced by a Working Group including representation from Citizens Advice Scotland, Money Advice Service, Money Advice Scotland, the Insolvency Practitioners’ Recognised Professional Bodies (IPA and ICAS), the Local Authority Money Advice Service; StepChange and the Association of British Credit Unions (ABCUL). We are very grateful for their assistance, and their commitment to help oversee the document’s evolution over time.

The minutes of the working group’s meetings are published on the AiB website.

The guidance follows the structure of the CFT and provides detail on the information requirements and evidence that should be obtained to support the financial and household information recorded within each section. The guidance recognises that circumstances will vary in each individual case and aims to set out some key guiding principles rather than prescriptive or legally binding rules.

Individual circumstances may impact on a client’s ability to provide evidence or information to support the income and expenditure calculation. Factors including a debtor’s physical or mental health problems or learning difficulties can impact on the ability of the money adviser/trustee to obtain all information required. In these circumstances, an explanation of the client’s circumstances should be provided by the adviser.

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