Draft legislation is expected to be ready by next spring

The aim of the proposals is to encourage responsible risk-taking, while protecting the public from fraudsters.

Currently bankrupts are disqualified from a number of activities for a three year period.

During that time they cannot set up a limited company or stand for election and it is difficult for them to borrow money.

However, Enterprise Minister Jim Wallace wants to reduce the length of time these restrictions apply to 12 months.

Entrepreneurs

He said: "Reducing the bankruptcy period from three years to one year is one of the key ways in which we propose to reform existing legislation.

"This change would ensure consistency with England and Wales, and will help ensure a level playing field for businesses throughout the UK."

Mr Wallace said the aim was to encourage small business bankrupts to set aside past experiences and move forward with an entrepreneurial spirit.

I want to see a culture of aspiration in Scotland where people are less afraid of taking risks Jim Wallace Enterprise Minister

The reforms also include measures to protect the public from discharged bankrupts who acted fraudulently.

Mr Wallace said: "We aim to develop and refine the existing bankruptcy laws, taking account of the needs of Scotland's debtors, creditors and small businesses.

"Creditors, many of whom are small businesses, need to be confident that there are adequate systems in place to protect their interests and facilitate debt recovery.

"I want to see a culture of aspiration in Scotland where people are less afraid of taking risks."

He added: "Changing the bankruptcy laws is one way in which we can achieve this, through reducing the stigma of bankruptcy and encouraging responsible risk-taking.

"It is important that we have a modern, flexible bankruptcy system that meets the needs of Scotland in the 21st century.

"It is also important that people are reassured that if they suffer from unexpected hardship and severe debt problems, there are humane solutions to help them move forward with their lives."