People in problem debt may soon find relief through the new Breathing Space scheme, announced by the government earlier this summer. An individual in problem debt is described as having difficulty paying their debts and in sufficient financial difficulty to enter a debt solution. The scheme is split into two elements:
- Protection for 60 days against the accumulation of interest, default fees and charges, and enforcement actions from creditors for people in debt who are engaging with debt advice, or receiving mental health crisis treatment
- A Statutory Debt Repayment Plan, which is a new solution for people who can repay their debts but over a longer timescale
One of the government’s objectives for the programme is that the 60-day Breathing Space will help those in problem debt by providing the time they need to engage with a debt advice agency to access a positive and sustainable solution, as set out in figure 1. Once accepted onto the scheme, the individual will be protected against debt action for 60 days. During this time, they must engage with a debt advice agency to find a long-term and realistic solution to their debts. The only exception to this is for people receiving NHS mental health crisis treatment, who can access the scheme via an alternative mechanism.
The second objective is to encourage more people to seek debt advice by protecting them from creditors and charges while they do so. Research suggests this brings benefits to both creditors and debtors. Creditors are likely to be in favour of the scheme as they will likely receive higher repayments from debtors, and additionally spend less on recovery costs. Whereas those in debt are more likely to repay the money owed, without getting into the cycle of debt.
Charities and consumer advocates such as Citizens Advice have flagged concerns with the government’s decision, as not everyone will be protected from the outset. Although the government has set out which debts it intends to include within the Breathing Space initiative, noting that it would offer protection on as many of an individual’s personal debts as possible, Citizens Advice is concerned those with debts and deductions under the Universal Credit will initially miss out on support. The government aims to implement Breathing Space in early 2021.
The second element of the scheme, not necessarily linked to the first, is the Statutory Debt Repayment Plan (SDRP). This aims to provide people with a formal plan to pay off their debts over a manageable time period, which the government envisages to be seven years on average. The maximum time period is 10 years; if someone requires longer than this to repay, it is likely another solution should be sought. This is a significant intervention which would stop all enforcement action by creditors and prevent the accrual of interest and other fees over the period of the plan
We highlight all these key developments that impact on vulnerable customers at our quarterly Vulnerability Viewpoint Forum. For more information, contact Vicky Simonds on v.simonds@cornwall-insight.com or on 01603 542124.
