Treasury consults on debt ‘breathing space’ and repayment plans

The Treasury is consulting on a detailed policy proposal for a ‘breathing space’ and a statutory debt repayment plan, concepts which are intended to give people in problem debt the opportunity to take control of their finances and put them on a sustainable footing

The Treasury says the breathing space would give someone in problem debt the right to legal protections from creditor action while they receive debt advice and enter an appropriate debt solution.

The plan would enable someone in problem debt to enter a statutory agreement to repay their debts to a manageable timetable. Individuals entering a plan would receive legal protections from creditor action for the duration of their plan.

The two interventions should be viewed separately. A debtor would be able to enter breathing space without then entering a plan. A debtor would also be able enter a plan without having first entered a breathing space.

The consultation looks at the eligibility criteria for entering both the breathing space and the plan; the protections of the breathing space and the plan; and details of how the two policies would be administered, including funding of the scheme.

Under the proposals, an individual would need to meet three main criteria to enter a breathing space: to have accessed debt advice; be assessed as being in problem debt by a debt adviser; and not having been in breathing space in the previous 12 months.

There is one exception, for those experiencing a mental health crisis, who would be able to use an alternative access mechanism to enter the scheme.

People receiving NHS treatment for a mental health crisis, either at a psychiatric in-patient setting or in the community, would not need to apply for breathing space directly through a debt advice agency, and a debt advice agency will not be required to carry out the full initial assessment of the individual’s finances in this scenario.

Instead, the debt advice agency would be responsible for recording that an individual was in crisis, and could benefit from the protections of breathing space. This confirmation would be based on an assessment by a mental health professional of an individual’s condition and status. The frequency that breathing space could be accessed via this mechanism would not be limited, given the likelihood that mental health conditions may recur or change over time.

Under the proposals, here would be two key actors in the administration of breathing space - debt advice agencies and the Insolvency Service - and the consultation considers the scope of their roles, and how they would administer entry into a breathing space.

The proposals suggest some debts would be excluded from the protections of breathing space, including those incurred as a result of fraudulent behaviour, fines imposed by a court, confiscation orders, child maintenance payments, social fund loans, student loans, and personal injury liabilities.

The protections of breathing space would also apply to business debts for sole traders who do not meet the threshold for VAT registration (currently a turnover of £85,000).

The scope of protections for business debts would include arrears on ongoing business bill payments (such as gas and electricity), business tax arrears, and debts owed to suppliers, as well as any other business-related debt that an individual held.

it is proposed that all interest - both contractual and default - as well as any fees and charges associated with default on payments would be prevented from accruing on the debts included in breathing space during the period of protection. Breathing space would also stop most collections and recovery action from taking place.

The Treasury is proposing a 60-day time period for a breathing space.

As regards entry into a statutory repayment plan, individuals must access debt advice, be assessed as able to repay their debts in full over a reasonable timeframe, and their creditors must have agreed to the terms of the plan, or the Insolvency Service must rule that the plan proposed by their debt adviser was fair and reasonable, so that creditors are obliged to comply with it.

An individual would only be eligible for a plan if they had a realistic chance of repaying all of their debts over a period of no more than ten years. The government expects the average plan to last around seven years.

The consultation closes on 29 January 2019.

Breathing space scheme: consultation on a policy proposal and statutory debt repayment plan is here

Report by Pat Sweet

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