Debt is an issue for a lot of us in the UK. There are currently four million people who are unable to meet regular bills and repayments. Many are struggling to manage mounting debts that are constantly increasing as a result of interest and penalties and fees for missed payments. Once debt problems start it can be a vicious cycle. In the UK there is no protection from creditors for people in serious financial difficulties – which is why the Breathing Space scheme was suggested.
No protection from creditors
Currently, in the UK the only circumstances under which debtors are protected from their creditors is where a formal debtor insolvency procedure, such as an Individual Voluntary Arrangement, is in place. Even where a formal Debt Management Plan has been agreed, there is nothing to compel the creditor to accept it. So, creditors can continue to chase for payments and add fees and interest to outstanding amounts already owed. This effectively condemns a debtor to a formal debt or insolvency process unless a money miracle occurs. The stress of such a situation can be completely paralysing. 43% of people told National Debtline that they had not asked for help with their debt problems sooner because of the stress of the situation.
A bit of Breathing Space
A scheme to give people in financial trouble support with debt was suggested back in 2017. In October 2018, a consultation was published on the idea of a Breathing Space scheme designed to provide support for people in financial difficulties. This would establish a 60-day period of relief during which legal protection against creditor action would provide the opportunity to get professional help and take steps to deal with financial problems. The scheme is not yet in place and the consultation remains open until the end of January 2019. However, what is currently being proposed is:
Breathing Space will cover most personal debts, as well as business debts incurred by sole traders earning less than £85,000.
No fees or charges can be added to the debts that are protected by Breathing Space during the 60-day period.
Creditors cannot take enforcement action against a debt – any actions will effectively be paused.
It’s important to note that charges can be added to any ongoing liabilities and enforcement action with respect to those debts can still take place.
Breathing Space eligibility
There are a number of conditions that must be met for someone to benefit from the Breathing Space protection, including:
Before applying for Breathing Space, debt advice must be sought from an organisation that is either FCA regulated to offer debt advice, or exempt. There is an exception for anyone who is in mental health crisis – under these circumstances the initial meeting is not required.
The debt advisor will then look at the individual’s situation and decide whether there is a realistic chance that Breathing Space could give a debtor a way to reach a debt solution.
Breathing Space won’t be eligible to anyone more than once in a 12 month period.
For the Breathing Space protection to continue to apply, any ongoing liabilities that a debtor has must continue to be met. Full cooperation with the debt advisor and their suggestions and advice is also required.
Update on the proposed Breathing Space scheme
Most people in financial difficulties want to sort their own problems out and are not looking to walk away from their responsibilities. Breathing Space could offer the respite that is required to reduce the stress involved and find a way forward with a clear head. However, the current 60-day period that has been suggested is not viewed as sufficient by many. The debt charity StepChange, for example, said that it takes an average of 10 weeks for a person in financial difficulties with debt to get advice and then take steps to help themselves. It has been suggested that the scheme be extended to a year to make it more realistic.
Implementation in 2019?
The proposals for Breathing Space are still not set in stone – and won’t be until next year. There remain a number of issues to work out, such as whether Breathing Space will include public sector debts, including council tax. According to Citizens Advice, a third of all debt issues are with public sector creditors and around half of these relate to council tax. It’s crucial that the Breathing Space scheme does not exclude the areas where people struggling with financial difficulties really need the most help.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley