Breathing Space Debt: People living in the UK with mounting debts will be able to ask for them to be put on hold for two months (60 days) after proposals two years in the making came into effect this week. The so-called ‘Breathing Space’ scheme, announced by the Government in 2019 after a five-year campaign from debt charities, will allow debtors to apply for a break from any enforcement action from creditors and for interest and fees to be frozen.
Breathing Space Debt Government Initiative Launched – Debt charities have campaigned for years for the full introduction of a breathing space scheme, after watching people borrow more money to pay the interest and charges on existing debt.
The 60-day break to prevent spiralling credit and the threat of debt collectors being sent round is supposed to give borrowers chance to work out their financial situation and options that could help them get out of debt.
How does ‘breathing space’ work?
During a breathing space, you WON’T be charged additional interest or fees of any kind. In addition, those you owe the money to are not allowed to backdate any interest or fees after the breathing space ends.
During a breathing space, all enforcement action MUST stop. This means that those you owe the money to are not allowed to:
– force you to pay the debt
– contact you about enforcing the debt (except where this is required by other laws)
– apply to the Department for Work and Pensions for deductions to be taken from your benefit
payments to recover the debt
– sell or take control of your property or goods
– start any action or legal proceedings against you
– disconnect your gas/electricity or try to install a prepay meter to recover energy debt.
Most debts are covered – but not all. You can only get a breathing space on certain ‘qualifying debts’, including:
– credit/store cards
– personal loans
– payday loans
– utility bill arrears
– mortgage or rent arrears
– council tax arrears
However, breathing spaces don’t cover secured debts (eg, mortgages, car hire purchase agreements), any debts incurred through fraud, any liabilities to pay fines imposed by a court for an offence and some other kinds of debt.
John Glen, economic secretary to the Treasury, said: “This scheme will give people a breathing space from charges, distressing letters and bailiff visits, so they can tackle their problem debt with support from a professional debt advisor.”
Phil Andrew, chief executive of StepChange debt charity, added: “Giving people the statutory protection of a time period to help them begin to deal with their debts is a huge step up from the previous voluntary, patchy approach.”
What other debt solutions are available?
Here are some of the terms readers should know in order to get to grips with the conversation around debt:
– Debt Management Plan: an informal agreement for paying back non-priority debts (meaning things like council tax and mortgage bills are excluded) in one monthly payment, for those not struggling quite so much that debts need to be written off. Interest and charges on debts are often frozen during these. They can be free or fee-charging
– Bankruptcy: For those who owe at least £5,000 and have no means of paying it back. Costing £680, it amounts to a declaration that someone can’t pay back their priority and non-priority debts.
– Debt Relief Order: Those who owe less than £20,000 and have less than £50 each month leaving them unable to pay their debts can apply for one of these. These figures could be changed to £30,000 and £100, under proposals from the Insolvency Service. It comes with a £90 upfront fee, which regulators warned proved a ‘significant barrier’ to some, usually lasts for a year and can see debts included in it written off afterwards.
– Individual Voluntary Arrangement: These have boomed in popularity in recent years amid fears they are being mis-sold as ‘life hacks’. These charge upfront fees of around £5,000 on average and see borrowers signed up to formal and legally binding debt repayment plans which can last for five to six years. They are usually only recommended for those with more than £10,000 in debt.