Plans to Increase ‘Breathing Space’ for People with Serious Debt

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Ahead of the October 2018 Budget, the Treasury has announced plans to extend the period of ‘breathing space’ given to people who are trying to get on top of serious debt problems.

Commonly known as the ‘debt respite scheme’, the idea is to freeze charges, interest, fees and even enforcement action for a set period of time if people are facing high amounts of debt. This grace period is an important tool for getting back into financial health; it can help people to afford essentials such as food and heating whilst coming up with a plan for getting out of debt, potentially breaking the debt cycle.

The government first announced plans to introduce this policy a year ago, with a six-week respite period. That move was welcomed by many debt campaigners, however it was also suggested that they could have gone further. Now, we are seeing plans to increase the length of time given to 60 days, giving those in debt more time to take back control of their finances and seek help from experts or debt charities. While this is still a relatively short space of time – some experts have suggested that six to twelve months would be more appropriate – it suggests that the government are keen to help resolve, rather than exacerbate debt problems.

StepChange, a leading debt charity in the UK, have suggested that this move is particularly important for people with temporary debt problems, where other common solutions – such as an insolvency agreement – may not be suitable. In these circumstances, high fees and mounting interest can quickly turn a manageable debt problem into an ongoing spiral of borrowing.

So how does it work?

This scheme doesn’t automatically apply to people who are struggling; it’s something that you need to apply for. It also has some prerequisites before you can qualify for a freeze. Most importantly, you have to be actively seeking debt help. We’re still waiting to hear the full details, including an explanation of how those struggling will be able to apply for a relief period. It is likely to include some kind of interview – although there have also been suggestions that people dealing with mental health issues will be able to qualify for debt respite without the need to attend an interview. The government will iron out these details over the coming weeks and months as they look to put the plan into action.

We do know that this scheme will only apply in England, Wales and Northern Ireland. That’s because there is already something similar in Scotland: the Debt Arrangement Scheme (DAS) is a statutory debt management scheme which gives Scottish people the ability to freeze interest, fees and charges on their debts if advised to do so by an approved financial adviser. It also offers protection against legal action being taken to recover the debt. Like the new scheme, it comes with certain strings attached and only lasts for a set period: anybody using a DAS is expected to agree a repayment programme and make the first payment within 42 days.

While there’s certainly a lot more to be done, this is an early move towards providing statutory debt repayment solutions for the rest of the UK – a change that will be welcomed by those struggling debt and by many debt experts.

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