Information on Debt Respite and Loan Sharks
Breathing Space: a new statutory scheme to help people deal with problem debt
As a debt advice provider contacted by around 500,000 people last year, we see the harm that debt causes everyday: damaging health, deepening hardship, breaking up families and threatening homelessness. Public policy has needed to move the dial on the support available for people struggling with problem debt.
So, we are very pleased that the new statutory Breathing Space scheme, available to people in England and Wales, opened for applications on the 4th May 2021.
There are two types of breathing space - the standard and mental health crisis schemes. People entering either scheme receive legal protections that prevent creditors from doing any of the following things:
- Adding further interest onto a debt during the breathing space period
- Adding further fees, charges or penalties to a debt during the breathing space period.
- Take new enforcement action to recover a debt, including contacting the person about recovery of the debt.
The statutory Breathing Space scheme signals a significant step forward for public policy - recognising the need to reduce debt-related harm and focusing on the need to help people recover. In our research, 60% of StepChange clients said that their financial situation had stabilised once all of their creditors agreed to freeze further interest, charges and enforcement action. The standard breathing space scheme aims to give people time to work with a debt adviser to find a long-term debt solution. For a huge number of people, this will be an important route to long term recovery.
However, Breathing Space scheme rules also include a requirement for people to keep up with payments to ‘ongoing liabilities’ such as rent and bills. Almost a third of people we advised in 2020 had a negative budget even after income maximisation advice, so they are likely to struggle to keep up with ongoing liabilities during and after the breathing space period.
Breathing Space will not by itself deal with the broader problem of people being unable to afford basic household expenses like rent, council tax and fuel. This requires much broader policy change. A second ‘follow on’ scheme, the Statutory Debt Repayment plan, is due to be introduced in 2024. This will provide a potentially much longer period of statutory protection (potentially up to 10 years), with the aim of giving people more time to recover and pay off their debts in an affordable way.
This should include debts like rent arrears and council tax arears, where current protections against eviction or bailiff enforcement are very thin. Of course, this won’t help the thousands of people struggling with rent arrears now as a result of the pandemic, so StepChange is campaigning for specific support through grants and no-interest loans to help financially vulnerable tenants deal with arrears.
More information on Breathing Space, including eligibility and how to access, can be found in this briefing.
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Head of Policy
Peter Tutton is the Head of Policy at StepChange