Lenders, including peer-to-peer platforms, will be required to give borrowers in financial difficulty a longer ‘breathing space’ period.
The government has launched the Debt Respite Scheme (Breathing Space) to give those facing financial difficulties a 60 day period to receive debt advice or mental health crisis treatment, without the pressure from creditors or mounting debts.
Under the scheme, borrowers will be given legal protections from their creditors for 60 days, with most interest and penalty charges frozen, and enforcement action halted. They will also receive professional debt advice to design a plan that helps to get their finances back on track.
These protections will be available for people in mental health crisis treatment for the full duration of their crisis treatment plus another 30 days.
People across England and Wales who are struggling to repay their debts could be eligible, and the government expects 700,000 people to benefit in the first year of the scheme.
The standard Breathing Space can be accessed by contacting a professional debt advisor. Given this may not be possible for someone in mental health crisis treatment, an approved mental health professional can certify they are receiving treatment and then a debt advice provider can consider whether they are eligible for the scheme.
The scheme is also expected to benefit creditors, with over £400m in extra debt repayments expected in the first year of the scheme, as people are supported to get their payments back on track.
“We’re determined to tackle problem debt, but it is incredibly hard to get your finances back on track when your debts are piling up and you’ve got creditors at the door,” said John Glen, economic secretary to the Treasury.
“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.
“To help people going through a mental health crisis, which is too often linked to financial problems, we’re bringing in stronger protections lasting beyond the end of their crisis treatment.”
Dave Heathcote, insolvency director at TDX Group, welcomed the Breathing Space scheme but said more solutions will be needed.
“Today’s long-awaiting introduction of the Debt Respite Scheme is a welcome and extremely timely move in the ongoing fight against debt,” said Heathcote.
“Breathing Space is an important step in how society manages problem debt, however, its impact will be limited in cushioning against the potential wall of debt many will face down the line.
“Against the backdrop of increasingly positive news on the UK’s vaccination roll out and a potential return to normality, a more sombre and fuller picture of the pandemic’s financial impact will emerge as government support schemes and forbearance winds down.
“Both people and businesses will need greater support, new solutions and innovative thinking to navigate future problem debt.”