The Government’s new breathing space scheme, officially known as the Breathing Space Debt Respite Scheme, commenced on May 4.
The scheme allows someone who is experiencing problem debt to apply via their debt adviser for breathing space protection. Once approved, the borrower is protected from most forms of debt collection enforcement action for the next 60 days, which will hopefully allow them to get their finances into better order. Interest and charges on the person’s debts will then be frozen for the duration of the breathing space period.
During the 60-day period, the consumer must continue to engage with their debt adviser and will be unable to take out any additional credit. They must also continue to make payments on utility bills and housing costs.
An individual can only apply for breathing space once in a 12-month period.
The separate Mental Health Crisis Debt Respite Scheme has also started. Here, the individual must not only be in a problem debt situation but must also be able to obtain confirmation from a registered mental health professional that they are in receipt of ‘crisis care’.
A carer, social worker or mental health nurse can make a mental health-related breathing space application on behalf of an individual in their care.
The mental health scheme is different to the standard breathing space scheme in a number of ways:
- The protection is essentially open-ended – instead of expiring after 60 days, the breathing space period continues until 30 days after the individual’s ‘crisis care’ period ends
- There is no obligation for the individual to continue to make certain payments during their breathing space period, nor is there any obligation for them to be in receipt of regular debt advice. However, it is necessary for the individual, or someone working on their behalf, to maintain contact with a debt adviser
- Multiple applications can be made during any 12-month period, and the individual can also apply under the standard breathing space scheme once their crisis care ends
Both schemes will operate in England or Wales only. Applicants must not be in a debt arrangement such as a Debt Relief Order, Individual Voluntary Arrangement or bankruptcy.
The schemes use a wide definition of ‘qualifying debts’, which includes credit cards, personal loans, overdrafts, rent arrears, fuel arrears and council tax arrears. Mortgage and car finance debts can also be included if the individual has fallen into arrears.
Debts from court fines, Universal Credit advance payments and student loans are not qualifying debts for the purposes of these schemes.
The Government hopes that the schemes will assist some 700,000 consumers during the course of this year, and also that more than £400 million in additional debt repayments will be made during the first year of the schemes.
John Glen MP, Economic Secretary to the Treasury, said:
“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.
“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.
“And 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.”