Breathing Space Consultation Response
We welcome the government’s proposal to introduce a breathing space and statutory debt management plan for people who face financial difficulties.
The six week breathing space will relieve people of the urgent financial worries which affect their lives - allowing people who face financial difficulties to seek advice whilst interest, charges, and enforcement are paused. It is vital that this six week period acts as a gateway to a longer term debt solution. This could be a statutory debt management plan, an informal debt management plan or an existing insolvency solution, such as an individual voluntary arrangement or debt relief order.
The breathing space and subsequent solutions should be ‘joined up’ - enabling clients who have activated the breathing space to continue receiving protection from creditors if they agree to a manageable repayment plan. We have found that periods where clients are not protected, or are referred from one agency to another, can leave people feeling disengaged or disheartened about their financial difficulties
The statutory debt management plan should be flexible. This flexibility should be promoted by allowing clients who face financial uncertainty to make token payments for up to a year. Furthermore, if there is insufficient debt advice capacity to finalise a long term debt solution within six weeks, the advice provider should be able to roll over the breathing space for a further six weeks.
Both the breathing space and statutory debt management plan should include the majority of debts held by clients at the inception of the scheme. These debts should then be prioritised according to existing debt advice best practice. One third of all debt issues seen by Citizens Advice are from public sector creditors, with almost half of these (220,000) associated with council tax. Enforcement action around council tax is a major problem for our clients, and 70,000 problems with council tax collection were brought to Citizens Advice in the last year alone. Effective protection from enforcement action, fees and charges must therefore include public sector, household and consumer credit, debts.
The breathing space and the statutory debt management scheme must be free to clients. The charges levied upon clients in existing insolvency solutions act as a deterrent from entry. They also increase the time it takes for clients to become debt free.
Debt advice organisations will be vital to the success of a scheme such as this. It is likely, however, that the scheme will increase demand for their services. To ensure that significant numbers of people participate in the scheme, it will be necessary to ensure funding for debt advice is sufficient and sustainable.