Hundreds of thousands of people struggling with debt problems will be supported through a new debt respite scheme that launched today (4 May 2021).
The Breathing Space will give those facing financial difficulties space to receive debt advice, or mental health crisis treatment, without pressure from creditors or mounting debts.
Debt Respite Scheme
Under the scheme, people will be given legal protection 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 which helps to get their finances back on track.
And recognising the link between problem debt and mental health issues, 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 announcement builds on other recent government work to alleviate problem debt – and the associated mental health problems – including introducing new rules to make debt letters less threatening, funding a no-interest loan pilot, maintaining record levels of debt advice funding for the Money and Pensions Service in 2021-22 and looking at raising the financial threshold criteria for individuals to enter a Debt Relief Order.
The scheme is also expected to benefit creditors, with over £400 million in extra debt repayments expected in the first year of the scheme, as people are supported to get their payments back on track.
- Most debts will qualify for a breathing space, including credit and store cards; personal and payday loans; overdrafts; utility bills, rent and mortgages arrears; and government debts like tax and benefits.
- Universal Credit overpayments will be included in the Breathing Space scheme from day one and Universal Credit advances and third-party deductions will be included on a phased basis as early as possible after the policy starts.
- Although interest and fees are frozen, a Breathing Space is not a payment holiday. People entering a Breathing Space will need to keep paying for any debts and ongoing liabilities they have – like their mortgage, rent, and bills – whilst they work with a debt advisor to find a sustainable debt solution. If someone in a standard Breathing Space fails to comply with these obligations, then a debt adviser has the discretion to cancel their Breathing Space.