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Debtors could be given six-week breathing space


Creditors could be forced to give those with problem debt a six-week interest holiday to give them a chance to get their finances in order, the government has announced.

Under the plans, those in serious problem debt may apply for legal protection from further interest, charges and enforcement action for a period of up to six weeks. Where appropriate, they would be offered a statutory repayment plan to help pay back their debts in a manageable way.

Problem debt is where debt and arrears absorb an excessive proportion of income. This typically arises from an income ‘shock’, such as sudden loss of employment and can place a heavy burden on individuals and families.

This can lead to a downward cycle of debt dependence and growing debt burden and, as a result, is often linked to other difficulties including worklessness, stress, and mental health issues.

According to StepChange, mounting personal debt in the UK is costing the British economy an estimated £8.3bn each year.

The charity, which gives free advice on overcoming debt problems to those in financial difficulty, estimates that by offering more help to those with problem debt, the government could save around £3bn each year.

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The concept of a breathing space scheme was promised in the Conservative party’s manifesto for the June 2017 election, and was mentioned in the Queen’s Speech but had not been followed up until now.

The call for evidence on the topic is open until 16 January 2018, with a view to publishing draft legislation by the end of 2018 or 2019 at the latest.

The plan will apply to England, Wales and Northern Ireland, as Scotland already has a similar scheme in place.

In Scotland, people in debt entering into repayment plans have a statutory right to have their fees and interest frozen under the Scottish “debt arrangement scheme”.

The scheme provides a six-week “breathing space” for debtors looking to set up a repayment scheme, followed by a statutory repayment plan.

The news comes after the introduction of Pre-Action Protocol for Debt Claims earlier this month, which requires any business trying to recover an overdue debt from an individual or sole trader to undertake prescribed pre-action steps.

The Protocol aims to encourage parties to communicate issues at an early stage and resolve the matter without the need to start court proceedings. This should keep costs reasonable and proportionate to the amounts involved.

These steps provide another level of protection to debtors, but could make the process of recovering unpaid invoices more cumbersome for creditors.

What do you think about the proposals? Let us know in the comments below.

Guide to Pre-Action Protocol for Debt Claims


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