Consultation outcome

Breathing space scheme: consultation on a policy proposal

Updated 19 June 2019

1. Introduction

The implementation of a breathing space and a statutory debt repayment plan (‘the plan’) was a 2017 manifesto commitment. It aims to give people in problem debt the opportunity to take control of their finances and put them on a sustainable footing.

Breathing space would give someone in problem debt the right to legal protections from creditor action while they receive debt advice and enter an appropriate debt solution.

The plan would enable someone in problem debt to enter a statutory agreement to repay their debts to a manageable timetable. Individuals entering a plan would receive legal protections from creditor action for the duration of their plan.

The two interventions should be viewed separately. A debtor would be able to enter breathing space without then entering a plan. A debtor would also be able enter a plan without having first entered a breathing space.

The government is fully committed to supporting vulnerable consumers, and, because of this, it is taking a proactive approach to support people who take on debt.

The government is acting to prevent problem debt from occurring, and helping people to get out of problem debt effectively should they experience it.

For instance, the government has reformed the regulation of consumer credit, through transferring regulation of activity to the Financial Conduct Authority (FCA). FCA rules mandate consumer credit firms to only lend money to people when the firm has a reasonable expectation that a consumer can repay the debt. FCA-regulated firms must also comply with a high-level principle to treat customers fairly. The FCA also regulates debt advisers.

As well as supporting people who take on credit, the government is putting in place support to help people take good financial decisions. To do this, the government is setting up the new Single Financial Guidance Body (SFGB), which will provide free-to-user support on all aspects of people’s financial lives. The SFGB will also have a statutory duty to improve the public’s financial capability.

Alongside this preventative action, the government has taken steps to support those who have fallen into problem debt, including through providing access to high-quality, free-to-user debt advice.

The government-commissioned Money Advice Service (MAS) spent just under £49 million in 2017-18 to provide debt advice to over 485,000 people. This year, MAS’ debt advice budget has increased to over £56 million, enough to provide support to over 530,000 people.

The introduction of breathing space and the plan will complement this work, by encouraging people in problem debt to access debt advice, providing time for them to find a sustainable solution to their debts, and introducing a new solution with statutory backing, in addition to the options already available.

The government published a call for evidence on the scheme in October 2017. The call for evidence asked several questions on both breathing space and the plan. After receiving over 80 unique responses from expert stakeholders in a range of fields, the government published a summary of responses[footnote 1]. Following this, HM Treasury has been engaging with a wide variety of stakeholders from across sectors with interests in this area, in order to further refine the design of the scheme. This consultation is the next step towards delivering the scheme.

1.1 Consultation structure and ways to respond

The consultation has three sections. Chapters two to four provide an overview of the breathing space period, propose eligibility criteria for entering the protections, and describe details of these protections. Chapters five to seven focus on the plan and are structured in the same way. Chapter eight of the document outlines the government’s proposals for the administration of both breathing space and the plan, including how they will be funded, as well as the policies’ territorial extent.

Although it would be helpful if respondents addressed all questions, the government welcomes comments from all those with suitable expertise on any aspect of the scheme’s design, in order to aid in the development of a workable scheme that meets its objectives.

This consultation will run from 29 October 2018 to 29 January 2019. In order to respond to the consultation, please send a response document to breathingspace@hmtreasury.gov.uk.

1.2 Next steps

The government will analyse responses to this consultation, and respond in due course, setting out next steps on the scheme’s implementation in that response, including on the laying of regulations to establish the scheme.

2. Introduction to breathing space

Breathing space is a period of time during which an individual in problem debt is provided with respite from creditor action in order to fully engage with debt advice and seek a sustainable solution to their debts.

The government has two policy objectives for the introduction of breathing space.

The first objective is to provide sufficient protections for individuals to help them to enter into a sustainable debt solution. The government intends for breathing space to further protect individuals from recovery and enforcement action whilst working with a debt advice agency. This temporary period of protection, allowing full engagement with professional debt advice, will better enable them to identify and access a positive and sustainable solution to their debts.

The second objective is to encourage more individuals to seek debt advice. Research for MAS shows that there are significant benefits to debtors and creditors when individuals with problem debt access debt advice:

  • people accessing debt advice are less likely to sink into a cycle of debt
  • creditors receive higher repayments and spend less on recovery costs[footnote 2]

MAS’ research also noted that there are broader social benefits – including reducing the impact of debt on people’s mental health, and increasing their productivity.

However, not enough people who could benefit from debt advice seek support. The Independent Review of the Funding of Debt Advice[footnote 3], commissioned by MAS and written by Peter Wyman, recommended that around 1.7 million people a year could benefit from engaging with debt advice. Around 1.1 million people a year currently receive debt advice[footnote 4].

More generally, even when individuals seek debt advice, they often do so significantly later than when the advice would first be beneficial. Figures from the debt charity StepChange show a majority of their clients were worried about debts for a year before seeking advice. Two-thirds of the clients of Christians Against Poverty waited for over a year to seek advice[footnote 5]. A third waited over three years[footnote 6].

By offering debtors protection from creditor action and providing time and space to consider a way to manage debts, breathing space is intended to encourage those who require debt advice to seek help at an appropriate time.

The next two chapters of this consultation set out the eligibility criteria for breathing space (chapter 3), and the protections that would be offered to individuals during this period (chapter 4).

3. Eligibility for breathing space

This chapter sets out proposals for the eligibility criteria for breathing space.

The government proposes that there would be three main criteria that an individual would have to fulfill to enter breathing space. An individual would have to:

  • access debt advice
  • be assessed as being in problem debt by a debt adviser
  • not have been in breathing space in the previous 12 months

There would be one exception to these eligibility criteria. Those experiencing a mental health crisis would be able to use an alternative access mechanism to enter the scheme. More information on this alternative access mechanism can be found in section 3.5 onwards.

The next part of this chapter sets out details of the eligibility criteria.

3.1 Access debt advice

First, an individual would have to obtain FCA-regulated debt advice, or advice from another organisation that qualifies for an exemption from FCA authorisation, such as a local authority, in order to be eligible for breathing space.

The requirement to seek advice will ensure that debtors are able to make informed decisions about the options available to them to deal with their debts.

In practice, this requirement means that organisations from both the free-to-client and commercial debt advice sectors would be able to offer access to breathing space. Insolvency Practitioners (IPs) would be able to offer access to breathing space if they have appropriate FCA permissions to offer debt advice.

3.2 Assessed as being in problem debt

Second, a debt adviser would have to judge that an individual is in significant financial difficulty and could benefit from entering a debt solution.

These solutions could include existing statutory debt solutions such as bankruptcy or a debt relief order, or a non-statutory solution, such as a debt management plan or token payment plan.

In order to make this judgement, a debt adviser would have to complete an initial assessment of an individual’s finances. Although a fully-evidenced income and expenditure assessment would not be required during the initial assessment, it is expected that a debt adviser should at least retrieve information during the session that:

  • indicates that breathing space would be the best option available to a debtor for them to get their finances on track. As stated above, the government expects debtors to be approved for the scheme if they are assessed as having a realistic chance of entering a debt solution, but require some time to properly assess the best option for them

  • identifies a debtor’s creditors. This is so they can be informed if breathing space is triggered

It is likely that the debtors in the protections would have multiple debts to different creditors. These individuals would especially benefit from the protections of breathing space given entrance into the protections would reduce the confusion from interacting with, and meeting the demands of, a number of different creditors.

A debt adviser would not trigger the protections if they were not satisfied that a debtor met the eligibility criteria outlined above. Some examples of debtors who would not benefit from breathing space are:

  • a debtor who would be advised to complete an outcome other than a debt solution, such as being given budgeting advice
  • a debtor who clearly needs to enter a formal insolvency solution, such as bankruptcy, and is in a position to do so immediately, including being able to pay the relevant fees.

3.3 One breathing space a year

Finally, an individual would not be able to enter breathing space if they had made a successful application to enter breathing space in the previous 12 months. This builds on existing successful practice in the Scottish Debt Arrangement Scheme (DAS)[footnote 7]. Restricting individuals to one breathing space per year will help to reduce abuse of the protections of the scheme. The government believes it to be unlikely that individuals would enter the protections this regularly, given that breathing space is designed to enable individuals to subsequently enter an appropriate and sustainable debt solution.

3.4 Rationale

The proposed approach is intended to be flexible. As experience of problem debt can vary significantly from person to person, the approach allows some discretion for debt advisers to assess individuals’ eligibility for breathing space based on the scheme guidelines.

For example, some individuals can owe significant amounts before being in problem debt. However, others can struggle with relatively small amounts of debt, because they have a low income. The government does not believe that specific rules, such as basing eligibility for breathing space on debt or income levels, would be appropriate given the varying experiences of problem debt outlined above.

Question 1:

Do you agree with the eligibility criteria for entering breathing space, including the 12 month limit?

Question 2:

Do you think there should be a formal mechanism to allow creditors to object to a debtor’s entry into a breathing space, given the protections already outlined above? How could any such mechanism be best designed to minimise administrative burden?

3.5 Mental health alternative access mechanism

This section of the consultation sets out the government’s proposals for an alternative access mechanism to the protections of breathing space. The government recognises that this is an extremely complex area, and will continue to develop more detail on the mechanism with expert stakeholders before responding to this consultation.

The Economic Secretary to the Treasury has committed to introducing an alternative access mechanism to breathing space for people receiving NHS treatment for a mental health crisis, either at a psychiatric in-patient setting or in the community. This is because it is difficult to effectively engage with debt advice during a mental health crisis.

These individuals would not need to apply for breathing space directly through a debt advice agency, and a debt advice agency will not be required to carry out the full initial assessment of the individual’s finances in this scenario.

Instead, the debt advice agency would be responsible for recording that an individual was in crisis, and could benefit from the protections of breathing space. This confirmation would be based on an assessment by a mental health professional of an individual’s condition and status. The assessment could be provided to a debt advice agency either by the mental health professional, or by a third party. The debt advice agency would then be able to apply for breathing space on the individual’s behalf (see ‘Administering breathing space’ section below).

The frequency that breathing space could be accessed via this mechanism would not be limited, given the likelihood that mental health conditions may recur or change over time, and individuals who accessed the protections through this mechanism could find it more difficult to enter a sustainable debt solution. For this reason, the government also intends that individuals who have accessed breathing space using this mechanism could still apply for a further breathing space through the main access mechanism if they had not used the main access mechanism in the twelve months preceding this date.

Question 3:

Do you agree with the outline of the alternative access mechanism for individuals in mental health crisis care?

Question 4:

Although it will be important for a professional assessment to be made of an individual’s condition, do you agree that other third parties (e.g. carers) should be permitted to use that professional assessment to make a referral to a debt advice agency on an individual’s behalf?

3.6 Administering breathing space

The next section of this chapter focuses on the administration of an individual’s entrance to breathing space.

Many respondents to the government’s call for evidence on breathing space agreed that it would be appropriate for a public agency to provide administrative support for breathing space. The government agrees with this assessment.

In particular, the government sees the benefit of a body or entity providing administrative support for breathing space given the need to avoiding over-burdensome administrative processes for both creditors and debt advisers. This support could include the ability to host a register of individuals who are in the scheme’s protections, and a system, such as an online portal, to provide notification of a person’s entrance into breathing space to their creditors.

Many respondents to the call for evidence proposed the Insolvency Service for this role. The Insolvency Service is an executive agency of the Department for Business, Energy and Industrial Strategy. It currently administers bankruptcy and Debt Relief Orders, and has extensive expertise in providing administrative oversight of debt solutions. Additionally, in Scotland, the Insolvency Service’s equivalent body – the Accountant in Bankruptcy – provides a similar role for the Scottish DAS.

The government agrees with respondents to the call for evidence, and proposes that the Insolvency Service should perform this administrative role.

3.7 Roles of debt advice agencies and Insolvency Service

There would be two key actors in the administration of breathing space; debt advice agencies and the Insolvency Service.

When an individual contacts a debt advice agency at present, the agency liaises with debtors, advises on the best outcome for an individual, and, if in the individual’s best interests, can liaise with creditors (e.g for more time for a debtor to pay their debts.) Replicating some of this existing practice, debt advice agencies such as StepChange, would be responsible for liaising with debtors, recovering details of individuals’ creditors, and, in some cases, sending notifications to creditors of an individuals’ entrance into and exit from breathing space.

To support this work, the Insolvency Service would have responsibility for maintaining the mechanism outlined above for debt advisers to notify creditors about an individual’s entrance into and exit from the scheme. The Insolvency Service would also be responsible for maintaining a register of individuals in the protections (see section 3.8).

The government also recognises the potential for an oversight role to ensure creditor and debt adviser compliance with the scheme’s guidelines, given the broad protections that an individual in breathing space would benefit from. However, the government also recognises that any objection mechanism should be carefully designed in order to minimise administrative burden. A question on this issue is included at the end of this section.

3.8 Notifying creditors of entry into breathing space

To ensure a debtor’s entrance to breathing space provides an effective period of respite from creditor action, creditors would have to be proactively informed of a debtor’s entrance into breathing space.

Using the Insolvency Service’s system, a debt adviser would enter information about a debtor, such as their personal details, known creditors, and account information with those creditors.

The debt adviser’s data entry would trigger two processes.

First, a notification would be sent to the individual’s creditors to inform them an individual was entering breathing space being triggered. The notification – which would have the details outlined above, as well as information about the debt advice agency that an individual was being supported by – would act as an instruction to initiate the protections provided by breathing space.

In total, creditors would receive two formal notifications during the time an individual is in breathing space. They would receive:

  • a notification of an individual’s entrance into breathing space

  • a further notification when an individual exits the protections, whether this is because they enter a debt solution, because their 60-day breathing space expires, or because they have not continued to engage with debt advice and therefore are no longer eligible for breathing space

Second, the entry would also enter the debtor’s details onto a centrally-held register, hosted by the Insolvency Service. This register would contain details such as their name, address, date of birth, gender and whether an individual was in breathing space or a plan.

The government notes the wide-ranging views from the sector on whether this register should be public, or private, and only accessible to certain parties, including an individual’s debt adviser and creditors. The government notes that a private register would, for example, protect debtors from lead generators seeking to inappropriately encourage individuals into an insolvency solution and could reduce the potential for stigma for individuals who enter the protections. However, a public register could substantially reduce the risk of some creditors not being aware of a person’s entrance into breathing space, enabling all creditors to be able to apply the protections. A question on this issue is asked below.

Question 5:

Do you agree with the proposed method of administering entrance into breathing space? Do you agree with the proposed role for the Insolvency Service? What kind of functionality should the Insolvency Service’s notification mechanism include?

Question 6:

Do you think there should be an oversight role to ensure creditor compliance with breathing space? If so, how should this oversight role operate?

Question 7:

Do you think the register holding details of debtors in breathing space should be fully public, accessible to relevant debt advice agencies and creditors or just accessible to the Insolvency Service?

4. Protections of breathing space

This chapter sets out proposals for the protections provided by breathing space.

The government proposes broad protections for individuals in breathing space, reflecting the manifesto commitment. In summary, it is proposed that:

  • a wide range of an individual’s personal debts would be in scope of the protections
  • business debts incurred by small sole traders are also in scope
  • interest payments, as well as fees and charges relating to a debtor defaulting on payments, would be prevented from accruing
  • most enforcement action would be paused

These broad protections will help to meet the policy intent for breathing space. Breathing space is a period for individuals to seek debt advice and to decide on the best long-term solution for their debts, without ongoing action being taken by creditors. The government’s view is that this policy intent would not be achieved if a significant number of debts were left out of the protections; if interest, fees and charges continued to be raised; or if creditors were able to take significant recovery and collections action during this time.

4.1 Treatment of debts in breathing space

Given the proposal for wide-ranging protections outlined above, the government proposes that breathing space would offer protection on as many of an individual’s personal debts as possible. This approach will give a common standard of protection for individuals in problem debt, and lessen the opportunity for detriment from creditors outside the scheme continuing to take action on unpaid debt.

4.2 Debts excluded from the scheme’s protections

Many call for evidence respondents suggested that some specific types of debt should be excluded from the protections of the scheme, on the basis that they are currently excluded from personal insolvency solutions such as bankruptcy.

The government agrees with the views expressed by respondents to the call for evidence, and proposes that the following debts are excluded from the protections of breathing space:

  • debts incurred as a result of fraudulent behaviour
  • fines imposed by a court, including criminal fines
  • confiscation orders
  • child maintenance payments and debts that arise after an order made in family proceedings
  • social fund loans
  • student loans
  • personal injury liabilities

Debts that existed but had not been identified at the outset of breathing space would be eligible for inclusion in the protections after the breathing space had commenced.

The government notes the views of some creditors that their existing regulatory frameworks – such as FCA rules – give a high standard of protection for debtors by setting out rules on arrears and forbearance, and in certain cases setting out when and how a firm should contact a consumer in payment difficulty or arrears. It also notes arguments that certain debts should be excluded from the protections, given that inclusion could cause detriment to a debtor if they leave breathing space and the debt remains unpaid.

Question 8:

Do you agree with the proposed approach for excluding certain debts from the protections of breathing space?

Question 9:

Do you think there are other debts, such as those in regulated credit agreements, or certain types of benefits, that should be excluded?

4.3 Business debts in breathing space

The proposal above outlines the treatment of personal debts. However, some individuals who would benefit from the protections of breathing space will also hold debts incurred while operating a business. Although breathing space is designed to protect individuals’ personal debts, the government recognises that small, unincorporated sole traders’ personal and business finances can be intricately linked, and often overlap. Unlike those running, for example, incorporated companies, sole traders are self-employed, run their businesses as an individual, and are personally liable for their business debts,

The government therefore proposes that the protections of breathing space apply to business debts for sole traders who do not meet the threshold for VAT registration (currently a turnover of £85,000).

The scope of protections for business debt would be similar to those for personal debts. This means that the protections would therefore include the following:

  • arrears on ongoing business bill payments (such as gas and electricity)
  • business tax arrears (including pay as you earn, business rates, employee national insurance contributions)
  • debts owed to suppliers, as well as any other business-related debt that an individual held

The debt advice agency would have to ensure that individuals entering the protections met the requirement that their business falls below the threshold for VAT registration. This check would take place at the same time as the broader initial assessment of an individual’s eligibility for breathing space.

Question 10:

Do you agree with the treatment of sole traders in breathing space? In particular:

  • Do you agree with the proposed eligibility criteria and protections for sole traders in breathing space?

  • What would be the most appropriate way of distinguishing between business and personal debts for these purposes?

4.4 Treatment of ongoing liabilities

A period of breathing space would offer substantial protections. However, the government notes that despite protections on their debts, individuals will still have ongoing household liabilities, such as monthly bills for gas and electricity and council tax, during their breathing space. The government does not propose that individuals are protected from enforcement action on these ongoing liabilities, given that this would be a disproportionately strong protection for the short period of breathing space, and could lead to potential abuse of the protections.

These ongoing liabilities would include basic household bills and ongoing payments on secured debts (such as the principal and interest of a mortgage). For the purposes of breathing space, an ongoing liability is defined as:

  • payments towards secured debts (such as mortgage payments, and hire purchase debts)
  • rent
  • an insurance premium
  • taxes
  • water and sewerage charges
  • supply of electricity, gas, landline phone services
  • heating oil or solid fuel

If an individual did not pay these ongoing liabilities during breathing space, these creditors would be able to take further enforcement action to recover any new debts. A creditor could also notify an individual’s debt adviser and request the individual be removed from breathing space, as meeting these ongoing liabilities would be a requirement for continued eligibility for the protections. More information on this is in section 4.5. However, enforcement action would be prevented on all other eligible debts and arrears included in breathing space.

4.5 Treatment of interest, fees and charges

In keeping with the government’s manifesto commitment, it is proposed that all interest – both contractual and default – as well as any fees and charges associated with default on payments would be prevented from accruing on the debts included in breathing space during the period of protection. A large number of call for evidence respondents supported this view.

Debtors entering breathing space are likely to be in significant financial hardship, and interest and default fees and charges accruing during the period of breathing space could increase an individual’s debt burden significantly.

The government proposes that creditors should not be able to retrospectively charge interest, or default fees and charges on the debts included in breathing space should an individual leave the protections without entering a debt solution. Instead, the charging of interest, and any default fees and charges would simply restart.

Creditors would, however, be able to continue to charge all interest, fees and charges on debts excluded from breathing space and on any ongoing liabilities. For example, mortgage providers should expect to receive payments for both the principal and interest on ongoing mortgage payments, as these payments are outside the protections of breathing space. However, mortgage providers would not be able to charge interest and fees and charges relating to arrears as these would be included in breathing space.

Question 11:

Do you agree with the proposed treatment of interest, fees and charges in breathing space?

4.6 Treatment of collections and recovery action

Breathing space would stop most collections and recovery action from taking place. This wide-ranging protection will give individuals in breathing space time to make an informed decision about how to deal with their debts.

For the purposes of this consultation, the government has split potential recovery and collections actions into three categories:

  • contacting a debtor in order to request repayment and collect the debt

  • after exhausting contact with the debtor, applying to court to make a claim for money owed

  • applying to a court to enforce a court order, for example by instructing enforcement agents (also known as bailiffs)

The government recognises that not all creditors need to follow exactly the same procedures, but the main processes are set out below.

4.7 Contacting a debtor to request repayment of a debt

All contact with a debtor in relation to requesting the repayment of a debt during breathing space would be prevented.

Ceasing contact with a debtor is intended to ensure that the debtor is given time and space in order to seek the best solution to their debts. Creditors, would, however, be able to contact debtors with ‘business as usual’ communications, such as advertising or monthly statements, and to meet existing legislative requirements, such as notices of sums in arrears mandated by the Consumer Credit Act.

4.8 Court action

Creditors may decide to take court action to collect money owed following attempting contact with a debtor. This can include the following stages:

  • the debt pre-action protocol - the court would expect businesses claiming payment of a debt to conduct themselves in line with the terms of the court and in accordance with the Civil Procedure Rules, including the debt pre-action protocol

  • applying to court for a money judgment or order

  • applying to court to take action to enforce the judgment or order

During breathing space, a creditor would not be able to start new action at any of these stages. A creditor could not start the pre-action protocol, make a new money claim, apply to the court to take enforcement action, or, if required, could not commence any enforcement action already approved. Starting any new court action could work against the government’s policy intent to enable debtors to take time to assess options without the pressure of creditor recovery action.

If the pre-action protocol had already been initiated by a creditor, they would be required to pause the timeframe until after an individual had left the protections.

However, if a creditor has already applied to court to make a money claim or order, we do not propose that they would have to withdraw an application during breathing space. This would place a substantial burden on the courts and could be unfair to creditors, who will have had to pay a court fee.

4.9 Further enforcement action

During breathing space a creditor would not be able to apply to the court to enforce a judgement or order. However, as with applications for a money claim, creditors would not be required to withdraw an enforcement application that they had already made to the court.

Where enforcement action has already been approved by the court, creditors would be required to pause most forms of this action. In deciding which type of enforcement action should be paused, the government has considered the administrative burden on the courts and others and the impact of the action on the debtor, and proposes that the protections should include:

  • stopping new attachments of earnings (where a court orders an employer to make deductions from an employee’s wages to repay a debt), and certain types of new and existing benefit reduction (where benefits are reduced in order to pay a debt)

  • pausing enforcement agent action. A creditor would be required to inform the court or enforcement agent to stop taking enforcement action for the duration of the breathing space

The government does not propose that existing attachments of earnings orders would be stopped during breathing space. This would cause undue burden on employers of having to stop and then, in some cases, start the attachments over a very short period of time. The government also recognises that some individuals may not want their employer to know that they are in a period of breathing space.

Question 12:

Do you agree with the treatment of collections and recovery action during breathing space? Should any other forms of collections and recovery action be explicitly included in the protections? How can any practical issues arising from preventing these collection and recovery actions be best mitigated?

Question 13:

How should creditor compliance with the scheme be monitored?

4.10 Continued eligibility for breathing space

Individuals in breathing space would have to complete two key actions in order to continue to be eligible for the above protections.

First, an individual would be required to work with a debt advice agency in order to find a debt solution. As part of this, a debtor would be required to provide prompt, accurate and complete responses to debt advisers’ requests for information during this period.

Second, an individual would also have to keep paying their ongoing liabilities to creditors from whom they are protected under the breathing space (as defined in section 4.4). More details on what would happen if an individual did not comply with these criteria can be found from section 4.11 onwards.

4.11 Length of breathing space

The government wants to ensure that breathing space works for all those who could benefit from the protections. This includes giving individuals enough time in the protections to be able to enter a sustainable debt solution.

The government has previously committed to a six-week breathing space. However, the government recognises that some debtors could require more time in order to seek a long-term solution to their debts. The government also notes that the six-week period of breathing space does not easily fit with existing creditor charging periods, and could lead to significant administrative costs from systems changes.

The government therefore proposes that breathing space period should be longer, lasting for 60 days. This extended period of time will ensure that debtors have the time and space to be able to engage with debt advice and enter a sustainable debt solution. The 60-day time period also increases the attractiveness of the scheme to debtors who could benefit from the protections, and ensures the scheme is aligned to existing creditor charging periods.

4.12 Operation of 60-day breathing space

Although 60 days of breathing space would be the default period of time for all debtors, the government proposes that there is a check halfway through the 60-day period of breathing space, which would ensure that an individual was continuing to comply with the criteria for continuing eligibility (outlined in section 4.11). This proposal builds on existing successful practice offered by FCA-regulated consumer credit firms.

It is envisaged that the check would be carried out by the individual’s debt advice agency, who would confirm a) that the individual had continued to fully and promptly engage with their debt advice agency after their initial session, and b) check that creditors had not complained about the individual not paying their ongoing bills.

As the default period of breathing space is 60 days, a debt adviser would only be required to act if an individual had not complied with one of the two criteria outlined above. A debt adviser would remove an individual from the protections and update creditors if the criteria had not been met.

The purpose of the check is to ensure that individuals continue to use the scheme to put in place a long-term solution to their debts.

Question 14:

Do you agree with the proposed length of breathing space? Do you have any other comments on the operation of the check?

4.13 Mental health alternative access mechanism

The protections afforded to individuals who access the scheme via the alternative access mechanism would be the same as those outlined above. However, the protections would instead continue throughout the full length of an individual’s care under an NHS crisis team. This reflects the varying treatment times that may be appropriate in individual cases, and significant challenges for individuals in seeking debt advice during this period.

Question 15:

Do you consider that this protection is appropriate for individuals in mental health crisis? Should there be any further protections for individuals who have accessed breathing space in this way?

5. Introduction to statutory debt repayment plan

The 2017 manifesto committed to introduce a statutory debt repayment plan (the plan) as well as a period of breathing space.

The plan would enable an individual in problem debt to enter into a formal agreement with their creditors to repay all of their debts over a manageable time period. The plan would be a significant intervention, changing the profile of a debtor’s repayments over time, ceasing all enforcement action by creditors against a debtor during that period, and preventing the charging of interest, and default fees and charges on all debts included in in the plan.

The government proposes that the plan would be added to the existing suite of debt solutions available to those in problem debt.

5.1 Existing debt solutions

There are already statutory and non-statutory solutions available to people who have fallen into problem debt.

Existing statutory debt solutions include bankruptcy, individual voluntary arrangements (IVAs) and debt relief orders. These solutions all offer varying degrees of debt relief to individuals who enter them. They are effective for people who are substantially over-indebted, and are unable to repay all of their debts in the foreseeable future. Crucially, they include almost all of a person’s debt, provide total protection from creditor action, and stop the escalation of interest, fees and charges.

However, many people may be unable to meet repayments on their debts in the short term, but will be able to repay them in full over the long-term. These people may have had a short-term income shock, from which they will recover.

For these people, debt relief through existing statutory solutions may not be appropriate. Many therefore seek out non-statutory solutions, such as Debt Management Plans (DMPs). DMPs are voluntary agreements between a debtor and some or all of their creditors to repay their debts in an extended time period. DMPs are generally administered by debt advice agencies. Debtors make a single monthly payment to the debt advice agency, which then distributes funds to the individual’s creditors in an agreed proportion. Creditors do not have to agree to the proposed repayments, can continue to charge interest, fees and charges, and can continue to take action to recover their money.

Although DMPs are effective in alleviating some individuals’ debt problems, the voluntary nature of the plans can make them less effective for others.

Many creditors, including priority creditors who may take stronger enforcement action, do not sign up to the new proposed repayment period. Given that an increasing number of individuals in problem debt experience issues with both priority debts (debts that often have stronger enforcement action taken on them, such as the instruction of enforcement agents) and non-priority debts, the protections of a DMP can be narrow. Informal debt solutions also do not protect individuals’ assets, including the family home.

Even if an individual’s creditors have agreed to the terms of a DMP, the non-statutory nature of a DMP means they are able to take further recovery and collections action, and charge interest, fees and charges on individuals’ debts, even if the debtor keeps up with their payments. This means that an individual’s debts can take a longer time to pay off, and debtors can continue to experience detriment from enforcement action.

5.2 A better solution for some debtors

Given the limitations of non-statutory debt solutions, the government recognises that the implementation of an effective, well-designed plan would serve a number of debtors not currently suited to existing statutory debt solutions.

The introduction of the plan is a significant undertaking. In order to be effective, it should:

  • provide wide-ranging protections for debtors. This includes ensuring that a wide range of creditors – including those that do not currently choose to enter informal DMPs – are bound by the plan. It also includes ensuring that creditors are prevented from taking enforcement action, and that debtors benefit from a freeze on interest, and on default fees and charges during their plan

  • be easy to offer and administer for debt advisers. The government recognises that the debt advice sector is currently undergoing significant change, and is keen to ensure that the plan is simple to administer, alongside providing a predictable funding stream

  • improve returns for creditors, whilst minimising administrative burden. The introduction of the plan could substantially change the repayment profile of debts, prevent creditors charging interest, fees and charges on debts, and therefore change the way that some creditors take recovery action. The government recognises the importance of designing a solution that maximises returns for creditors, while reducing the sometimes significant administrative burden of equivalent debt solutions

The government is therefore proposing that the plan includes very substantial protections, and is providing detailed proposals for debt advisers and creditors about how the scheme should be administered. However, given the substantial challenges involved in designing and introducing the plan, and the government’s determination to ensure the plan is fully effective for the people who could benefit from its protections, the government intends that the plan will be developed over a longer time period than the introduction of breathing space. The responses to the detailed policy proposal set out in this consultation, and ongoing work with both the debt advice sector, creditors, regulators and other government departments, will inform further policy development and consideration of the appropriate statutory framework for the plan.

The government will set out its next steps for implementation of the plan in the response to this consultation, in early 2019.

The next two chapters of this consultation set out the proposed eligibility criteria for the plan (chapter 6), and the protections that would be offered to individuals in the plan (chapter 7).

6. Eligibility for the statutory debt repayment plan

This chapter sets out proposals for the eligibility criteria for the plan.

An individual would have to meet three criteria to be eligible for a plan:

  • they must access debt advice

  • they must be assessed as able to repay their debts in full over a reasonable timeframe

  • their creditors must have agreed to the terms of the plan, or the Insolvency Service must rule that the plan proposed by their debt adviser was fair and reasonable, so that creditors are obliged to comply with it.

6.1 Access debt advice

First, anyone wishing to enter a plan would have to seek debt advice from an organisation that is either a) FCA regulated, or b) has appropriate exemptions from FCA regulation to offer debt advice, such as a local authority. This means that organisations from both the free-to-client and commercial debt advice sectors would be able to offer access to the plan.

The requirement to access debt advice is important, as a plan is a long-term debt solution and individuals must be well-informed about its benefits and conditions, as well as understanding the other options available to them.

6.2 Able to repay debts in full over a reasonable timeframe

Second, an individual would only be eligible for a plan if they had a realistic chance of repaying all of their debts over a period of no more than ten years. The government expects the average plan to last around seven years, following existing practice in Scotland, as well as with voluntary DMPs.

If an individual could not repay their debt over ten years, they are likely to be in significant financial difficulty, and would be more suited to another debt solution.

To assess whether an individual is able to repay their debts in full over the timeframe outlined above, a debt adviser would complete a Standard Financial Statement (SFS) for the individual. The SFS is an industry-wide method of calculating income and expenditure, designed by MAS in partnership with creditors and the debt advice sector[footnote 8]. The process requires debt advisers to complete a detailed budget to calculate an individual’s surplus income, which can then be put towards payments into a debt solution.

If a debt adviser were to recommend the plan after this process, the adviser would work with the debtor to put together their proposed repayment plan.

This document would set out proposals for monthly payments to be made to each creditor and for the length of the plan, based on the individual’s surplus income. The proposal would also include detailed information about the individual and the amount of debt owed to the creditors in the plan, in order to allow creditors to easy identify the debtor’s accounts and liabilities. Once complete, this proposal would then be sent to creditors.

6.3 Creditor objection and the fair and reasonable assessment

Before the plan starts, creditors would have an opportunity to object to the terms proposed. This follows existing practice in IVAs and the Scottish DAS.

Once creditors had received the proposal, they would have 14 days to object to it. Any objection would have to be made using set criteria, including:

  • inaccuracies in an individual’s standard financial statement
  • the proposed level of payments to creditors
  • the period over which the plan will operate

Providing set criteria for objection is intended to reduce occasions of creditors objecting to plans as a matter of course. Creditors would have three options: to actively accept, object, or not respond, which would be counted as acceptance of the proposed plan after 14 days.

If, following the end of the 14-day period, fewer than or exactly 25% of creditors by value of debt had objected to the plan, an individual’s plan would commence, with all creditors (including any who had objected) being bound by the plan.

If more than 25% of creditors by debt value objected to the proposed plan, the plan would not commence. Instead, the proposal would be subject to a ‘fair and reasonable assessment’, conducted by the Insolvency Service.

This assessment builds on practice in DAS. It aims to give creditors a chance to highlight issues with the proposal, whilst ensuring that no single creditor has an outright veto on any individual’s entry into a plan.

If required, the Insolvency Service would assess whether the proposed plan was fair and reasonable, taking into account factors including:

  • creditors’ reasons for objection to the proposed plan
  • views of the debt adviser
  • the proportion of creditors objecting to the plan

After the completion of the assessment, the Insolvency Service’s decision would be communicated to creditors and the individual’s debt advice agency.

If an individual’s proposed plan were judged to be fair and reasonable, the plan would commence immediately, without further opportunity for creditor objection, and all creditors would then be bound by the plan.

However, if a plan were judged not to be fair and reasonable, the proposal would be rejected, and the plan referred back to their debt advice agency. The debt advice agency would still be able to propose a revised plan, should they believe this was the best solution for the debtor.

6.4 Further criteria

There would be no specific eligibility requirements for the plan beyond the three criteria outlined above. As with breathing space, the government does not propose to set specific limits on the debt or income levels that an individual must have in order to be able to enter a plan.

There would also be no alternative route to enter into a plan. The plan is a significant, longer-term intervention than the breathing space period, and must be based on a careful, expert analysis of an individual’s financial situation by a debt adviser.

Question 16:

Do you agree with the eligibility criteria for entering a plan? In particular, do you agree that plans lasting for a maximum of ten years is an appropriate timeframe for debt repayment?

Question 17:

Do you agree with the proposed criteria for creditors to object to the plan? Are there any other criteria that you feel would be appropriate?

Question 18:

Do you agree with the proposed fair and reasonable test? In particular:

  • Do you agree that 14 days is an appropriate timeframe for creditors to object to a proposed plan?

  • Following an Insolvency Service decision that a plan is fair and reasonable, do you think that creditors and debtors should be able to make any further objection if they feel the Insolvency Service’s decision is incorrect? If so, how should an objection mechanism work to minimise disruption and administrative burden for parties involved in the plan?

7. Protections of the statutory debt repayment plan

This chapter sets out proposals for the protections provided by the plan. The government intends to introduce a plan which would provide strong protections for debtors. This means that the government intends to include almost all debts in the protections, prevent the accrual of interest, and default fees and charges during the plan, and provide debtors with flexibilities in payments to ensure that plans are sustainable over time. The government also recognises that the introduction of the plan could be beneficial to creditors, through providing a predictable stream of repayments, and reducing the need for the collections activity.

7.1 Debts excluded from the protections

Given the government’s desire to provide wide-ranging protections to those in the plan, the government proposes that the plan would offer protection on as many of an individual’s debts as possible. However, the government also recognises that some, specific debts should be excluded from the protections, on the basis that they are currently excluded from personal insolvency solutions such as bankruptcy. To follow the protections of bankruptcy, the following debts would be excluded from the plan:

  • debts incurred because of fraudulent behaviour

  • fines imposed by a court, including criminal fines

  • confiscation orders

  • child maintenance payments and debts that arise after an order made in family proceedings

  • social fund loans

  • student loans

  • personal injury payments

There would be one difference from breathing space. Mortgage or rent arrears would be ‘excludable’ from the plan on the request of a debtor or debt adviser. This would enable a debtor to pay these housing debts more quickly as part of their monthly budget.

The government proposes the possible exclusion of housing debt because including these housing arrears in plans could cause detriment. Their inclusion could, for instance, delay repayments to landlords, could increase the threat of eviction from a person’s house under section 21 of the Housing Act 1988 (a ‘no fault eviction’ that would not be prevented under the plan), or result in a landlord refusing to renew a person’s tenancy.

Equally, if someone were to leave a plan early, and their mortgage arrears were not paid, this could put them at risk of repossession.

Question 19:

Do you agree with the debts included within a plan? Should any other debts be excluded, or excludable on request?

7.2 Treatment of interest, fees and charges within the plan

First, the plan would prevent the further accrual of all interest, and default fees and charges on the debts included in the plan. Any such interest, fees or charges that had been charged on debts up to the point of entry to a plan would be included in the plan for payment. Therefore:

  • the plan would prevent the further accrual of all interest on the debts included in the protections from the beginning of the plan onwards. Creditors would not be permitted to retrospectively charge individuals interest on debts included in the plan if an individual were to exit the plan early. Retrospectively charging individuals could diminish the attractiveness of the scheme and, given individuals exiting a plan prematurely would likely be in a difficult financial situation, it is unlikely that the creditor would be receive payment for any further charges; and

  • the plan would also prevent the further accrual of default fees and charges during the period of a plan. Much like the treatment of interest, creditors would also not be able to retrospectively impose fees and charges that had been prevented on early exit from the plan.

Question 20:

Do you agree with the proposed treatment of interest, fees and charges within the plan?

7.3 Treatment of collections and recovery action during the plan

Second, all collections and recovery action on debts included within a plan would stop once a plan begins. This stop on recovery action includes:

  • contact by creditors with debtors in relation to debt repayment. Creditors would still be able to make contact that in relation to ‘business as usual’ matters, such as advertising and provision of monthly statements, as well as contact that complies with existing legislative requirements

  • creditors initiating new court action, as well as and stopping proceedings if they are underway

  • all further enforcement action by creditors – including reductions to earnings and certain types of benefits (to make repayments to any creditor), or enforcement agent action

  • disconnections, or new installations of pre-payment meters by utility companies (e.g. gas and electricity companies and phone providers), provided the customer continued to pay their ongoing bills and their plan payments

  • evictions due to unpaid debts under section 8 of the Housing Act 1988. However, landlords would continue to be able to evict renters under section 21 Housing Act 1988 rules

Question 21:

Do you agree with the proposed protections within a plan? Are there any unintended consequences that could arise from providing these protections to debtors?

Question 22:

How do you think creditor compliance with the scheme’s protections can be best monitored? Should creditors who fail to comply face any additional sanction?

7.4 Prioritisation of the repayment of some debts in the plan

The repayment of some debts would be prioritised within the plan. This prioritisation would occur because of the potential for serious detriment should an individual exit the plan early and priority debts remain unpaid. This detriment could arise because of the formal enforcement action, such as instructing enforcement agents, that can be taken on priority debts.

Based on existing debt advice best practice, the following debts would be prioritised for repayment:

  • housing debts (e.g. rent and mortgage arrears)

  • certain tax and benefit debts (owed to both central and local government)

  • arrears on gas and electricity

  • hire purchase debt

All other debts would be treated as non-priority debt within the plan.

7.5 Model for prioritisation

If a debtor held any priority debts, it is envisaged that prioritisation would work in the following way:

  • the debt adviser would use the Standard Financial Statement to assess how much an individual can afford to pay towards their plan each month

  • each creditor (both priority and non-priority) would receive a minimum payment of 5% of a debtor’s total monthly plan payment

  • the remaining plan payment would be distributed amongst priority creditors on a pro-rata basis, according to the size of debt owed

  • following the full repayment of priority debts, the debtor’s monthly plan repayments would be distributed pro-rata between all remaining creditors.

This model enables all creditors to receive some repayments over the course of the plan, while generally paying back priority debts more quickly. Making a clear distinction between priority and non-priority debts is intended to be simpler to administer than establishing a prioritisation within or between different priority debts.

If an individual were to enter a plan with no priority debts, their plan payment would simply be distributed pro-rata between all creditors in the plan.

Question 23:

Do you agree that some debts should be prioritised for repayment in the plan? If so, do you agree with the debts that the government proposes to prioritise, and the method of prioritisation?

7.6 Flexibilities included within an plan

The plan would be a long-term debt solution, during which an individual’s financial and personal situation may change. As well as prioritising certain debts for repayment in the plan, the government proposes two flexibilities for those who enter a plan.

An individual would:

  • have annual reviews of their plan. These reviews would analyse individuals’ income, and the level of their payments into their plan, to ensure that individuals are making an appropriate level of payment

  • be able to request a payment break from their plan of up to six months if they have a severe, but temporary, financial shock (e.g. job loss, sickness)

Question 24:

Do you agree with the two key plan flexibilities outlined above? Should the plan offer any other flexibility that would help to make it sustainable over time?

The next part of the chapter explains these flexibilities in more detail.

7.7 Annual reviews of the plan

First, an individual’s plan would be regularly reviewed by a debt adviser to assess whether the current level of payments was still appropriate. Building on existing practice with voluntary debt management plans, a debt adviser would be required to carry out an updated standard financial statement on at least an annual basis to complete this review of a plan. An individual would also be able to contact their debt adviser at any point during their plan to review their payments, should the individual’s surplus income level change.

If an individual’s surplus income had gone up or down, the debt adviser would be able to propose corresponding variations to payments made in an plan.

Creditors would only be informed of the outcome of the annual review where the debt adviser proposes changes to the monthly repayment. Creditors would able to object to such variations if the proposed variation was to reduce monthly payments by over 10% in total. This threshold is intended to reduce the administrative burden on advisers and the Insolvency Service, whilst ensuring that creditors could still object to significant changes to an individual’s repayments. Should creditors object in this way, a further ‘fair and reasonable’ assessment of the revised plan would be undertaken by the Insolvency Service.

7.8 Temporary break in payments

Second, individuals who have experienced a severe, but temporary, financial shock should be able to enter a payment break for a period of up to six months. This proposal follows existing practice in Scotland, where a financial shock can trigger such a break.

The payment break would work by suspending payment of the individual’s plan for a period of up to six months. It is intended that the debtor would then be able to resume payments at an affordable rate. Depending on the subsequent payments made by a debtor, the payment break could extend the life of a plan.

An individual would begin this process by contacting a debt adviser to request a payment break, and submitting evidence of their financial shock. Following receipt of the request, a debt adviser would have to judge that an individual would likely be able to resume payments towards their plan within six months of the start of their payment break.

If a debt adviser did not believe that an individual would be likely to be able to resume payments, the adviser should not propose the payment break to creditors, and should instead provide support on the best next steps for the debtor.

If a debt adviser did believe that a payment break would be appropriate for a debtor, they would submit the proposal for the payment break to the relevant creditors. The debt adviser would send the proposal, including the supporting evidence provided by the debtor, to creditors for approval.

It would be possible, at this stage, to include an option for creditors to object to the payment break, and request a further ‘fair and reasonable’ assessment of the payment break by the Insolvency Service.

Once an individual entered a payment break, they would be required to re-engage with debt advice when their payment break was near its end, or earlier if the individual’s circumstances had changed before the end of their payment break. This session would be used in order to agree a date for payments to be resumed, or, if not able to be resumed, to advise on the best next steps for the person.

Question 25:

Do you have any specific comments about how these flexibilities should work? In particular, how do you think a severe, temporary, financial shock should be defined?

7.9 Requirements for continuing to be eligible for the plan

In addition to participating in the annual review process, individuals would also need to comply with a number of other basic requirements:

  • to continue making payments specified within the plan;
  • to continue paying ongoing liabilities to creditors within the plan
  • to provide information to their debt adviser, and engage with them regularly as necessary

If a debtor in the plan did not comply with the eligibility requirements for more than one month, they would be given a month’s notice by their debt adviser to comply with the scheme’s rules.

If the debtor does not respond, they would be given a final notice to comply. If they did not comply within a month of being sent this notice, they would be removed from the plan, with creditors notified of their removal. The plan would then come to an end, at which point creditors’ contractual rights would resume, including enforcement activity as well as charging interest and fees.

Question 26:

Do you agree with the requirements for continued eligibility for the plan?

8. Administration of breathing space and statutory debt repayment plan

This section sets out proposals for certain administrative aspects of the scheme, including how funding of the scheme will work. It also discusses how the scheme may interact with credit referencing, and the territorial extent of the scheme.

8.1 Funding

The first section of this chapter describes how the work of debt advice agencies in the administration of both the breathing space period and the plan would be funded.

8.2 Breathing space

The government does not propose to introduce a specific new funding stream for the administration of breathing space by debt advisers.

This is because there is unlikely to be a significant further administrative burden for debt advisers from providing an individual debtor with access to breathing space. The types of activity required by debt advisers here are similar to the advice and support they currently provide to debtors: assessing their financial situation and gathering information about their creditors.

The government therefore expects that debt advisers would provide access to breathing space for debtors using their existing funding.

8.3 Statutory debt repayment plan

The administration of the plan is likely to be more burdensome. In the Scottish DAS, debt advisers undertake a number of activities, including payment distribution, ongoing reviews of the plans, and providing ongoing support for the debtor. The Accountant in Bankruptcy – the Scottish Insolvency Service – undertakes administrative activities such as completing fair and reasonable tests where there are creditor objections to payment plans, and hosting an online portal and register.

The Scottish DAS also has a specific funding mechanism to meet the costs associated with these activities. A fixed share of individuals’ monthly repayments to creditors is taken and divided between:

  • the organisation distributing payments to creditors

  • the Accountant in Bankruptcy for administering the scheme

Ten per cent of an individual’s repayments are used to fund the scheme, with the organisation which distributes payments on behalf of debtors receiving 8% of an individual’s repayments. The Accountant in Bankruptcy receives 2%.

If the government were to use this model as a basis, the administration and funding of a plan could work as follows:

First, any debt advice agency with the appropriate FCA permissions to handle client money could distribute an individual’s payments in a plan to their creditors. A debt advice agency would be able to do this whether they are fee-charging or free-to-client. This would also follow existing practice in debt management plans, and would be simple to use for debtors and creditors, who would have one point of contact throughout their plan.

Under this model, these debt advice agencies would receive a fixed share of monthly plan payments for these activities. This model differs from the Scottish DAS, where a small number of approved providers are commissioned by the Accountant in Bankruptcy to provide payment distribution.

In practice, the same debt advice organisation may enter a debtor into an plan and then distribute their payments during the plan. However, there could be situations where the debt advice organisation that an individual was working with may not also administer payments towards the plan. This could be because they do not have the appropriate permissions on handling client money, or do not wish to distribute payments.

In these situations, after recommending a plan to a debtor, the adviser would then either refer them to a free-to-client debt advice organisation that is able to administer plan payments, who would from that point on be that debtor’s sole point of contact during the plan. Alternatively, they could remain the debtor’s sole point of contact throughout the plan and make arrangements for monthly payments to be made to the selected payment administrator.

Second, under this model the Insolvency Service would receive a share of monthly plan payments for its administrative activities, as it would be fulfilling a similar role to that of the Accountant in Bankruptcy in Scotland.

8.4 An alternative option for payment distribution

However, the government also recognises that there are other models of payment distribution that operate effectively in existing debt solutions. In particular, under bankruptcy proceedings, the Insolvency Service performs payment distribution on behalf of people becoming bankrupt. The government recognises the potential administrative efficiencies that could be provided by a single body acting as a payment distributor.

Question 27:

Should the plan’s funding mechanism system be based on taking a share of creditors’ monthly repayments?

Question 28:

How should payment distribution be done? Should it be offered by an individual’s debt advice agency, if they have appropriate handling client money permissions, or by the Insolvency Service, or is there any other model that the government should consider for payment distribution in the plan?

8.5 Credit referencing

Respondents to the call for evidence noted that an individual’s credit file must provide an accurate reflection of their creditworthiness. This includes whether they are making in full the repayments they owe to their creditors, which may not be the case for debtors entering breathing space or the plan.

However, other respondents to the call for evidence proposed that the credit file of a debtor who has entered breathing space or the planshould also reflect the fact they are taking positive steps to deal with their debts - by seeking debt advice, and arranging a realistic payment plan. Specifically, it was recommended that entering breathing space or the plan should have a less detrimental impact on an individual’s credit file than entering an insolvency solution or, indeed, the current impact of entering DAS.

The government acknowledges both these perspectives. Although Credit Reference Agencies (CRAs) are ultimately responsible for the operation of the credit referencing system, the government will work with CRAs over the coming months to find an appropriate and workable solution to how breathing space and the plan may be reported on someone’s credit file.

Question 29:

Do you have views on how breathing space and plan should be reflected on a debtor’s credit file?

8.6 Territorial scope of the scheme

The government proposes that the scheme, administered by the Insolvency Service, should operate in England and Wales at this time. The government recognises the importance of working closely with the Welsh government on the implementation of the scheme.

Given the potential benefits to debtors, and the existing DAS in Scotland, the government will also continue to work with the Department for Communities and Department for the Economy in Northern Ireland to consider the introduction of an equivalent scheme in Northern Ireland.

Question 30:

Do you agree with the proposed territorial scope of the scheme?

9. Annex A: Full list of questions for consideration

Question 1:

Do you agree with the eligibility criteria for entering a breathing space, including the 12 month period?

Question 2:

Do you think there should be a formal mechanism to allow creditors to object to a debtor’s entry into a breathing space, given the protections already outlined above? How could any such mechanism be best designed to minimise administrative burden?

Question 3:

Do you agree with the outline of the alternative access mechanism for individuals in mental health crisis care?

Question 4:

Although it will be important for a professional assessment to be made of an individual’s condition, do you agree that other third parties (e.g. carers) be permitted to use that professional assessment to make a referral to a debt advice agency on an individual’s behalf?

Question 5:

Do you agree with the proposed method of administering entrance into breathing space? Do you agree with the proposed role for the Insolvency Service? What kind of functionality should the Insolvency Service’s notification mechanism include?

Question 6:

Do you think there should be an oversight role to ensure creditor compliance with breathing space? If so, how should this oversight role operate?

Question 7:

Do you think the register holding details of debtors in a breathing space should be fully public, accessible to relevant debt advice agencies and creditors or just accessible to the Insolvency Service?

Question 8:

Do you agree with the proposed approach for excluding certain debts from the protections of breathing space?

Question 9:

Do you think there are other debts, such as those in regulated credit agreements, or certain types of benefits, that should be excluded?

Question 10:

Do you agree with the treatment of sole traders in breathing space? In particular:

  • Do you agree with the proposed eligibility criteria and protections for sole traders in breathing space?

  • What would be the most appropriate way of distinguishing between business and personal debts for these purposes?

Question 11:

Do you agree with the proposed treatment of interest, fees and charges in breathing space?

Question 12:

Do you agree with the treatment of collections recovery action during breathing space? Should any other forms of collections and recovery action be explicitly included in the protections? How can any practical issues arising from preventing these collections and recovery actions be best mitigated?

Question 13:

How should creditor compliance with the scheme be monitored?

Question 14:

Do you agree with the proposed length of breathing space? Do you have any other comments on the operation of the check?

Question 15:

Do you consider that this protection is appropriate for individuals in mental health crisis? Should there be any further protections for individuals who have accessed breathing space in this way?

Question 16:

Do you agree with the eligibility criteria for entering a plan? In particular, do you agree that plans lasting for a maximum of ten years is an appropriate timeframe for debt repayment?

Question 17:

Do you agree with the proposed criteria for creditors to object to the plan? Are there any other criteria you feel would be appropriate?

Question 18:

Do you agree with the design of the proposed fair and reasonable test? In particular:

  • Do you agree that 14 days is an appropriate timeframe for creditors to object to a proposed plan?

  • Following an Insolvency Service decision that a plan is fair and reasonable, do you think that creditors and debtors should be able to make any further objection if they feel the Insolvency Service’s decision is incorrect? If so, how should an objection mechanism work to minimise disruption and administrative burden for parties involved in the plan?

Question 19:

Do you agree with the debts included within a plan? Should any other debts be excluded, or excludable on request?

Question 20:

Do you agree with the proposed treatment of interest, fees and charges within the plan?

Question 21:

Do you agree with the proposed protections within a plan? Are there any unintended consequences that could arise from providing these protections to debtors?

Question 22:

How do you think creditor compliance with the scheme’s protections can be best monitored? Should creditors who fail to comply face any additional sanction?

Question 23:

Do you agree that some debts should be prioritised for repayments within the plan? If so, do you agree with the debts that the government proposes to prioritise, and the method of prioritisation?

Question 24:

Do you agree with the two key plan flexibilities outlined? Should the plan offer any other flexibility that would help to make them sustainable over time?

Question 25:

Do you have any specific comments about how these flexibilities should work? In particular, how do you think a severe, temporary, financial shock should be defined?

Question 26:

Do you agree with the requirements for continued eligibility for the plan?

Question 27:

Should the plan’s funding mechanism system be based on taking a share of creditors’ monthly repayments?

Question 28:

How should payment distribution in the plan be done? Should it be offered by an individual’s debt advice agency, if they have appropriate handling client money permissions, or by the Insolvency Service, or is there any other model that the government should consider?

Question 29:

Do you have views on how a breathing space and plan should be reflected on a debtor’s credit file?

Question 30:

Do you agree with the proposed territorial scope of the scheme?

  1. Breathing space: call for evidence response’, HM Treasury, June 2018. 

  2. The Economic Impact of Debt Advice’, Money Advice Service research, January 2018. 

  3. Independent Review of the Funding of Debt Advice’, Peter Wyman, January 2018. 

  4. Ibid. 

  5. StepChange response to Call for Evidence on breathing space (PDF, 806KB)

  6. Client Report 2018, Christians Against Poverty. 

  7. For more information on the Debt Arrangement Scheme, visit: https://www.aib.gov.uk/debt-arrangement-scheme 

  8. For more information visit: https://sfs.moneyadviceservice.org.uk/en/