Prospective applicants can ask for a debt adviser or charity to stop the clock, provided they fulfil the criteria
Britons with mounting debts will be able to ask for them to be put on hold for two months after proposals two years in the making came into effect today.
The so-called ‘Breathing Space’ scheme, announced in 2019 after a five-year campaign from debt charities, will allow debtors to apply for a break from any enforcement action from creditors and for interest and fees to be frozen.
The 60-day break from spiralling credit and the threat of debt collectors being sent round is supposed to give borrowers chance to work out their financial situation and options that could help them get out of debt.
Prospective applicants can ask for a debt adviser or charity to stop the clock, provided they fulfil the criteria. They must not be on a debt relief order or have an individual voluntary arrangement or be bankrupt when making an application.
Meanwhile, not all debts are included, even if all creditors are told someone cannot make their payments for two months, which could harm their credit score.
This is because unlike the three-month mortgage and credit card payment holidays introduced by the Financial Conduct Authority last year, this 60-day break will show up on credit files.
Among the debts not included in any arrangement are secured loans like mortgages or second-charge loans, or an advance on Universal Credit payments owed back to the Department for Work and Pensions.
Those who use the scheme are also expected to keep up housing, council tax and utility payments during the two-month breathing space period, and it could be cancelled if they do not.
The Treasury estimated that as many as 700,000 people could take advantage of the scheme in its first year of operation.
Minister John Glen wrote in a blog post for the debt charity StepChange in February 2020 that it could ‘help people develop an affordable long-term plan so they don’t have to rely on quick fixes or high-cost credit.’
The introduction comes as the number of British adults in problem debt totalled 2.4 million this January, thanks to the pandemic, according to figures from StepChange. Some 14.3 million people experienced a fall in income due to the coronavirus, of which 11.3 million said their income had not recovered.
The charity’s chief executive Phil Andrew called the move a ‘landmark piece of legislation’ with ‘real potential’ to ‘help put people seeking debt advice on the road to recovery.’
He added: It’s hugely welcome that people taking action to deal with their debts will finally get the statutory protection that, to date, has only been voluntary and offered by some, but not all, of people’s creditors.
The 60-day freeze is the first in a two-part Government proposal, included in the Conservative Party’s 2017 election manifesto, to try and help people struggling with their debts.
It will be followed by a ‘Statutory Debt Repayment Plan’ in 2024 which will enable debtors to enter into a legally binding agreement to repay their debts.