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The Breathing Space initiative: a step in the right direction?

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Breathing Space is a new Government policy. The policy aims to incentivise more people to access debt advice and at an earlier stage. Those who take up debt advice will be awarded with a period of protection from enforcement action, interest and charges of up to 60 days.

Who will be eligible?

Breathing Space plans to protect those with problem debt. To be eligible, individuals will have to:-

  1. Access debt advice;
  2. Be assessed by a debt adviser as being in problem debt; and
  3. Not have used the scheme within the last 12 months.

Those who do not have a realistic prospect of entering into a debt solution such as; bankruptcy or an Individual Voluntary Arrangement, or a voluntary debt management plan will not be able to use the scheme.

What will this mean for creditors?

It is clear that the Government want to do more to help those who struggle with problem debt. In October 2017 the Government introduced the Pre-Action Protocol for Debt Claims which meant that businesses had to allow both sole traders and individuals a period of 30 days to respond to the letter before action. It then provides for a further 14 days’ notice of intention to commence court proceedings in the event that the matter cannot be resolved between the parties.

The Breathing Space scheme could have a huge impact on cash flow as it means that businesses will potentially have to allow debtors a period of over three months before they can enforce the debt.

However, the Breathing Space scheme seeks to protect those who are most vulnerable by giving them the encouragement and headspace in which to seek professional advice. This could lead to repayment to creditors where otherwise the debtor would have no chance of recovering. The Impact Assessment predicts that a regulatory Breathing Space scheme could see an increase in creditor recoveries of £6109.0m.

Furthermore, StepChange estimates that people who wait six months to seek debt advice see their debts grow by 14%. Therefore if headspace is given to allow debtors to seek advice at an early stage then this could prevent the pool of creditors from growing and the pot of money to potentially recover from becoming ever smaller.

What will it cost creditors?

As suspected there will be a cost to creditors, both in terms of delayed revenue and lost revenue. Some debtors who would otherwise have made payment can now delay for up to two months. Also, the Impact Assessment anticipates that creditors will forgo £683,000 in interest charges in 2021-2022 and rising to £1.2m in 2030-2031.

So, what now?

The Government intends to implement the policy in early 2021. The policy will include almost all personal debts and also some sole trader debts.

Our debt recovery specialists, Samuel Pedley and Jessica McSorley, can provide further advice. Please telephone 01562 820181.