A new report released by the insolvency trade body R3 has suggested that individuals who are struggling with debt repayments should be provided with a 28 day break or, ‘Breathing Space’ from creditor action in order to give them time to seek financial advice.
R3, a trade body for the insolvency profession point out that individuals under pressure from creditors, are likely to be seriously stressed and can find themselves signing up to either inappropriate funding solutions, for example guarantor loans or signing up to a debt solution which might not have been necessary, had they had more time to consult with professionals, family or friends.
This is not the first time that the concept of Guaranteed Breathing Space has been suggested. Debt charity, Step Change has been campaigning for debtors to be given 12 months’ breathing space for some time. Bev Budsworth, MD of The Debt Advisor comments, “Asking for 28 days is much more sensible than 12 months and is much more likely to be accepted by creditors. There is also evidence that the implementation of such schemes have worked in Australia, Canada and Scotland. I very much welcome consultation with the creditor community on these proposals to make sure they are workable and are not abused”.
The R3 proposal in summary provides that during the 28 day period of “Breathing Space”, the individual would be required to seek advice and explore the solutions that are available to them. In return, creditors would not take action during this time; repayments would not be expected and interest and charges would be frozen.
The proposal also provides:-
- Creditors would have to inform indebted individuals of the availability of the Breathing Space before being advising them to enter a debt solution or before a bankruptcy order could be made against them.
- If the individual chooses to take advantage of the Breathing Space, it would be recorded on a central register and their creditors would be notified.
- Individuals would be able to use Breathing Space a maximum of once per year.
- Creditors would be able to challenge the use of Breathing Space by a customer if there was reason to believe it was being used as a delay tactic to avoid repaying their debts.
Phillip Sykes, President of R3, says: “Alleviating problem debt is a major policy challenge. Although there are effective insolvency options for dealing with debts, the difficulty is making sure people can access a debt solution appropriate for their needs.
“People need time, without pressure from creditors, to seek professional advice on what the most appropriate course of action is. If someone can make a considered decision, that increases the chances of a better deal for the debtor and, often, a better deal for creditors.
“There needs to be a balance between the indebted individual, who should be allowed to rehabilitate themselves financially as quickly as possible, and creditors, who should receive the best repayment outcome possible in the circumstances.
“The Breathing Space is intended to facilitate getting the right advice and entering a suitable debt solution; it is not a tool for avoiding repaying debts. It should be seen as a last resort for those who have already received numerous notices of debt collection and enforcement, providing a final opportunity to tackle financial difficulties.”
Phillip Sykes adds: “While the UK has one of the best insolvency regimes according to the World Bank, there is always room for improvement. Personal debt in England and Wales has changed dramatically in its scale and nature, with insolvency numbers trebling in the past decade, so it is necessary for the insolvency regime to change with it.”
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