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24/03/2017

Breathing Space: a proposed new tool for individuals in debt

In March 2015, towards the end of the last parliament, HM Treasury, in conjunction with the Insolvency Service, committed to review the legal framework for debt administration – including introducing a new ‘Breathing Space’ tool for indebted individuals. Although the exact definition varies between stakeholders, broadly speaking a Breathing Space would provide indebted individuals with a period free from creditor action, with a freeze on all repayments, interest and charges.

Two years later, and with no sign of a formal consultation on the issue, Conservative MP Kelly Tolhurst has sought to push the Breathing Space concept up the government’s policy agenda through her ‘Families with Children and Young People in Debt (Respite) Bill’ (Private Members Bill).

The Bill, which focuses on vulnerable people and families, is supported by StepChange Debt Charity and The Children’s Society. It aims to introduce an initial 12 month maximum period of protection, covering unsecured debts and debts owed to government.

R3 has been leading work on the Breathing Space concept for some time, publishing its own policy recommendations in June 2015 calling for the government introduce a 28 day Breathing Space period as a final opportunity for indebted individuals more broadly to receive professional advice on how to deal with their debts. This followed extensive stakeholder meetings, including a roundtable discussion bringing together the creditor community, debt charities, government officials and the insolvency profession, enabling them to discuss what a Breathing Space provision in England and Wales could look like. Scotland’s personal insolvency regime already provides for a form of Breathing Space under the Debt Arrangement Scheme (DAS) – which provides for a six week Breathing Space.

R3 has also met with government officials and a number of cross party parliamentarians to discuss its proposals, including the Parliamentary aide to the Chancellor of the Exchequer, and will be ready to work closely with government once the consultation has been published.

Whilst R3 certainly supports the aim of the Bill, it is R3’s view that the proposed 12 month Breathing Space does not strike a balance between the rights of indebted individuals and creditors. This proposed longer period risks unduly ‘dragging out’ the debt advice process, which would be unfair to both individuals and creditors, particularly considering the existing notice periods that apply to debt collection.

R3’s proposed Breathing Space should be seen as a last resort, usually after the indebted individual has already received numerous notices of debt collection and enforcement, and would be a final opportunity to seek professional debt advice in an unpressurised environment. This would be with a view to entering the most appropriate debt solution for their financial situation, in a considered, informed, and timely manner, rather than the Breathing Space being a longer-term solution to debt in and of itself.

In short, R3’s proposals would:

  • give individuals time to get full advice about the range of debt solutions available to them;
  • enable people to make non-pressurised decisions about how to resolve their financial problems by providing the right environment, free from creditor pressure, in which they can find and enter the most appropriate solution for their needs; and
  • help achieve a balanced and fairer outcome for both individuals and their creditors.

Whilst Kelly’s Bill is unlikely to reach the statute book (Private Member’s Bills are used to raise the profile of a specific issue and are not expected to receive Royal Assent), it has certainly stimulated wider interest in the concept of a Breathing Space among parliamentarians. We will wait to see whether the government will take heed of this debate and hope to see a formal consultation issued in the near future. 

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.