Breathing space consultation – R3 comments

01 November 2018

Commenting on the news that the Government has launched a consultation on introducing a "breathing space" for indebted individuals, Stuart Frith, President of insolvency and restructuring trade body R3, says:

"R3 welcomed the Government's plans for a 'breathing space' for indebted individuals, during which they will have an opportunity to seek advice about their finances from a qualified and professional source.

"We believe that a properly-implemented breathing space could be an effective method to relieve financial pressure from many indebted individuals across Northern Ireland, England and Wales. R3 is concerned that, at present, those in financial distress do not always opt for the most appropriate solution for their particular needs or indeed take any opportunity to seek proper advice at all. This could be due to poor or incomplete debt advice from an unprofessional source, or because either creditor pressure or an individual's distress regarding their situation leads them to accept the first option presented, when it may not be the best for their particular circumstances.

"The change in the length of the proposed breathing space - from six weeks to 60 days - is, however, one we view with some concern. There has long been a debate about the most appropriate length of time for the respite period to run, but it is important to keep in mind that a breathing space period is not a debt solution. There are already a number of effective solutions available to an indebted individual; the breathing space is there to give people time to consider their situation and decide on the particular solution which works best for them. In other words it should be a means to an end and the duration of the breathing space should be tailored accordingly.

"Any breathing space needs to strike a balance between providing protection for potentially vulnerable indebted individuals on the one hand, while, on the other, still maintaining the fundamental principle of repaying debts. Finding this balance is vital, as a notably long period free from any creditor action could risk causing lenders to tighten their initial lending criteria, which would restrict access to and increase the cost of credit.

"R3 believes that an extension to the breathing space period should be available to particularly vulnerable individuals, if deemed absolutely necessary by the regulated adviser overseeing the breathing space. However, it is important to note that only one breathing space period should be available to an individual within a 12 month period, to ensure the scheme is not abused as a means to avoid paying debt. As well as this, the individual should not currently be part of a formal insolvency procedure, and have not been part of such a procedure in the preceding 12 months.

"The Government has also set out more detail about the possible introduction of a statutory debt repayment plan, under which someone in problem debt would formally agree a repayment plan with their creditors over a certain time period. There is less evidence to support the case for a debt repayment plan than there is for the breathing space, so we would urge caution here.

"We will do our utmost to work with the Government to further the breathing space proposals, and to find a framework which works for all parties involved, ensuring that creditors' rights are not unfairly impaired while also allowing indebted individuals an opportunity to get the best possible advice and help for their situations."