As the UK Government announced its proposal for a new Breathing Space solution to help consumers’ in debt, thousands of Scots will be disappointed to hear the scheme will only be available in England and Wales.
However, they need not worry, as although the scheme will not be available in Scotland, Scots already have a similar scheme, called the Debt Arrangement Scheme, which has been available since 2004.
In fact, it’s widely acknowledged, the new UK scheme is modelled on the exiting Scottish scheme and whereas the UK scheme will not become available until 2021, the Scottish Debt Arrangement Scheme can be applied to just now.
Breathing Space – What is the debt respite scheme?
Breathing Space, also known as the debt respite scheme, is the first part of a two-part initiative that HM Treasury are proposing to launch to help people with debt. It will allow people with problem debts to apply for protection from their creditors for 60 days, so they can access debt advice.
In that 60-day breathing space period:
- All interest and charges will be frozen;
- Creditors will not be able to take their customers to court to get a CCJ; and
- Bailiffs and debt collectors will not be able to pursue people for money owed.
The Scottish equivalent is known as a Statutory Moratorium (or sometimes a breathing space moratorium). Unlike the UK proposed Breathing Space, is slightly different:
- It only provides 42 days protection from repaying personal debts;
- Creditors can still take you to court during the protection period to get a court order known as a decree; and
- Interest and charges can still be added.
However, like with the UK Scheme a Statutory Moratorium does stop Sheriff Officers and debt collectors from demanding payments whilst it applies.
Does the Scottish scheme cover people receiving mental health crisis treatment?
The UK scheme has other benefits that the Scottish scheme currently doesn’t. In the UK version, mental health crisis breathing space allows people with money problems, who are also receiving mental health crisis treatment, to apply for an extension to the 60-day protection.
They need to be struggling to pay a qualifying debt and be working with an approved mental health professional (as under the mental health act). As long as they meet this criteria, they can apply for the mental health crisis breathing space.
This allows them the time they need to finish their mental health treatment without worrying about having to recommence payment on their debts.
Statutory Repayment Plans
The second part of the proposals by HM Treasury is for a statutory repayment plan.
In Scotland this is known as the Debt Arrangement Scheme, a formal debt solution that’s managed by an approved debt adviser.
Like with the Debt Arrangement Scheme, the new UK statutory repayment plan, will allow consumers to include all their debts, including credit cards, personal loans, HMRC and Council Tax debts into the plan and then repay them by making just one payment per month.
Interest, fees, charges and penalties on debts will continue to be frozen during the repayment period and borrowers will continue to be protected from bailiffs and debt collectors, as they currently are in Scotland.
Do you have to repay your debts if you use Breathing Space?
One important point that must be emphasised and is equally true for the Scottish Statutory Moratorium Process, is that if you use Breathing Space, you are not obliged to use the statutory repayment plan, or in Scotland the Debt Arrangement Scheme.
The purpose of the Breathing Space tool is to allow people to access debt advice, so all their options can be considered. This means that where other solutions in England and Wales are more suitable, such as a Debt Relief Order or an Individual Voluntary Arrangement, then people will still be able to use that solution.
Likewise, in Scotland, when someone uses the Statutory Moratorium process, they do not have to use the Debt Arrangement Scheme and instead, if they choose, can choose other debt relief solutions, such as Bankruptcy and Protected Trust Deeds. These solutions can help where people are not able to repay their debts over a reasonable period and need some debt written off.
In response, Graeme MacLeod, Head of Operations for Carrington Dean has welcomed the announcement by HM Treasury.
He has said:
“We welcome the news that by 2021, consumers across the UK will now also be able to access similar solutions to those available to Scots for over a decade, particularly as the links between problem debt and mental health issues has become more evident”.
“However, although Scots have led the way with such solutions, we must acknowledge the UK scheme appears to have improved on the Scottish scheme, allowing interest and charges to be frozen during Breathing Space and preventing court action being raised by lenders. Also, once introduced, UK borrowers will have 60 days protection, as opposed to only 42 days in Scotland and those with mental health problems will be able to apply for extensions to that protection period.”
“We hope the Scottish Government will take note of these developments and look to introduced reforms to the Scottish scheme, so Scottish consumers can also benefit from these improvements”.
Where can I get debt advice and more information on the breathing space scheme?
If you owe money you can’t afford to repay, the breathing space scheme could give you the time you need to improve your finances and deal with your debts.
Similarly, if you’re juggling financial difficulties while suffering from a mental health crisis, the mental health breathing space scheme can give you some respite from your debt while you continue to work with a specialist mental health team.
If you’re interested in finding out more about breathing space, or need some general financial advice, call a Carrington Dean adviser today on 0800 043 1320.
