HM Treasury has published its policy conclusions on proposals for a ‘Breathing space scheme’ for individuals suffering from problem debt together with proposals for a statutory debt repayment plan.
The idea is to allow a period of time; 'breathing space' to ensure that you can fully engage with debt advice agencies and seek a sustainable solution to your debts before creditor action is permitted.
The debt repayment plan will enable an individual in problem debt to enter into a formal agreement with their creditors to repay all of their debts over a manageable time period, whilst receiving protections from creditor action for the duration of their plan.
To be eligible for breathing space, individuals would have to:
- Access debt advice
- Be assessed as being in problem debt by a debt adviser
- Not have entered in breathing space in the previous 12 months.
There would be one exception. Those receiving NHS mental health crisis treatment would not have to meet these criteria and would be able to use an alternative access mechanism to enter the scheme.
The Insolvency Service will operate a central portal which will notify creditors of an individual’s entrance to or exit from breathing space.
The range of debts is similar to personal debts included in personal insolvency solutions such as bankruptcy. E.g.
- Financial services debt
- Household bill arrears
- Debts central and local government
- Personal debts owned to HMRC
- Council tax arrears
- Benefits and Universal Credit
A very small number of debts will be excluded from breathing space. Excluded debts include:
- Debts incurred as a result of fraudulent behaviour
- Fines imposed by a court, including criminal fines
- Confiscation orders
- Child maintenance payments and debts that arise after an order made in family proceedings
- Social fund loans
- Student loans
- Personal injury liabilities
There are special rules for business debts and sole traders depending on whether they are trading above or below the VAT threshold. The breathing space protections last for sixty days and also include all national and local taxes that can be owed by sole traders including employer and employee NICs, PAYE and business rates, and VAT.
If an individual is trading above the VAT threshold, business debts are not included, these will typically include employer NICs, VAT or supply chain debts.
HMRC has been consulting on making itself a preferential creditor in certain situations, the outcome of its Protecting your taxes in insolvency consultation is expected shortly, and will, it is assumed take into account these new proposals.