As many people have found to their (literal) cost, once you start getting into debt it can be very hard to get out.
Debt charity StepChange estimates that its clients would rack up £2,300 in interest and charges every six months if creditors applied default interest and charges on all their accounts.
But under the Breathing Space initiative, which came into force this week, those in debt can benefit from a 60-day ‘grace period’ without charges racking up.
‘The scheme does what it says on the tin — gives you some breathing space from interest, charges and creditor action — so you can start to get back on track,’ says Jane Tully from the Money Advice Trust, the charity that runs National Debtline and Business Debtline.
The Government says 700,000 people could benefit from Breathing Space. Here’s how it works…
Who is the Breathing Space initiative for?
Anyone in debt in England or Wales (Scotland has a slightly different moratorium period) can apply, but you must meet eligibility criteria. To start with, you must owe at least one ‘qualifying debt’ to a creditor. Most debts qualify, including credit, debit and store card and payday loan debts. However, there are some exceptions such as mortgage debts (although the arrears on mortgage debts do qualify) as well as debts incurred because of fraud and court fines.
To qualify, you must also not be currently using other official ways of managing debt such as an individual voluntary arrangement (IVA). You cannot be an undischarged bankrupt, either.
How can I access Breathing Space?
You access the scheme through a professional debt adviser (there are exceptions for those in mental health crisis treatment) and provide details about your debt. The adviser won’t necessarily decide that Breathing Space is the best option for you.
What happens if I am accepted?
The adviser will complete an application to the Insolvency Service, which administers the scheme. ‘Once your application is submitted, your Breathing Space will start. This will usually happen within two working days,’ says Peter Tutton, head of policy at StepChange.
Your creditors won’t then be able to add interest or fees to your debts, or take enforcement action, for 60 days. They can, however, challenge your application in the first 20 days.
You can add other existing debts to the Breathing Space after it has started. ‘If a debt is added to Breathing Space on day ten, protection on that debt would last for 50 days. If a debt was incurred after your Breathing Space started, it can’t be added,’ Peter explains.
What should I do to get back on track after debt?
Lorraine Charlton, debt expert at Citizens Advice, is keen to point out that you need to work with a debt expert during your Breathing Space.
‘Breathing Space isn’t a temporary fix. You’ll need to work with your debt adviser to try to make a plan to deal with your debts,’ she says.
Additionally, you cannot take out more than £500 of additional credit while in a Breathing Space.
What if I’m not eligible for the Breathing Space scheme?
There are many reasons why your debt adviser might feel a Breathing Space is not for you. These may be the form of debt or if you have assets you could sell to pay the debt off quickly — or they may consider it in your best interests to go straight into a debt solution such as an IVA.
Is Breathing Space free to set up?
Yes. If anyone asks you to pay anything, be very wary. You cannot be charged to set up Breathing Space, but there are unscrupulous ‘debt advisers’ who will charge you for advice and to set up debt management plans. Stepchange (stepchange.org), Citizens Advice (citizensadvice.org.uk) and National Debtline (nationaldebtline.org) can all offer you advice completely free of charge.
Make sure you use their official websites as there are imitators who will charge for debt advice.
Debt help for people with poor mental health
There is a more generous and open-ended version of the Breathing Space initiative available for those struggling with their mental health.
To access this element of the scheme, an approved mental health professional will need to confirm you are receiving crisis care, and a social worker or nurse can apply for you.
In this case, the pause on enforcement lasts as long as you’re receiving crisis treatment, plus 30 days. A nominated person will need to keep in touch with your debt adviser to update them about your ongoing treatment. You won’t need to receive debt advice or meet the ongoing requirements opposite.
You can apply for this type of Breathing Space more than once a year. If you still need more time to tackle your debts once your crisis treatment is over, you can still apply for the standard Breathing Space scheme afterwards.
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