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StepChange and Martin Lewis call for Government to ensure those in debt crisis get ‘breathing spac PDF Print E-mail
Wednesday, 03 February 2016

StepChange Debt Charity and Martin Lewis, founder of MoneySavingExpert.com have today jointly called on the Government to fix the patchwork of rules and voluntary schemes for people struggling with temporary debt problems in England and Wales. The call comes alongside new findings which highlight the extreme pressures felt by people in financial difficulty, including the one in five who have been unable to afford food after making unsecured debt repayments.


The charity and the leading consumer advocate, Martin Lewis, are calling on the Government, in its forthcoming review of the legal framework for debt administration [2], to consult on proposals for a comprehensive ‘breathing space’ scheme.

Such a scheme would see people who seek advice for debt problems given a period of six months to a year in which interest and charges are frozen and enforcement action halted, in order to give that person time get advice to recover their finances. And where people can repay their debts at an affordable rate and within a reasonable time, these protections should continue. These protections would only be accessible when recommended by a regulated debt advice agency.

Going without food and heating to pay debts
Specially commissioned research by StepChange Debt Charity, with a panel of 1,000 people who’ve shown signs of financial difficulties in the last 12 months, showed that after making unsecured debt repayments:
20% said they had been left unable to afford food
15% said they could not afford to heat their home
12% said they did not have enough money left for electricity

Those on the panel who identified themselves as having financial difficulties were also asked what would provide the biggest help to regain control of their finances:
35% said a freeze on interest and charges
30% said creditors accepting reduced payments / affordable payment plan
11% said a halt to enforcement action

Martin Lewis, founder of MoneySavingExpert.com, said: “The inability to heat your home and feed your family is an easily prevented nightmare – if we bring in a widespread breathing space scheme. It won’t just help people financially, but also reduce the damaging mental-health consequences that are often a symptom of serious debt pressures.

“While some creditors already freeze interest and charges for people who are struggling, it only takes one creditor to not provide breathing space to stop those in financial difficulty sorting their finances. It’s time for the Government to step in.

“By freezing the costs for people who are trying to repay, and allowing them time to get their finances back on track, it could also help lenders increase the amount they actually recover in the long run.”

Mike O’Connor, Chief Executive of StepChange Debt Charity, said: “Our research shows the desperate position that many people with financial difficulties face and how the pressure to repay debts at an unaffordable rate and threats of enforcement can leave them forgoing even the basics like food and heating.

“When people who are struggling with debt get advice, take action to deal with the problem and do their best to repay their debts, they deserve help and support which allows them and their families to get back on their feet.

“The absence of statutory protections for people in temporary financial difficulty is a serious public policy failure. Scotland has shown the way with the development of the Debt Administration Scheme and that version of this scheme can and does work.”

A patchwork of protections and voluntary schemes
For many people their debt problems have been caused by an ‘income shock’ such as job loss, illness or relationship breakdown. People can and do recover from these temporary shocks, but without sufficient support and protection these problems can spiral out of control and become entrenched and unmanageable.

The charity says that there is currently no consistent approach by creditors on how they treat people in debt who ask for assistance. A patchwork of voluntary schemes and guidance and a lack of consistency across the financial sector means that some people will get help in the form of a freeze on interest and charges and the acceptance of affordable repayments, but others will not. When support isn’t forthcoming it often leads people to take on further borrowing to pay back existing debts, deepening their existing financial problems.

While statutory protections for people with intractable debt problems are available via the insolvency process through options including bankruptcy, Individual Voluntary Arrangements (IVA) and Debt Relief Orders (DRO), analysis of the charity’s clients shows that insolvency options were suitable for only around one in five of the people it advised.

An urgent need for better support
Better protections and support for people in debt are urgently needed. Recent research by StepChange Debt Charity showed that 2.6 million in the UK are in severe problem debt. The economic case for action to limit the impact of problem debt is clear, it costs society £8.3bn.
 

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