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Final proposals for breathing space and statutory repayment plans unveiled

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management



In November 2018, we commented on the Government’s consultation document setting out a policy proposal for Breathing Space and Statutory Debt Repayment Plans. The consultation ran from 29 October 2018 to 29 January 2019.   The Government received over 130 responses to the consultation from a range of stakeholders including creditors and debt advice agencies and in June 2019 published the consultation response which covers how the scheme will be designed and administered and the next steps on implementation.  This briefing summarises how the scheme will be operate and next steps.

Breathing space – what is it?

Breathing space is a period of time during which an individual in problem debt is given respite from creditor action. This period is designed to give an individual the space to engage with debt advice and seek a sustainable solution to their debts. Breathing Space will offer two broad types of protections: i) a pause on interest, additional default fees and charges, and ii) a pause on creditor collections, recovery and enforcement action. This means that all contact with the debtor relating to repayment of debts included in the scheme will be paused. Creditors will also be prohibited from initiating any new court claims against a debtor because they had not made debt repayments. In addition to providing protections to debtors, breathing space will last for 60 days to allow the individual to work with a debt advice agency to identify and enter a debt solution.

Eligibility for Breathing Space

To enter Breathing Space, an individual will need to meet the following criteria: 

  • to have accessed FCA regulated debt advice, or advice from another organisation that qualifies for an exemption from FCA authorisation, such as a local authority (no debt advice agency will be able to charge the individual for related advice or entrance to breathing space);
  • they will not be able to enter someone into breathing space if they do not have a realistic chance of entering a debt solution during breathing space; and
  • they have not entered into a breathing space in the previous 12 months.

No mechanism is included in the Government’s response for creditors to object to a debtor entering Breathing Space.

There will be an alternative access mechanism for individuals receiving NHS treatment for a mental health crisis. Approved Mental Health Professionals will be the professional group able to produce an assessment that an individual is receiving mental health crisis care. This will be the evidence that debt advisers then use to determine eligibility for breathing space and the protections will not be fixed at 60 days but will continue for however long the individual’s crisis care lasts.

Administration and notification 

The Insolvency Service will be the central administrator and responsible for informing creditors that an individual has entered or exited breathing space. This will happen through an Insolvency Service-run portal.  The notification mechanism will work in the following way:

  • A debt advice agency will gather details of creditors directly from the individual. The Government expects the agency to run a credit check to identify other creditors if appropriate.
  • The agency will place information and the debtor and their creditors onto the portal. Notification will be provided electronically or, if a creditor is not able to receive electronic notification, they will be provided with alternative notification.
  • Where a debt has been passed to a third party for collection, the original creditor will be notified of an individual’s entrance to breathing space.
  • When an individual leaves breathing space, their creditors will be notified in the same way as they were notified when the individual entered breathing space.

The Government believes that there should be a private register of individuals in the scheme. In addition to proactive notification when an individual enters Breathing Space, individual creditors will have access to a register of those individuals who owe them debts who are in breathing space and have been included in the portal. Debt advice agencies will also be able to access information about individuals who had been in breathing space in the preceding 12 months.

What debts are included?

The Government agreed with the majority of consultation respondents that including a wide range of debts is vital to the success of breathing space. Similar personal debts to those included in personal insolvency solutions such as bankruptcy will be included in breathing space.  Specifically, the protections will cover financial services debt, household bill arrears, and, importantly, arrears owed to central and local government. For local government, this means individuals will be protected from enforcement action on debts owed to local authorities – including council tax arrears.

As with personal insolvency, a very small number of debts will be excluded. These include debts incurred as a result of fraudulent behaviour, fines imposed by a court, child maintenance payments and student loans. The scheme’s protections will also cover the business debts of sole traders who have a turnover under the VAT threshold (currently set at £85,000). As with personal debts, a wide range of business debts for this group will be eligible for breathing space, including business credit, business utility bills, and supply chain debts. Importantly, Breathing Space will 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.

Treatment of ongoing liabilities 

The Government has stated that if an individual falls into arrears on an ongoing liability whilst they are in Breathing Space, they will not be protected from enforcement action, or the charging of additional interest, fees and charges on these missed bill payments.  The following bills would be classified as ‘ongoing liabilities’:

  • payments on the principal and interest for secured debts on essential items such as  mortgage payments and hire purchase debts
  • rent
  • insurance premiums
  • taxes
  • water and sewerage charges
  • supply of electricity, gas, landline phone services
  • heating oil or solid fuel

However, it is important to emphasise that arrears of ongoing liabilities arising prior to entry into Breathing Space will be eligible debts.

Statutory Debt Repayment Plan – what is it?

This is a plan which 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 (being an average of seven years and no longer than ten), whilst receiving protections from creditor action for the duration of their plan.   During the plan, all contact with the debtor relating to the repayment of debts included in the scheme will be paused, however, contact in relation to debts and arrears excluded from the scheme will not be prohibited. Some debts will be prioritised for payment in the plan including housing debts (e.g. rent and mortgage arrears if they are included in the plan), debts owed to central and local government, gas and electricity debt and hire purchase debt. Housing debt (particularly rent and mortgage arrears is “excludable”.

In order to fund the administration of a plan, 10% of a debtor’s monthly payments will be provided to organisations that operate it.  Payments will be made net of this 10% deduction but the full gross amount must be credited against the debt (i.e. the creditor ultimately bears the cost).


To enter into a plan, an individual will need to meet the following criteria:

  • to have accessed FCA regulated debt advice, or advice from another organisation that qualifies for an exemption from FCA authorisation, such as a local authority. Commercial debt advice organisations will not be able to charge individuals to enter the plan or for advice to enter the plan;
  • the individual’s debt advice agency will have to verify through the Standard Financial Statement that an individual will be able to pay their debts over a reasonable timeframe; and
  • creditors will have to accept a proposed plan, or the Insolvency Service must rule that that the proposed plan was fair and reasonable for it to begin.

Unlike Breathing Space, creditors will be able to object to plans within 14 days on the following basis:

  • inaccuracies in an individual’s standard financial statement
  • the proposed level of payments to creditors
  • the period over which the plan will operate

There are ongoing eligibility requirements for individuals and they could be given notice to comply if they do not meet the eligibility requirements for more than one month.

Debts included in the plan

Much like Breathing Space, the Government recognises the importance of ensuring that as many debts as possible are included in the plan, as this will give a common standard of protection for individuals in problem debt. The same personal debts will be included in the plan as breathing space with the variation that housing debt is excludable.

Next steps and comment:

Following the publication of the consultation response, Parliament will lay regulations on Breathing Space before the end of the year. The Government then intends to implement Breathing Space in early 2021.  The scheme will have a significant impact on the way creditors interact with their customers in default and pursue outstanding debts. Creditors should therefore start planning how they will adapt their systems, policies and processes in good time prior to the proposals being implemented.