Breathing Space is a new Government initiative that could support those in debt to take back control of their finances. Clearing debts is a weight off their shoulders and also a benefit to creditors, so how does it work?
Getting in Debt
Even with good budgeting skills, an unexpected change in circumstances can quickly push individuals into debt. Getting out of the red can be more challenging, especially when interest and late payment penalties are added.
The ideal time to tackle a financial problem is immediately. Timely action makes it easier to turn things around. The challenge is money is a sensitive, personal issue, which is not widely discussed. People think that they can cope and they don’t want to admit that they are in debt. Unfortunately, this strategy doesn’t work for them or creditors.
The chance of avoiding a worsening situation is to seek free advice from professional debt advisers. They work with individuals to create financial plans that move them towards the debt-free goal. As of this month, there is another tool in the Debt Advisor’s arsenal; Breathing Space.
Breathing Space was introduced on 4 May as a scheme to assist those in debt crisis to get back on track. Those who qualify will have 60 days of legal protection from creditors and free professional support from debt advisors.
It is not a payment holiday, so the individual must continue to pay their bills. However, most interest and penalty payments are frozen for 60 days. This can prevent debts from spiralling out of control.
During this time, debt advisors support individuals to work out and prioritise their expenses. They explore options for cutting unnecessary costs, spreading payments and avoiding high-interest loans. The aim is to get back in control of money matters and take actions that will help to clear, rather than escalate debts.
Can Suppliers and Lenders Afford to Give Individuals Breathing Space?
Breathing Space has clear benefits to those in debt, but how does this initiative impact on the businesses who are owed money?
The Government states that suppliers, creditors and the economy will benefit, as Breathing Space will encourage more debt to be repaid. It could save time and money chasing monies owed. Having said this, many businesses have also faced unexpected circumstances over the past year. There is a risk that a high take up of Breathing Space could delay repayments, which could put them in a precarious position.
If a Debt Advisor contacts your company to request Breathing Space for a customer, it is a legal requirement to comply with the Government Advice for creditors. Initially, this involves checking records for details of all debts owed by the debtor. If the advisor decides it is a qualifying debt, the creditor will receive notification.
On receipt of the notification, no enforcement notices can be issued by the creditors or appointed agents for 60 days. They cannot directly contact or visit debtors, but can discuss the case with the appointed debt advisor.
Longer-term, organisations may need to tighten their lending criteria and offer flexible loans. A friendly, approachable customer service team could help individuals with money concerns to get in touch more readily.
Organisations can also direct individuals who are identified as having a debt issue to professional advice. These measures could increase the chances of receiving the payment in full. They also reduce the risk that individuals and their dependents are pushed into further harm.
Financial Difficulties– A Common Cause of Vulnerability
Financial worries can have a significant impact on an individual’s mental health and relationships. When costs and debts spiral, they feel forced into borrowing money on less favourable terms from less scrupulous lenders and the situation only worsens.
Without support from debt advisers, people risk essential utilities being cut off and homes being repossessed. Coupled with many other negative scenarios, this puts them, and their dependents, in a position of extreme vulnerability.
If Breathing Space can prevent some families from experiencing this level of vulnerability, then, in my opinion, it is a worthwhile investment.
How can Individuals Access Breathing Space?
This service is only available to those who have accessed free debt advice. This involves admitting the problem and getting in touch with a trusted organisation.
The following organisations offer online advice. Their debt advisors offer online support or they may be able to direct you to a local debt advice specialist:
Step Change - https://www.stepchange.org/how-we-help/debt-advice.aspx
National Debt Line - https://www.nationaldebtline.org/
Debt Advice Foundation - https://www.debtadvicefoundation.org/
Citizen’s Advice - https://www.citizensadvice.org.uk/debt-and-money/help-with-debt/
In the discussions, the debt adviser will assess your situation and determine whether Breathing Space is a necessary tool in regaining financial control.
Who Gets into Debt?Most individuals will experience debt at some point in their lives. Debt is not restricted to any particular demographic. A change in circumstances can put anyone in a precarious financial position.
According to statistics from The Money Charity:
For some, this is manageable; they have the means to repay. For others, it is the route to a debt crisis. In September 2020, The Citizens Advice estimated that 6 million people have fallen behind on their household bills as a result of coronavirus, many of whom will struggle to repay their coronavirus debts.
Seeking advice is not a sign of weakness or shame. What is important is timely action to address the problem. Free debt advice and Breathing Space could turn things around.