We Are Debt Advisers, a popular campaign to help those affected by the devastating impact of long-term debt, has called on the government to change its “breathing space” moratorium, which is due to begin in May.
The new legislation will provide a 60-day “breathing” period, during which debtors will be temporarily exempted from paying creditors.
It aims to encourage people to seek professional debt advice earlier and to give them time to identify the most appropriate solution for their situation. In principle, this is strongly supported by activists, but calls are mounting for a review of the details of the program, which threatens to further isolate the most financially vulnerable.
“The campaign itself has grown significantly since it was first offered to the Greater Manchester Money Advice Group in November 2020,” said Tim Nelson, debt adviser at Stockport MBC.
“We have had many advisers who signed our letter to John Glenn, the economic secretary, who, because of concerns we raised, promised a quick review of the breathing space after its introduction in May.
“We have also garnered support from a number of union branches, and recently the Institute of Money Advisers (IMA) agreed to support our campaign, passing two motions at its annual general meeting on February 2nd. The IMA’s intervention contributed to a number of amendments, supporting the campaign’s goals, introduced in the Financial Services Bill by Lord Lucas.
“We Are Debt Advisers continues to believe that the best way to address our concerns and those of our clients is through frontline advisors. Too often, legislation has been driven by politicians and political departments of larger charities. ‘
The campaign has identified key areas that it believes need to be reconsidered in order to meet the government’s original policy goals and help the beneficiaries of the moratorium in the most effective way possible. His immediate argument is that 60 days of respite does not reflect the “real time” realities of the demand for debt relief, which can change dramatically depending on the circumstances.
The initial consultation process for plan development took place between 2017-19, before the pandemic, and as such does not reflect the new conditions facing advisers and their clients. The Money and Pensions Service predicts that an additional 3 million people will need debt counseling by the end of 2021, and it is estimated that 40% of current clients are on a “budget deficit,” where their living costs fall. base are lower than their income. , making regular repayments impossible.
We Are Debt Advisers (WADA) therefore asks the government to allow at its discretion to extend this period according to each case; there are many factors that can affect a debtor’s ability to find an appropriate solution, ranging from difficult personal circumstances (e.g. homelessness, drug addiction, imprisonment) to communication needs where English may not be the native language and where it takes time to find an interpreter, to broader issues such as domestic violence, divorce and bereavement.
The current proposal would also insist on a “mid-term review”, which WADA described as “unnecessary, intrusive and wasting the time and resources of debt management advisers”. Debt management advisers, who strive to develop trust with their clients under difficult circumstances, would be required to assess whether participants adequately engaged with them during this time, did not taken out additional credit in excess of £ 500 and have maintained all basic payments including mortgage / rent, utilities charges, council tax and insurance. The nature of the situation for many clients, especially those with a deficit budget and who may be forced to borrow money just to survive, makes these terms unfair and impractical, and the adoption of a system of “Reprimand” at this point may seriously hamper long-term progress. between advisers and their clients.
The campaign also highlighted the inadequacy of current debt solutions to help people pay off their debt for good.
“Currently, the options are to initiate insolvency proceedings or to engage in long-term repayment plans,” explains Nelson.
“The Debt Relief Order (DRO) program places limits on who can access it; in particular, those who owe less than £ 20,000 and have no spare income or assets. Still, a charge of £ 90 is payable before the order can be placed. Many clients receive benefits and cannot afford them – we think it would be much better to waive the fees altogether.
“The £ 680 personal bankruptcy fee makes this solution almost entirely out of reach for the majority of our customers.
“If a client is unable to afford the fees for either a scrutineer or a bankruptcy, that leaves an administrative order (AO) as a form of insolvency accessible with no upfront fees. However, since the limit for an AO is £ 5,000 and a client must also have a county court judgment against their name, only a very small percentage of clients have this solution available.
“Customers could also potentially seek an individual voluntary agreement. Typically, this would require them to commit all of their disposable income to repay creditors over a five-year period. IVAs are only accessible if someone has enough disposable income to pay off around 30% of their total debt, which basically means only those with full-time jobs can access this strategy.
WADA is proposing to remove or have tested payment methods for DROs and bankruptcy options, with debt limits for DROs and AOs greatly increased to make them fit for purpose. It also recommends that IVAs be regulated externally, for example by the Financial Conduct Authority.
“In the midst of a health crisis, our clients should be able to use their income to ensure their safety and that of their families. This money is best spent in local businesses, supporting local jobs, and not on long-term repayment plans – especially when historic debts have often been bought by businesses for a fraction of their face value.
“These clients should be able to take steps that will relieve them of their debt. We believe this could be achieved through some form of debt forgiveness that does not rely on established insolvency options that are often out of reach or close at hand.
“After all, often people are not in debt because of their own actions, but rather because of unexpected events. Debt relief should be offered in a way that allows them to maintain their dignity. If a client is unable to repay their debts, there is no point in forcing them to pay fees or acting in a manner deemed to show contrition. We think there should be a free and easy solution that they can follow.
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