People struggling with problem debt will get 60 days of “breathing space” from debt collectors and bailiffs to help them get their finances back under control, the government has announced.
The new breathing space scheme will also give those with mental health issues protection while they receive treatment.
During the 60-day breathing space period people will have to see professional debt advisers so they can get back on track with payments. Those in debt will also have their interest payments frozen.
The new scheme is seen as a long-term solution to debt. After being put to parliament later this year it will be implemented in early 2021.
Individuals receiving NHS treatment for mental health crisis will not need to seek debt advice during the 60-day period.
The scheme will cover a broad range of debts including arrears owed to central and local government. This means council tax arrears, personal tax debts and benefit overpayments will be included.
Helen Undy, chief executive of the Money and Mental Health Policy Institute, says: “This scheme could genuinely save lives.
"Everyone experiencing a mental health crisis should have the opportunity to recover free from escalating debt fees, charges and the threat of bailiffs arriving at their door.
“We are delighted that the government acted on our call to protect people from being hassled about debts while they’re receiving crisis care, and we look forward to working with ministers to put these plans in place over the coming year.”
Record numbers of people are seeking help for problem debt.
Debt charity StepChange was contacted by 657,930 people seeking debt advice last year – up 6% from 2017.
It says the top reason for debt was because of a drop in income due to unemployment or redundancy.
The most common type of debt was credit cards, with two-thirds of people in this type of debt owing £7,671 on average.
A majority of its clients were under 40, with the most common arrears on council tax, rent and utility bills.
John Glen, the City minister, says: “No one should be stuck in an endless cycle of debt and facing the ever-looming threat of invasive debt collectors.
"That’s why I’m introducing this new scheme, giving everyone access to the advice, time and support they need to both get their finances under control and get away from the perpetual stress and worry debt can cause.”
Phil Andrew, chief executive of StepChange, says: “People looking for a sustainable way to repay their debts have traditionally had little protection, leaving them vulnerable to inconsistent approaches by different creditors that can harm their chances of recovery – something as a debt charity we’ve long felt needed reform.
“Breathing space and statutory debt repayment plans will fundamentally improve how people seeking to repay debt are treated, putting them in a far less precarious position.”