The Breathing Space Regulations and cases flowing from them have been discussed a fair bit by my colleagues. However, they are part of a wider proposal to rewrite the management of consumer debt. In 2021 the Debt Moratorium came into force whereby any person who is in debt could seek a moratorium from an approved debt advice provider. Under the moratorium a debtor or tenant in arrears cannot be contacted to seek payment of the debt and cannot be asked to pay any part of the debt. Nor can proceedings of any sort be pursued against them in respect of that debt.

The government is now proposing to take the next step with the launch of a new consultation on the Statutory Debt Repayment Plan (“SDRP”). This will make limited amendments to the Breathing Space Regulations but will largely create a new regime sitting behind them. The aim of an SDRP is to enable a person in problem debt to consolidate their debts and then repay their debts under a single statutory agreement (and a single payment) on a manageable timetable of up to ten years, whilst being protected from creditor action. Its aim is to enable consumers to take control of their finances and escape problem debts while still returning money to creditors. The consultation closes on 5 August 2022 and the Government intends for it to be implemented in 2024.

As with breathing spaces, the Government will implement a plan with strong protections for debtors. To achieve this, the plan will prevent debt spiralling by stopping the accrual of all types of interest, as well as default fees and charges. It will stop recovery and enforcement action taken against the debtor and will have some flexibility to ensure that plans are sustainable over their expected lifetime.

Types of debt

What is a qualifying debt? A qualifying debt is any debt or liability owed by the debtor when applying for the SDRP unless it is a "non-eligible debt". “Non-eligible debts” are secured debts (but not arrears of secured debts), fines and student loans. These are essentially the same exclusions as with breathing spaces. There are also “discretionary non-eligible debts” such as housing debts. This means that although housing debt can be included in the plan, a consumer may choose not to do so as this will lengthen the period over which rent arrears are paid which could lead to issues with the landlord potentially not renewing the tenancy. A similar issue would arise if an individual had a mortgage and their mortgage arrears were not paid when they left the plan. This could put them at risk of repossession. The policy intent however is for as wide a range of debts as possible to be able to be included in the plan.

The draft regulations also create "priority debts" which benefit from a prioritised payment allocation. Priority debts include rent or mortgage arrears on the debtor’s primary residence and debt owed to local authorities and the Crown, for the supply of gas or electricity, on hire-purchase contracts and for internet or mobile services.

Process

In order to start a plan there are three stages: Application for a plan, devising a plan and creditor consideration of a provisional plan. Before applying for a plan the debtor must have obtained advice from a debt advice provider. Creditors have 14 calendar days to object to the notice of the provisional plan, the Government has outlined a number of objections that can be raised.

There is no maximum on the amount of debt that can be brought within an SDRP. Consumers make a single payment assessed by an approved debt advisor which is then distributed to creditors in the plan. While an SDRP is in effect, creditors cannot take enforcement steps in respect of a qualifying debt.

Conclusion

The good news is creditors who may not have been receiving any payment will receive some under the SDRP. The potential bad news for landlords or mortgage providers is the rent arrears of mortgage repayments can be included in the plan. This would effectively mean that a landlord would be entirely unable to take possession proceedings in respect of arrears included in a plan although new arrears arising during the plan would allow for further action. With the additional potential removal of s21 as a route to possession as outlined by the recent White Paper this could leave landlords stuck with tenants who have substantial arrears (albeit ones they are paying off) with no means to get them to leave.