What could the Statutory Debt Repayment Plan mean for your landlords and tenants?
The government is consulting on draft legislation for the Statutory Debt Repayment Plan. Here's what your agency needs to know.
In May 2021 - mid-pandemic - the government launched part one of its Debt Respite Scheme, creating breathing space and mental health crisis moratoriums to help relieve pressures on people with debt problems. Now, in the midst of the cost of living crisis, it's launched a consultation on the draft legislation for part two of the Debt Respite Scheme - the Statutory Debt Repayment Plan for England and Wales - closing on 5 August 2022. The government then plans to implement the scheme in 2024.
What is a "breathing space" under the Debt Respite Scheme?
A breathing space gives people in debt "the right to legal protections from their creditors," while they receive debt advice, says the government guidance. The period of time that they receive this protection is called a "moratorium", which temporarily restricts some activities such as enforcement action against the debtor.
This means that landlords can't serve a section 8 notice or start court action against a tenant if they successfully receive a breathing space.
You can read more about the Debt Respite Scheme's breathing space service in our guide.
What problem does the Statutory Debt Repayment Plan aim to solve?
The Debt Respite Scheme guidance shares that a breathing space isn't a payment holiday. The breathing space or mental health space doesn't mean that a tenant shouldn't continue to pay what they owe, it simply gives them more time to look into their finances and find a solution to their debt problems.
"If the government is giving people with debts a 60-day breathing space to reorganise their lives, when they come out of those 60 days, they're going to have a problem if they've suddenly got to pay all those debts that are stacked up," says Robert Bolwell, Senior Partner at Dutton Gregory, in a recent Goodlord webinar.
"The next logical step to this whole business is to say to people in that situation: 'We can reschedule all your debts into one easy payment.'" This is where the Statutory Debt Repayment Plan aims to bridge the gap.
What is the proposed Statutory Debt Repayment Plan?
The government is currently consulting on the draft regulations for its "Statutory Debt Repayment Plan", which will focus on "repayment of debt, rather than debt relief, addressing a gap in the debt solution landscape," says the government.
This means that an individual's debts can be combined in a single plan, and "repaid over a manageable time period, with similar legal protections from creditor action as in breathing space," according to the consultation document.
"A lot of debt charities do that anyway on a voluntary basis," says Bolwell. "You can apply in certain circumstances to a court to get that rescheduled on a semi-legitimate basis, but the Statutory Debt Repayment Plan is something the government are consulting on at the moment. It's in its early stages yet."
Will tenants be able to access this plan?
The consultation document states that rent arrears will be "excludable" because "the likely longer period over which rent arrears will be paid in the plan could lead to a landlord not renewing an individual’s tenancy."
This means that the tenant can choose not to include arrears in the repayment plan but, if they do choose to include them in a plan, they will be classed as "priority debts," with thirty percent of each month's repayments split between these debts on a pro-rata basis. The remaining 70% of the monthly repayment would then be split between all the individual's debts - including priority debts.
How can your agency prepare for the impact of the cost of living crisis on the Debt Respite Scheme?
The first part of the Debt Respite Scheme was introduced during the pandemic, although it was planned long before Covid-19 hit. However, Bolwell says that the cost of living crisis may push yet more tenants to require access to this breathing space - and therefore to require a long-term strategy for repaying their debts.
"If budgets are being squeezed, more people will be seeking advice from their local Citizens Advice office - and of course, every Citizens Advice office knows about the [debt respite] scheme," says Bolwell.
"If the cost of living crisis deepens and energy bills continue on the upward curve, I think, unfortunately, that the number of people who have had to deal with it are probably going to go up for the next six months.
"This means your agency needs to be prepared - know what the scheme's about, and try and explain to your landlord that it's not the government getting at landlords again. It's to try and help people who are struggling with debt, whatever type of debt it is."