Call for 'breathing room' on temporary debt issues

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The debt advice charity say there's a massive gap in the protection and services available to people depending on the degree of debt they're dealing with.

They say a "patchwork" approach from creditors and a lack of statutory protection means many people find themselves getting into deeper, more problematic, debt.

They're calling for the same measures to be brought in for people who acknowledge they're in temporary difficulty as for those who have had to declare insolvency.

Last resorts

Insolvency and bankruptcy are subtly different things. Bankruptcy is the most serious form of insolvency, and it means all debts are written off.

Basic insolvency, however, is an admission that someone's debts are so serious they can't afford to pay them off in a realistic period of time. It usually requires that people make an effort to repay what they can for a certain length of time.

Once someone declares themselves insolvent they're granted protection from further interest and charges on the debts they owe, and the immediate calling off of any enforcement action.

But declaring insolvency is a huge step, and StepChange say it's only suitable for 22% of people who come to them with money issues.

Instead they'd like to see the same measures introduced for everyone in debt, giving them a chance to clear or reduce what they owe before it can become a bigger issue.

Lurking debt

Figures from Legal and General suggest the average UK household is just 26 days away from having no money if its income disappeared - and among working age families that drops to just 14 days.

StepChange, meanwhile, say around 13 million people don't have enough savings to last a month if their income dropped by just a quarter.

That means hundreds of thousands of households are vulnerable to sudden financial shocks, such as bereavement, loss of a job, or an accident.

But many of those who do find themselves temporarily in debt receive little or no support when they inform their creditors.

Almost 80% of people surveyed say they'd contacted at least one of their creditors before seeking specialist debt advice.

Some 32% said none of their creditors offered to help by freezing interest and fees, or by halting any possible enforcement action.

A third said their utility providers offered no assistance, 38% said their landlords gave them no help, and 50% of those with council tax arrears said their council failed to offer any kind of support.

This is the other issue StepChange want to tackle. They're calling for a more consistent approach from the various industries when it comes to dealing with people who find themselves temporarily unable to pay.

For example, the FCA regulates consumer credit businesses to help ensure they treat people fairly when they encounter problems, and the energy companies have a moratorium on disconnecting people during the winter months.

Debt collectors are also required to give people 30 days breathing space once they've been told someone has sought debt advice.

But there's little to no protection for private tenants who fall behind with their rent while trying to service other debts.

Further down the spiral

Many people therefore find themselves unable to pay every bill each month, meaning they face high charges for late or missed payments with their other creditors, pushing them further into debt.

Almost three in ten said being pressured by one creditor lead to them paying that bill at the expense of others.

Around 60% of people go on to borrow yet more money to service their existing debts, with 21% taking out payday loans to try to bridge the gaps.

There are already some six million people in the UK relying on credit to get them through to their next payday - and three million people are using one form of credit to keep up with their credit commitments elsewhere.

The result is deepening problem debt - a situation that StepChange estimate costs the UK some £8.3 billion a year.

Giving people more breathing room doesn't address the root causes of the problem - but for the millions who can just about get by, it would mean one setback would no longer have the power to completely derail them.