Borrowers in debt given breathing space
Consumers given 30-day reprieve by debt collectors, and an alternative to bankruptcy is introduced for low-income debtorsConsumers who are struggling with debts will be given more breathing space under new rules announced oon the 6th April 2009.
Debt collectors have agreed to give individuals 30 days to seek the help of a debt adviser before action is taken to try to collect money owed.
The month-long reprieve begins from the moment that the collections agency is contacted by a debt advisor, who will use the time to work out a timetable for repaying the debt.
Debt collectors will also be required to inform individuals of the support available from acredited debt advisors.
The new rules, which been agreed between the Credit Services Association (CSA) and the Government, come into effect today, but debt collectors have been given until the end of May to update their systems.
Credit card companies agreed to a similar procedure in November last year after a summit chaired by Lord Mandelson. The Credit Services Association, which has 326 members, was involved in the initial discussions and has now confirmed that its members will be bound by its updated code of practice.
Gareth Thomas, Consumer Minister, said: "This new 30-day rule will give people a breathing space to help them take control of their finances as well as encourage them to seek help from debt advisors.
"I welcome the CSA's recognition that this is an important and sensible commitment to have made to borrowers."
Kurt Obermaier, executive director of the CSA, said: "We have an agreement to allow a 30-day breathing space in the hope and expectation that this will ease the pressure on the debtor and more likely result in a positive outcome for all."
Citizens Advice has said that the average borrower turning to it for help owed nearly £17,000 on credit cards, personal loans or other forms of credit.
A new alternative to bankruptcy for consumers who are overwhelmed by debt also becomes available today. Debt Relief Orders (DROs), for low-income or unemployed consumers with less than £15,000 of debt, allow a debtor to write-off all of his or her existing debts. The orders cost £90.
Property-owners are excluded from applying for a DRO, which are available only to those with less than £50 disposable monthly income and £300 in assets. Like a bankruptcy order, it will remain on an individual's credit report for six years.
Bankruptcy orders cost £510 and require individuals to pay-off at least some of the debt over a three year period.
Beccy Boden-Wilks, said: "If you are on a low-income or benefits the cost of a bankruptcy order can be a serious impediment to facing up your problems and finding a resolution. These new orders will provide a useful tool for consumers in debt."
KPMG expects up to 50,000 people to take out one of the orders during 2009, boosting the total number of people declared insolvent during the year to 150,000.
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