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Plans to help people solve their debt problems as quickly and fairly as possible were published by the government today.

The consultation paper: Debt Management Schemes – delivering effective and balanced solutions for debtors and creditors, asks for views on how Debt Management Schemes can help people in debt – and their creditors – as effectively as possible.

Debt Management Schemes are designed to assist those who are in debt and are unable to meet their commitments. In these situations finances are assessed and a monthly repayment deal is brokered with all their creditors which all sides agree to and the debtor is able to maintain.

The consultation explores whether there would be benefits for debtors through:

• more consistent operators’ charges
• interest and other charges being frozen once a payment plan has been agreed
• the opportunity to pay off debts over time without requirements to sell homes or other assets
• protection from enforcement procedures from creditors (unless the creditor receives court permission)
• better advice on the full range of options available to deal with debt problems.

Changes, if introduced, to existing schemes would also be aimed at assuring creditors that they:

• receive maximum returns
• will not need to spend time and money on chasing debts
• will have clients’ financial details regularly provided to them in a consistent format
• will be confident that they are receiving the maximum possible monthly instalment.

Taking tough, swift action against firms who fail to operate within the rules and who provide sub-standard services to consumers with problem debt remains a high priority. Later this year, the Office of Fair Trading plans to launch a review of its Debt Management Guidance to obtain a clearer picture of compliance levels within the debt management sector and take appropriate follow-up action.
Justice Minister Bridget Prentice said:

‘Debt can affect all kinds of people, especially in the current global economic downturn, and it is important that we protect people from sliding deeper and deeper into debt.

‘We aim to benefit both debtors and creditors, ensuring debts can be paid off without the vicious cycle of charges, interest, fees, confiscated assets and relentless creditor contact that can turn a debt problem into a debt nightmare.’

Business Minister Ian Lucas said:

‘Our aim is to help people take control of their finances and pay off their debts quickly and fairly. We want a system which is fair to everyone involved so that debt problems don't spiral out of control.’

The consultation seeks views on whether there is a need for intervention in this area, in light of the various other government policies that have already been introduced to help people in debt and, if so, whether regulated schemes should be introduced and how they would work, or whether tighter non-statutory regulation of current schemes would be more appropriate.

It is estimated that between 100,000 and 150,000 people currently enter Debt Management Schemes each year.

This consultation is published in conjunction with the government response to another consultation – Administration and Enforcement Restriction Orders: setting the parameters – which looked at reforming existing measures designed to help people with multiple debt. However, it would not have been possible to implement these reforms until April 2011 at the earliest.

More immediately, the government plans to raise awareness about the benefits and pitfalls of current Debt Management Schemes by publishing guidance on what to expect from non-court based operators to help debtors better understand their options.

Today’s consultation Debt Management Schemes – delivering effective and balanced solutions for debtors and creditors is part of a broad range of government measures to help vulnerable consumers through the current economic downturn. It was proposed as part of the government White Paper A Better Deal for Consumers: Delivering Real Help Now and Change for the Future published in July 2009, but this is the first time the details of the consultation have been published.

Other measures to help consumers and homeowners in financial difficulty include:

• Changes in eligibility criteria for Income Support Mortgage Interest for homeowners getting Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or Pension Credit. Where they have a mortgage, those benefits may include an additional element called Support for Mortgage Interest, which assists the homeowner with the interest on their mortgage.
• The Homeowner Mortgage Support Scheme enables eligible borrowers to reduce their monthly mortgage interest payments to affordable levels for up to two years, helping them get back on track with their finances if they suffer a temporary loss of income.
• Significant funds invested to strengthen the provision of debt advice, including:
  • £130 million in England and Wales between 2006 and 2011 for free face-to-face debt advice
  • an additional £10 million last November to support longer opening hours at over 330 Citizens Advice Bureaux
  • £5.85 million for the National Debtline to increase frontline staff levels by 50.
• This is in addition to the investment in legal advice available through the Legal Services Commission to help those in need in the current economic climate.
• The new self-help debt advice toolkit being developed by the Money Advice Trust and funded by BIS will enable those who can to negotiate debt repayments with creditors themselves with more targeted advice agency support. This will allow debt advice agencies to prioritise their resources better and advice more clients who need in depth help.

The Insolvency Service has also published a guide for consumers who may be struggling with debt problems, In debt? Dealing with Your Creditors PDF 1.59mb, 18 pages, which offers practical, simple advice on finding the best solutions.

Notes to editors

1. The consultation Debt Management Schemes – delivering effective and balanced solutions for debtors and creditors was developed by the Ministry of Justice, the Department for Business, Innovation and Skills, and the Insolvency Service. The consultation closes on 18 December 2009.
2. The government response to the consultation Administration and Enforcement Restriction Orders: Setting the Parameters and the consultation.
3. The White Paper A Better Deal for Consumers: Delivering Real Help Now and Change for the Future
4. The Insolvency Service guide In debt? Dealing with your creditors PDF 1.59mb, 18 pages
5. For further information please contact:

• Ministry of Justice press office 020 3334 3536
• Department for Business, Innovation and Skills press office 020 7215 5000
• The Insolvency Service press office 020 7674 6910