HM Treasury – Statutory Debt Repayment Plan Consultation

The Government has published a consultation paper proposing the final detail of the Statutory Debt Repayment Plan (SDRP). The SDRP is the second aspect of the Government’s Debt Respite Scheme, with the other half being the Breathing Space scheme implemented in May 2021. The consultation also proposes some minor amendments to the Breathing Space scheme.

The SDRP will be a new statutory debt solution in England and Wales, which involves the consolidation of an individual’s debts into a single repayment plan. The proposed debt solution would allow the debtor protection from creditor action, similar to the breathing space scheme.

The SDRP has already been consulted on as one half of the debt respite scheme, with the overall structure and purpose of the plan set to be implemented. However, the second consultation that has been published proposes further detail on how the scheme will operate. This briefing sets out the proposals of the second consultation.

The SDRP will form part of the Debt Respite Scheme – HM Treasury’s programme to introduce new statutory protections and solutions for individuals struggling to repay their debts. The SDRP is targeted at debtors who are unsuitable for the current suite of debt solutions available, such as DROs and bankruptcy. Though debtors can already arrange to enter non-statutory Debt Management Plans, which are similar in concept to an SDRP, the Government state than DMPs offer insufficient protections for debtors and have a high failure rate. The SDRP has been designed to be similar in concept to the equivalent scheme in Scotland, the Debt Arrangement Scheme.

The Government has already consulted on the framework for the SDRP in 2018, with this consultation paper proposing the remaining detail for the new debt solution.

Proposals

It is proposed that the regulations to put in place the new SDRP regulations by the end of 2022, but with an implementation period of at least 18 months.

The consultation paper sets out the proposed details for the scheme according to the key stages of the SDRP listed below.

1. Debtor seeks debt advice and applies for a SDRP
2. Debt advice provider considers eligibility and submits notice of intention to initiate a plan to creditors
3. Where necessary, creditors amend debt values and notify debt advice provider of additional debts
4. Provisional plan is devised and submitted by the debt advice provider. Plan protections start. Creditors have the opportunity to object to the provisional plan
5. Where necessary, the Insolvency Service conducts fair and reasonable assessment
6. Plan starts and debtor makes payments as agreed
7. Debt advice provider conducts annual and in-year reviews as required, making use of plan flexibilities where appropriate
8. Where necessary, creditors are able to make further objections, including to apply to a debt advice provider or the court for a review
9. Plan is completed and all debts extinguished, or plan ends early through revocation

Debtor Eligibility for a SDRP

The Government had previously consulted on the core eligibility criteria for a SDRP. This is that

• The debtor must have received advice from a regulated debt advisor or local authority that offers debt advice services.
• The debt advisor finds that the individual is unlikely to be able to pay all of their debts as they are set to be repaid, but assess that the debtor could repay their debts in full over a reasonable timeframe. This will be assessed using the Standard Financial Statement (SFS) The advisor will also assess whether a SDRP is otherwise appropriate for the individual.

This consultation makes the following further proposals for debtor eligibility:

• Joint plans can be put in place for two qualifying individuals who have at least one shared debt, with the plan repayments calculated using their joint income and expenditure.
• Debtors will not be eligible for a SDRP if they have had a SDRP within the previous 12 months. The exception to this is if a debtor was in a join SDRP that was revoked due to the other debtor in the plan.
• Debtors cannot enter a SDRP if they have a debt relief order, interim order, individual voluntary arrangement or are an undischarged bankrupt.

Qualifying Debts

It is proposed that the majority of debts and liabilities would qualify for a SDRP, with a few limited exceptions that will be referred to as ‘mandatory non-eligible debt’.

It is proposed that other debts in other forms of payment plans or arrangements, such as Debt Management Plans, are treated as eligible debt and included within a SDRP. It is also proposed that future and contingent debts will be treated as qualifying debts, provided that the debtor is liable for these debts at the point of applying for a SDRP.

The previous consultation already determined that the following debts would be treated as priority debts for a SDRP: rent/mortgage arrears, debt owed to central/local government, debt for gas or electricity and hire-purchase debt. This consultation proposes that debts for internet and mobile phone bills should also be included as a priority debt.

Though the Government’s preference is for all small qualifying debts to be included in a SDRP to ensure consistency, it is seeking views on whether there are benefits to excluding small debts from a SDRP plan.

 Protections of an SDRP

In the 2019 consultation, the Government already set out the following core protections for debtors that a SDRP would put in place:

• Interest accrual on the debt is paused, and default fees and charges are stopped
• All debt recovery, collection and enforcement actions from creditors are stopped
• The option to vary the repayment plan or have short payment breaks, to ensure the plan is sustainable

In order to maintain these protections, the debtor will need to maintain the payments in their plan, as well as make payments for ongoing liabilities and continue to engage with the debt advisor supervising the plan.

This consultation proposes the following details on protections given by a SDRP, to build on the previous consultation:

• Protections will begin the day after creditors are sent a provisional SDRP, so debtors are protected from enforcement whist the plan is being reviewed by creditors. Creditors will already have received notice of an intention to initiate a plan prior to this point.
• It is noted in the consultation paper that there will be considerable complexity if interest and fees can still accrue between the notice of intention and notification of a provisional plan. As a result, the paper states that the government’s expectation will be for creditors to voluntarily apply the protections during the development phase of the plan wherever feasible.
• It is proposed that where a joint debt is an SDRP for only one of the joint debtors, then the other joint debtor will not be protected from creditor actions
• Creditors will need to ensure that pre-existing attachment of earnings orders are suspended during an SDRP

The SDRP intends for debtors to repay their debts in full, and so at no point will creditors be required to write off debts under a SDRP.

 Proposals for Process for Starting a SDRP

The government proposes that there are three stages to start a SDRP: application for a plan; devising a plan; and creditor consideration of a provisional plan.

1. Application for a Plan

The debtor would apply for a SDRP to a debt advisor after receiving debt advise. The application would be required to list all the applicants outstanding debts at owed at the time of application.  The advisor would determine whether a SDRP is appropriate for the individual, including by using the SFS.

2. Devising a Plan

After receiving an application for a SDRP, the debt advisor would be required to submit a ‘notice of intention to initiate a plan’ to the Insolvency Service if they think an SDRP would be appropriate for the applicant. The notice of intention would include some personal details about the application and the details of their qualifying debts. The Insolvency Service will then notify the creditors include in the notice of intention. Creditors will be asked to voluntarily to apply the protection of the SDRP after receiving this notification.

It is proposed that the notice of intention to initiate a plan will initiate a 21-day period in which creditors will be required to notify the debt advisor of any mistakes in the debtors details shared in the notice of intention, including if there are any further debts not included in the notice. Creditors would not need to confirm the value of the debts owed if they are already correct.

Following the 21-day period, the debt advisor will be given another 7 calendar days to submit a provisional plan to the Insolvency Service.

The government proposes that all surplus income would be paid into the plan, with surplus income determined using the SFS to calculate the debtors net available income, and then allowing a small amount for savings, and non-eligible debt where relevant.

3. Creditor consideration of a provisional plan.

The Insolvency Service would then distribute the details from the provisional plan to creditors, including the full details on the repayment plan with the allocation to the creditor, as well details on the debtors debts and a summary of the SFS.

The protections of an SDRP will officially start the day after the Insolvency Services sends the provisional plan to creditors.

It is proposed that creditors will have 14 calendar days to object to the notice of a provisional plan, if they believe:

• The provisional plan unfairly prejudices their interests
• The debtor is not eligible for a plan
• The information relied upon in development of the plan was inaccurate
• The debt advice provider’s assessment of the debtor’s income and expenditure departs, without good reason, from the spending guidelines set out in the SFS.

Further, it is proposed that creditors will be required to provide supporting evidence if they object a provisional plan. If the creditor does not respond to notice of a provisional plan, it will be deemed that they consented to the SDRP. If less than 25% of the creditors according to debt value object, the SDRP will proceed, If 25% or more object, the Insolvency Service will carry out a Fair and Reasonable Assessment of whether it is appropriate for the proposed SDRP to proceed. The decision making of a Fair and Reasonable Assessment will be left to the discretion of the Insolvency Service, though formal guidance on the decision-making process will be made publicly available before the SDRP begins.

Proposed Method of Dividing Payments Between Creditors

The Government proposes a system for dividing payments between creditors where, following the deduction of the 10% administration fee, 30% of the debtor’s repayment is split pro-rata between the priority debts according to their size, and the remaining 70% is split pro-rata between all debts including priority debts.

The Government has opted for this approach to try to ensure simplicity in splitting payments across multiple debts. As this method would lead to priority debts decreasing in value at a faster rate than non-priority, the Government proposes that the allocations calculated at the start of the plan should be fixed until a plan variation requires them to be changed. This is to remove the need to recalculate following each payment.

It is proposed that allocations to creditors will be recalculated whenever there has been a variation to add, remove or amend debts in a plan. This will be based on the outstanding debt values at the point of variation.

During the Plan

Reviewing the Plan: Debt advisors will be required to carry out an annual review of an SDRP to review its progress, consideration if the debtor’s circumstances have changed and if the debtor has fulfilled their obligations. However, debt advisors will be able to carry out a review at any point they deem appropriate, in which case the annual review would only need to be carried out 12 months after the in-year review. Debtors will also be able to request a review at any point if there has been a material change to their circumstances.

Payment Breaks: Debtors will be able to access payment breaks throughout a SDRP if they require it, thought there are some proposed restrictions on this. The debt advisor will determine whether a payment break is appropriate and implement any necessary payment breaks through the central electronic system. Creditors will receive notification from the Insolvency Service when a debtor enters a payment break, which will include the reasons for the payment break.

Requirements for Debtors

The Government had previously consulted on the proposals that debtors in a plan are required to keep up with their payments, ongoing liabilities to creditors (such as utility bills, taxes, mortgage or rent payments) and engage regularly with the debt advisor.

This consultation proposes that the debtor must inform the debt advisor if any of the following changes occur:

• there is a material change in their circumstances or financial position
• a qualifying future debt is now due for payment
• a qualifying contingent debt is now quantified and due for payment.

It is already determined that the debtor would need to seek permission of the debt advisor if they want to take out additional debt at any point of more than £500. It is proposed that the decision to allow a debtor to take out more than £500 credit will be left entirely to the discretion of the debt advisor, with no explicit list of scenarios where further credit would be permitted. However, the Government proposes that debtors should be limited to £2000 of additional debt outside an SDRP at any point during a plan. Further, it is proposed that debtors in a plan should be required to notify creditors that they are in an SDRP when they seeking to take out further credit of any amount. This is to accommodate for the decision to make the SDRP central register private from creditors.

The Government proposes that debtors will be given 42 days from the date the plan becomes final to make their first payment, the same as the DAS in Scotland.

Variations from the Initial Plan

It is also proposed that creditors are given 120 calendar days from the beginning of a plan to notify the Insolvency Service of any material differences in the debt values owed by the debtor and those in the plan. Any small amendments to debt values may be made at the next annual review for the plan through a plan variation.

It is proposed that the debtor has forgotten to include a debt or a creditor was initially unable to identify a debt that was owed before the SDRP, these debts can later be included in the plan through a review and variation.

 Creditor Objections During the Plan

Creditors will be able to object to changes made during the plan, though the Government proposes the following conditions to creditor objections:

• To allow for minor adjustments to the duration of a plan, creditors won’t be able to object to variations that would extend a plan more than 10 years. However, they will be able to object if a variation would result in the plan duration extending further than 10 years and 6 months.
• Creditors will no be a given an opportunity to object to a payment break being entered or extended, as these will often be implemented as an urgent form of debt relief.
• Creditors will be able to object to a variation that increases the total debt value by more than 10%.
• Creditors will not be able to object to plan variations that reduce payments by less than 10% or that increase payments.
• Where creditors are permitted to object, more than 25% of creditors need to object for the Insolvency Service to carry out an assessment as to whether the change is fair and reasonable. If the change is not deemed fair and reasonable, the change to the plan will be rejected. The debt advisor may then consider whether to submit an amended proposal or to leave the plan as it is.

Creditor Review Requests

Creditors will be offered a further opportunity to challenges plans and any changes made to them. It is proposed that creditors can request a review of the plan if any of the following apply:

• The plan unfairly prejudices the interests of the creditor
• The creditor has reason to believe that the debtor is not eligible for a plan or did not meet the eligibility criteria when the plan was created
• A debt included in the plan is non-eligible o the creditor has reason to believe that the debtor has sufficient funds to pay for their debts as they fall due
• The creditor considers that the debtor has met any of the grounds for revocation
• The creditor has written off or wishes to write off a debt that is included within a plan.
• If the debt advice provider has made a decision to not to grant a creditor’s request for a debt to be removed from a plan, or for the plan to be revoked
• If the debt advise provider has made a decision to issue a notice of intention to revoke a plan or a final warning notice of revocation.

The debt advisor would then be required to carry out a review of the plan within 21 days. The debt advisor will be able to remove a debt from the plan following a creditor review request if this is appropriate.

It is proposed that each creditor in a plan is limited to one review request within any given 12-month period.

Debtors will also be able to ask for a review of the plan if the disagree with a decision of the debt advisor, such as where the debt advisor has decided not to vary the plan or grant a payment break according to the request of the debtor.

SDRP Register

It is proposed that the SDRP is kept private to maintain confidentiality for debtors. Creditors will have access to entries on the register where they are involved in a plan.

Ending a Plan

It is proposed that a plan will be completed once all agreed payments under the plan have been made by the debtor and then distributed to creditors. Once the Insolvency Service has been notified, the SDRP register will be updated and will issue a notice of completion to all involved parties including all creditors.

Where it is has not been possible for a plan to complete, there are a few proposed options for a plan to end early.

• The first is a mandatory revocation, where the debt advisor will immediately revoke a plan. This will occur in a few specific circumstances, such as the debtor successfully applying for a DRO or bankruptcy.
• The debtor can also voluntarily opt to revoke their plans, provided they have sought advice from the debt advisor.
• When the debtor is not meeting their obligations to continue with an SDRP, the debt advisor can also opt to use a conditional notice process which would encourage the debtor to meet these obligations. It is proposed that a final warning notice to debtors will be given if they do not comply with the initial conditional notice, and if they fail to comply a second time then the plan will be revoked. It will be up to the debt advisor’s discretion to determine whether it is appropriate to proceed with a mandatory revocation immediately or whether to encourage debtor compliance with a conditional notice. There are proposed limitations on the amount of conditional notices and final warnings notices a debtor may receive and comply with before the plan is revoked.

Once a plan has been revoked, creditors will be able to resume all enforcement actions and apply interest, fees and charges to the outstanding debts following a defined time period after the revocation. In the case of the death of the debtor or the death/revocation of one of the joint debtors, there will be a six week period before enforcement can resume. For all other reasons for revocation, there will be a 14 calendar day period before enforcement can resume following the plan’s revocation.

Payments received prior to the date of revocation will be treated by creditors as full payments, and the 10% administration deductions from payments should not be pursued following revocation.

Funding and Administration

Funding  & Fees – The funding structure for the scheme has already been consulted on, with 10% of the debtor’s repayments taken to fund the SDRP. This will be taken as 8% to the debt advisor, 1% to the payment distributor and 1% to the Insolvency Service. The Government has aimed to maximise returns to creditors, with the 10% allocation of repayments to funding lower than the 22% that is used for DAS in Scotland.

Systems – The Insolvency Service intends to maintain an electronic system and register so that debt advisors, creditors and the Insolvency Service can communicate in a timely manner.

Breathing space Scheme

The consultation paper also proposes to make some minor amendments to the Breathing Space scheme. Breathing Space, the other aspect of the Debt Respite Scheme, was implemented in May 2021 to provide debtors with the option of a entering a temporary period of protection from creditor action whilst they figure out whether to proceed with a debt solution. The proposed amendments to Breathing Space are based on informal feedback the Government has received since the implementation of the scheme.

Treatment of Different Types of Debts & Liabilities

The Government proposes the following amendments to the treatment of different debts and liabilities included in the breathing space:

• Include future and contingent debts as eligible for breathing space, provided the debtors was liable for the debts at the point of applying for a breathing space. T
• Clarify that a non-eligible debt cannot become a qualifying debt because a judgement has been obtained on it
• Include liabilities with income payments order or arrangement as non-eligible debt
• Add internet and mobile phone bills as ongoing liabilities

Issues of Process

The Government proposes further amendments to clarify issues of the Breathing Space process that have been identified since the scheme’s implementation. The consultation states the following amendments to be made:

• Explicitly confirming that creditors can disclose any information that is relevant to a Breathing Space moratorium to debt advisors via the electronic system
• Confirming the requirements from creditors in the event debt is sold within the moratorium period
• Amending the definition of debt advice provider to make clear that local authorities are only required to consider breathing space applications where they provide debt advice.

The Government may potentially be open to further amendments to the Breathing Space scheme if a need for change is evidenced.