Personal insolvency framework review call for evidence opens

The Insolvency Service began its review of the personal insolvency framework with a call for evidence in July 2022¹. The review asks whether the existing statutory processes for debt relief are fit for purpose and, if not, what reforms are needed¹. At that stage no decision on reform had been made¹.

The review took on added weight because the government had decided not to take forward a separate debt solution, the Statutory Debt Repayment Plan (SDRP), on its original timetable. The SDRP consultation was published on 13 May 2022 and closed on 5 August 2022, drawing over 80 responses from debt advice providers, consumer groups, charities, creditors, debt management companies, trade bodies, local authorities and academics¹. The government said it would not proceed to lay regulations implementing the SDRP that year, and would instead base further decisions on its future on the outcome of the personal insolvency review¹.

The SDRP as consulted on would have been a new statutory debt solution in which debt advisers devised a repayment plan over a period of up to ten years, with legal protections from creditor action similar to those in the existing breathing space scheme¹. The government said that for people who could afford to repay their debts in full, the SDRP could offer a more sustainable route out of problem debt than other statutory and voluntary solutions, while improving returns to creditors¹. The consultation also proposed minor improvements to breathing space; the government said it was considering those proposals and would provide a further update in due course¹.

Responses to the SDRP consultation were mixed. Most stakeholders agreed there was a need for a debt solution providing statutory protections to people who could afford to repay, but the majority also agreed the proposal would need significant changes to improve on existing solutions¹. Debt advice providers universally wanted more flexibility to deal with changes in debtors' circumstances over long periods, and many were concerned the proposed funding model would not cover their costs, with several saying they were unlikely to offer SDRPs at all¹. Creditors were concerned about the impact on their businesses; two-thirds of those who gave a view thought the SDRP's protections were too generous¹. Over half of respondents who expressed a view suggested the scheme should be paused or delivered over a longer period¹.

Why it matters for households

The review concerns the statutory routes available to people in England and Wales who cannot pay their debts, including bankruptcy and the breathing space scheme, which pauses enforcement action and most interest, fees and charges for 60 days while a debtor engages with debt advice, and offers the same protections to people receiving mental health crisis treatment for as long as that treatment lasts plus 30 days¹. The call for evidence asked whether those processes are fit for purpose, so any eventual reform could change how debt relief works for households that use them. No decision on reform had been made at this stage¹.

The decision not to lay SDRP regulations in 2022 meant the proposed ten-year repayment plan was not available on the timetable previously consulted on¹. The government linked the future of the SDRP to the review's outcomes, noting that significant reforms to the personal insolvency framework may affect both the need for, and design of, a new debt solution based on full repayment of debts¹. It also said it was mindful of the need to allow debt advice providers, creditors and other stakeholders to concentrate their resources where they can have the greatest impact¹.

What happens next

The government said it would base further decisions on the future of the SDRP on the outcomes of the personal insolvency framework review¹. On breathing space, it said it was considering the proposals received and would provide a further update in due course¹. No date for the conclusion of the review has been reported.