Court order plan for debt “repayment holiday”

17 January 2008

Ministry of Justice announces personal insolvency law shake-up

The Government yesterday outlined plans that will see insolvency laws shaken up more than they have been in years.

Under the new proposals, borrowers will be able to take a break from making debt repayments by taking out a court order.

The plans, which were yesterday outlined by the Ministry of Justice in a consultation paper, would allow those consumers suffering from financial difficulties, due to a change in circumstances (e.g. loss of job or divorce) to put a hold on their debt repayments for up to a year. To do this they would need to apply for an “enforcement restriction order” (ERO).

Civil Justice Minister, Bridget Prentice, said: “We want to ensure that people who run up debts are given every opportunity to pay them off.”

Under the terms of an ERO, there would be no upper limit on the amount of debt that could be put on hold however; the borrower would have to demonstrate that repayments could be made at the end of it.

The price of the ERO set-up fee has yet to be decided.

Throughout the course of the ERO, interest would still be accrued on the debt but, the borrower would not be subject to penalty charges or other fees.

EROs would not include child maintenance payments, student loan payments and mortgage payments, as well as fines incurred by not meeting the repayment conditions that come with them. Council tax, utility bills and rent arrears may also be left out.

Experts are predicting that EROs could be devastating to the payment protection insurance (PPI) industry because PPIs provide cover for repayments in the event of accident, illness or unemployment.

The consultation was launched as part of the Tribunals Courts and Enforcement Act 2007 and will conclude on April 16.