Protection plan for debtors who suffer personal tragedy

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The Independent Online

Debtors who have been hit by a personal tragedy could get six months' protection from their creditors under government plans announced yesterday.

Debtors who have been hit by a personal tragedy could get six months' protection from their creditors under government plans announced yesterday.

People who have lost their job or suffered an illness or relationship breakdown would get a six-month stay of execution of a court order against them.

The Department for Constitutional Affairs has also proposed debt relief for individuals who were unlikely ever to be able to pay off their debts. However the Government indicated that it has decided against imposing a maximum interest rate that lenders can charge on personal loans.

The DCA issued its consultative plan alongside a joint action plan by the Departments for Work and Pensions and Trade and Industry on tackling over-indebtedness.

The paper, A Choice of Paths, includes relief for up to six months from enforced debt recovery from those whose financial circumstances have suddenly changed; a debt relief scheme that would discharge debt below £15,000 for those with no prospects of earning income; and compelling creditors to accept settlement terms suggested by private and voluntary debt advisory schemes if the debtor sought help.

David Lammy, minister at the Department for Constitutional Affairs, said: "These proposals feed into a strategy we are developing to cope with the high levels of indebtedness in our society. It can become unmanageable, create other problems and then drag people into social exclusion."

Figures from the Bank of England next week will confirm that total outstanding household debt including mortgages has hit £1,000bn.

The action plan brings together measures such as a helpline, initiatives to improve financial literacy and better access to affordable credit.

The Government hopes to publish a package of measures as part of the first consumer credit legislation for three decades, in this autumn's Queen's Speech.

But Gerry Sutcliffe, the Consumer minister, said that the Government was "not inclined" to impose a cap on interest rates.

The finance industry backed the decision, saying evidence from other countries showed that a cap would leave some households unable to borrow on any terms. Citizens Advice said it did not support a ceiling on interest rates, saying that some lenders would raise their rates in line with the cap.

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