Statutory Debt Repayment Plan: what you need to know
The Government recently closed a consultation seeking opinions on a proposed Statutory Debt Repayment Plan (SDRP).
The proposals set out a new method for debtors to repay creditors over time, while being protected from enforcement action.
This is primarily aimed at repaying things like credit card debt and other consumer spending, but both mortgage and rent arrears can be included in the plan at the discretion of the debt advisor.
How would an SDRP work?
If someone is in problem debt, then they can contact a FCA regulated debt advisor and discuss whether or not an SDRP would be suitable for them. An SDRP wouldn’t be suitable in cases where the debtor would be better off declaring bankruptcy or applying for a Debt Relief Order.
If the debt advisor believes an SDRP is suitable for them, then their eligible debts will entered into an SDRP. Under the SDRP the debt is then consolidated into one monthly payment, which is distributed to the creditors by the debt advisor.
How are payments allocated?
Creditors will receive 90% of the monthly payment, with debt advisors keeping the remaining the 10% for administrative costs.
Of the remaining cash, a third would go towards paying off priority debts such as rent arrears, with the remaining 60% shared between all creditors.
In our consultation submission we argued that priority debt should receive a higher proportion of this payment to facilitate stable tenancies and incentivise landlords to let to tenants on lower incomes.
How are tenants protected from enforcement?
While the debtor continues to make payments into the debt repayment plan, then creditors may not take enforcement action related to the debt. For landlords this would prevent them from –
Serving Section 8 notices based on rent arrears grounds for the debt;
Applying for a County Court Judgement (CCJ) for the debt;
Applying to court for a possession order based on a previously served Section 8 notice for rent arrears.
These protections last for as long as the debtor remains in the plan and continues to make payments.
Will rent always be included in an SDRP?
Not all the time. Rent and mortgage arrears are ‘discretionary non-eligible debt’, meaning that debt advisors can agree not to include them within an SDRP.
Debt advisors should consider whether the long repayment time would lead to the landlord looking to end the tenancy at the end of the fixed term, before deciding whether to include arrears in a plan.
How does an SDRP work with guarantors or joint tenants?
Notably, landlords are only prevented from taking action against the tenant who is in an SDRP. This means they can still demand payment in full for arrears debt from other joint tenants or any guarantors for the tenancy agreement.
Tenants can enter a joint SDRP should they wish, even in a HMO, and in those cases no tenant can be enforced against while the SDRP is ongoing.
The NRLA raised specific concerns about the suitability of joint SDRP plans for houses in multiple occupation in our consultation response. We suggested that a joint plan should only be available where the debtors are in a relationship or are relatives.
What happens if the tenant’s arrears continue to build after an SDRP is entered into?
Rent is an ongoing liability under the SDRP and still expected to be paid in full. SDRP is not a way to avoid defaulting on future payments.
The protections under an SDRP only apply to the debt that is included in the SDRP. This would be the rent arrears built up prior to entering into an SDRP. It does not apply to rent debts that build up after the SDRP starts.
As a result, if a tenant enters into an SDRP, and pays their rent on time and in full for all future payments, then the landlord cannot seek possession for rent arrears. Instead, the tenant will pay off their debts to the landlord over a number of years.
However, where the tenant enters into an SDRP, and then continues to miss rent payments afterwards, the landlord may take enforcement action on the debt built up outside of the SDRP. Including serving a Section 8 notice for the new arrears.
In our submission response we argued that failing to pay rent is evidence that an SDRP is not suitable for the tenant’s rent arrears. In these cases we argued that the rent portion of the SDRP should be cancelled, allowing landlords to take enforcement action immediately on all of the arrears that have built up.
What is it likely to mean for landlords?
For the most part, it’s likely that SDRP won’t affect many landlords. Most tenants already pay their rent on time and prioritise paying rent over most other debts. Take up of the protections afforded in a ‘breathing space’ has also been quite low suggesting that SDRP will follow a similar pattern.
However, in cases where tenants have started to build up arrears, landlords may want to be more proactive in enforcing against the debt at an earlier stage. This prevents substantial build up of arrears before they become unmanageable and incentivises tenants to contact a debt advisor earlier. It also means that tenants who are determined to not pay their rent can be dealt with at an earlier stage.
Landlords who are concerned about SDRP may also want to consider taking a guarantor as a matter of course or performing more stringent affordability checks on their tenants.
When will SDRP come into force?
SDRP is only at the consultation stage at the moment so it won't be implemented for a while yet. Breathing Space took a number of years to move from consultation to implementation.