Government measures to help consumers manage their growing mountain of debt have come too little too late, according to insolvency experts at Midlands law firm Browne Jacobson.

Findings by price comparison website uSwitch revealed that as many as five million people, or one in 10 adults, spend more than they earn on a monthly basis. A further one in five consumers have no spare money left at the end of the month and half of those living beyond their means rely on overdrafts and credit cards to plug the gap.

The Government recently introduced plans that would allow consumers with debts to take out a court order enabling them to have a break from making repayments. Under the radical new proposals those who fall into financial difficulties through a change of circumstance, such as losing their job or divorce, will be able to stop making payments on personal loans, credit cards and other debts for up to a year by applying for an Enforcement Restriction Order.

In the majority of cases, interest on the debts would continue to accrue during an ERO but borrowers would not be hit with penalty charges or other fees while the order was in force.

Payments to creditors would cease and creditors would be barred from taking enforcement action without the permission of the court.

Not all debts would be included in an ERO. Child maintenance, student loan and mortgage payments will be excluded. Utility bills, rent arrears and council tax may also be excluded. There would be no upper limit on the debts that could be included in an ERO but the debtor must be able to show that they can continue making payments once the ERO comes to an end.


Vicki Dunstall, an expert in insolvency at Browne Jacobson, said: "These latest findings come amidst widespread concerns that higher debts may push more people into insolvency this year. For many people the proposed changes will be too little too late. We have had constant warnings about the mounting debt problem for years but it appears that both consumers and the Government have done little to curb spending habits.


"With the credit crunch now in its ascendancy and billions being wiped off the price of stock markets around the world there will be many people saying we told you so.


"Government plans to give those in debt a temporary reprieve will herald one of the most profound developments in UK bankruptcy and insolvency legislation in recent years. EROs will provide an alternative to bankruptcy and individual voluntary arrangements but will not be available until 2010.


"The other big loser under the Government's plans will be the payment protection market, a sector that is already under investigation by the Competition Commission for its low claims ratios and high commission rates.



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