Outlining new plans to permit borrowers to take 'repayment holidays,' the Ministry of Justice said that borrowers would be able to apply for a court order which will allow them to put a hold on debt repayment.
This 'Enforcement Restriction Order' (ERO) is designed to help those falling into financial difficulties after losing their job or going through a divorce.
Whilst not applying to mortgage repayments, the ERO will cover personal loans and credit cards. The debts will still accrue interest, but penalty charges will be scrapped and no enforcement action taken.
There will be no upper limit on the amount of debt, and the Order will last for up to a year as long as borrowers can prove they will be able to resume payments once it comes to an end.
However a government spokesperson said that the legislation was not intended to provide a payment holiday facility, just to give people more chance to pay their debts off.
Alongside industry pundits, the Times has suggested that EROs could have devastating effect on the payment protection insurance (PPI) market.
The matter is currently in consultation and will conclude on April 16.
