Thousands of people in debt are to get relief through a new 'breathing space' scheme that will block creditors from chasing them for 60 days.
The new initiative will freeze interest payments for people in severe debt, and halt enforcement action from creditors for two months.
This will include council tax arrears, personal tax debts and benefit overpayments.
It will give individuals and families struggling with their finances extra help and time to get their bills and payments under control.
The scheme will be enforced in 2021 and will see payments frozen - along with action from bailiffs - for 60 days.
The government said that individuals receiving NHS treatment for mental health reasons will not need to seek debt advice during the 60-day period.
They will continue to receive the same Breathing Space protections, which will last for the whole of their treatment.
City minister, John Glen, said: "Problem debt can have a devastating impact of people’s lives, putting a huge burden on individuals which can lead to family breakdown, stress and mental health issues.
"No one should be stuck in an endless cycle of debt and facing the ever-looming threat of invasive debt collectors.
“That’s why I’m introducing this new scheme, giving everyone access to the advice, time and support they need to both get their finances under control and get away from the perpetual stress and worry debt can cause.”
Helen Undy, of the Money and Mental Health Policy Institute, said: “This scheme could genuinely save lives. Everyone experiencing a mental health crisis should have the opportunity to recover free from escalating debt fees, charges and the threat of bailiffs arriving at their door.
"We are delighted that the government acted on our call to protect people from being hassled about debts while they’re receiving crisis care, and we look forward to working with ministers to put these plans in place over the coming year."
Joanna Elson OBE, of the Money Advice Trust, the charity that runs National Debtline, added: "Breathing Space will provide a powerful incentive for people to seek debt advice, safe in the knowledge they will be given the time and statutory protections they need to begin to resolve their financial difficulty.
"The decision to include local authorities and other public sector creditors is particularly welcome – and means this new scheme could well be a game-changer in our efforts to tackle problem debt as a society.
"We look forward to working with government and other partners to ensure that Breathing Space is implemented successfully, and to continue to contribute to the government’s plans for Statutory Debt Repayment Plans as these are developed further."
