Parliament has approved amendments to the Financial Guidance and Claims Bill which mean people who are in a mental health crisis and struggling with serious debt won't have to attend a debt advice meeting.
The government is working on introducing a debt respite scheme, which will provide individuals in debt with up to six weeks free from further interest, charges and enforcement action.
This period would give those affected time to take action by seeking financial advice about how to manage and relieve their debt burden.
The new Single Financial Guidance Body – which will bring together the existent Money Advice Service, The Pensions Advisory Service and Pension Wise – which will be advising the government on the creation of the new debt respite scheme.
With the introduced amendment, "it will include advice on specifically how the scheme will protect recipients of mental health crisis services, and information on which services should be considered to be mental health crisis services," said Labour MP Luciana Berger.
Ms Berger said: "According to research by the Money and Mental Health Policy Institute, up to 23,000 people in England alone struggled with problem debt while they were hospitalised as a result of their mental health last year.
"Those people are likely to be receiving calls, texts and letters from their banks, local authorities and other creditors at a time of acute distress, and they are at risk of falling into further financial difficulty as a result of increased fees and charges."
She suggested when the scheme is up and running, "a person entering the care of a psychiatric in-patient facility or crisis team in the community would be supported to access breathing space if appropriate."
According to Jane Goodland, responsible business director at Old Mutual Wealth, the government's announcement "to modify the breathing space scheme is a triumph for the mental health crisis".
She said: "Money issues prey on people’s minds and can drastically impact their wellbeing. Debt is a vicious circle and living in financial stress can lead to mental health problems.
"The problem then tends to escalate because those dealing with mental health find it difficult to cope with finances. In fact this the amendment shows the breathing space scheme at its finest, helping those who may need it most."
Ms Goodland added government and industry need to encourage people to talk about their finances and supply them with financial education so they feel more capable of tackling the issues.
She said: "The UK faces some acute challenges when it comes to personal financial wellbeing, with many people struggling with over-indebtedness and under-saving.
"Fixing these issues are not only necessary for the economic health of our nation, it is key for the mental health."
The Financial Guidance and Claims Bill will also introduce a cold calling ban on pensions, which the Labour party wants to strengthen with new amendments.