On the 4th of May 2021, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, came into effect in England and Wales.
There are, in essence, two schemes:
Standard Breathing Space – The Standard Breathing Space allows qualifying debtors a period of 60 days protection from creditors.
The Mental Health Crisis Breathing Space – The Mental Health Crisis Breathing Space allows a debtor who is receiving treatment for a mental health condition protection for the period that they are receiving treatment plus a further 30 days.
There is no limit to the number of times a person can apply for protection under this scheme.
A Breathing Space can only be started by:
A debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling.
A local authority (where they provide debt advice to residents).
Debt advice providers or debt management companies are responsible for the administration of a Breathing Space. They are the point of contact for the debtor, the creditors (and appointed agents), and the Insolvency Service. If the debtor is granted Breathing Space under the scheme, the insolvency service will add the debtor onto a register and will notify all relevant creditors. The Insolvency Service have set up an electronic service to keep the register of debtors and creditors.
Who is eligible under the Debt Respite Scheme?
A debtor must be eligible and meet all the conditions under the regulations for the Standard Breathing Space. For example, a debtor must:
Be an individual.
Owe a qualifying debt to a creditor.
Live or usually reside in England or Wales.
Not have a Debt Relief Order (DRO), an Individual Voluntary Arrangement (IVA), an Interim Order, or be an undischarged bankrupt at the time they apply.
Not already have a Breathing Space or have had a Standard Breathing Space in the last 12 months at the time they apply.
The debt adviser or debt management company must also be satisfied that the debtor meets both of the following conditions:
Their client cannot, or is unlikely to be able to, repay all or some of their debt.
A Breathing Space is appropriate for their client.
A debtor must be eligible and meet the conditions under the regulations for the Mental Health Crisis Breathing Space.
The debtor must meet the same conditions as above for the Standard Breathing Space Scheme, but they must also be receiving mental health crisis treatment at the time that an application is made. A debtor who has had a Standard or Mental Health Crisis Breathing Space in the last 12 months may be eligible for a Mental Health Crisis Breathing Space.
Which debts are included in the Debt Respite Scheme?
Not all debtors are treated as being qualified debts under the scheme.
Debts that are not included in the Breathing Space Scheme are:
Secured debts (but the arrears on secured debts do qualify)
Debts incurred after your Breathing Space started
Debts incurred because of fraud
Court fines (penalty charge notices like parking tickets do qualify)
Obligations from a confiscation order
Child maintenance or money owed under an order from Family Court proceedings
A crisis or budgeting loan
Personal injury damages
Advance payments on Universal Credit
Council tax liabilities that are not due yet
The Debt Respite Scheme process explained
If you receive a notification from a debtor that they wish to enter into a Debt Respite Scheme, then you should take the following steps.
1. You must search your own records to identify the debt owed to you by the debtor.
This needs to happen as soon as possible. If you have only received notification about one debt, but you are owed two debts (for example, the debtor has two accounts for goods and services from you) then you should apply the protections set out below to both debts. You should also tell the debt advisor or debt management company of the other debts. It is the debt adviser who will decide if the additional debt qualifies for the Breathing Space.
2. You must make sure you stop immediately:
Charging interest, fees, penalties or charges for that debt during the Breathing Space.
Any enforcement or legal action to recover the debt.
Contacting the debtor to request repayment of that debt, unless you’ve got permission from the Court.
Interest can still be charged on the principal in secured debt, but not on the arrears.
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 does not alter your contractual rights and does not cancel or make void the agreement between the parties.
3. Write to the debtor and debt advisor and confirm that the notification has been received and provide information about how you will deal with their Breathing Space.
For example, explaining that the interest on the balance will not increase and that you will not contact them again until after the Breathing Space has finished.
Does the Breathing Space Scheme apply if Court proceedings or the bankruptcy process has already begun?
Yes, you should tell the Court or Tribunal immediately if you receive notification of a debtor entering into a Breathing Space Scheme. You should tell the Court or Tribunal in writing, and you must do this as soon as you receive notification of the Breathing Space.
What does the Debt Respite Scheme mean for creditors?
As a creditor, if you’re told that a debt owed to you is in a Breathing Space, you must stop all action related to that debt and apply the protections as detailed above. These protections must stay in place until the Breathing Space ends.
A Breathing Space is not a payment holiday. While you cannot enforce a Breathing Space debt during a Breathing Space or charge interest or fees on it, a debtor is still legally required to pay their debts and liabilities. During the Breathing Space, the debtor should continue to pay any debts and liabilities they owe you. You can continue to accept these payments, including those you get from existing direct debits.
If you do not comply with the regulations, then any action you take is null and void and you may be liable for the debtor’s costs.
Can a Breathing Space be cancelled?
Yes, after a review by the debt adviser, if the creditor does not agree with a debt adviser’s decision, an application can be made to Court to cancel the Breathing Space in respect of some or all the debts.
The application needs to be made to the Court within 50 days of the Breathing Space starting, or 50 days after being notified about an additional debt being added to it. You cannot do this before the debt adviser has completed their review and has let you know the outcome.
If you decide to apply to the Court, you should notify all parties in the case including the debt adviser. The Court will consider your application and tell you, the debtor, and the Insolvency Service, of its decision. If the Breathing Space is cancelled for all the debts or just some of them, the Insolvency Service will update the Breathing Space register. You will receive a notification that the Breathing Space has been cancelled, and whether this is for some or all the debts.
You cannot backdate any interest, penalties, fees, or charges accrued during the Breathing Space period, unless a Court grants permission to do this.
When do the schemes end and what happens when they come to an end?
The Breathing Space Scheme – when this ends, you will be sent a notification. It will tell you the date the Breathing Space ended.
The Mental Health Crisis Scheme – this ends either 30 days after the debtor’s mental health crisis treatment ended, or 30 days after the date a debt adviser had no response after asking for confirmation from the nominated point of contact about a debtor’s ongoing mental health crisis treatment.
When a Breathing Space ends, as the creditor, you can:
Start applying interest, fees, penalties, and charges to the debt from the date that the Breathing Space ends. You cannot backdate or apply any interest, fees, penalties, or charges that accrued or would have accrued during the Breathing Space period, unless a Court allows you to do this.
Take any action to enforce your debt, including contacting the debtor, or collecting debts from benefits.
Start or continue any legal proceedings about your debt.
Contact the team at Smith Partnership today for help and guidance with the Debt Respite Scheme. One of our debt collection solicitors will be able to supply you with debt collection legal advice to navigate you smoothly through the process.