The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will come into force on 4 May 2021.
The Regulations will provide legal protection to individuals in what the government guidance refers to as “problem debt”.
This scheme will only be applicable for individuals that have spoken with a debt advisor authorised by the Financial Conduct Authority (FCA). If the debtor meets requirements of the scheme, the debt advisor will be able to apply for one of two options available under Breathing Space.
The different types of breathing space
The Regulations provide for two different types of moratorium for individuals:
1. Standard Breathing Space: provides legal protection from creditor action for up to 60 days, which includes pausing most enforcement action, contact from creditors, and freezing most interest and charges on their debts.
2. Mental Health Crisis Breathing Space: Only applicable to those receiving mental health crisis treatment but provides stronger protections. It lasts for the duration of the mental health crisis treatment, plus 30 days, regardless of the duration of treatment.
Eligibility for a Standard Breathing Space
These are available to:
- Who owe a qualifying debt to a creditor – meaning an unsecured existing liability to pay a creditor which is not excluded from the Breathing Space scheme (exclusions include court fines, child maintenance obligations, student loans etc, mirroring other insolvency legislation)
- Who usually reside in England or Wales
- Who do not have a debt relief order (DRO), an individual voluntary arrangement (IVA), or are not an undischarged bankrupt
- Who do not have a current Breathing Space and have not had one in the last 12 months
- And where a debt advisor is satisfied that:
- The individual cannot repay all of their debt; and
- A Breathing Space is appropriate
Debtors will need to provide full details of their personal circumstances and debts to the debt advisor to start the process.
Eligibility for a Mental Health Crisis Breathing Space
If an Approved Mental Health Professional (AMHP) certifies that a person is receiving mental health crisis treatment, the AMHP’s evidence can be used by a debt adviser to start a mental health crisis breathing space. There are also a number of other people who can apply to a debt advisor on behalf of the person receiving mental health crisis treatment.
Notification to creditors
The Insolvency Service will maintain an electronic service that debt advisors will use to start the Breathing Space process. It will be the Insolvency Service who is responsible for notifying creditors when a Breathing Space has commenced which affects a debt owed to that creditor.
The register will be private and creditors will not be entitled to access information on other debts owed by that debtor.
Creditors will also be notified once a Breathing Space comes to an end.
Effect on creditors
When a creditor receives a notification that a Breathing Space process has commenced, creditors are obliged to apply the protections provided for by the Regulations, for the duration of the Breathing Space.
The protections include disapplying any interest, fees, penalties or charges, and the cessation of action to collect the debt. In particular, creditors may not:
- Collect or enforce a breathing space debt
- Try to enforce a judgment or order issued by a court or tribunal, before or during the breathing space, without the court’s permission
- Enforce their security
- Obtain a warrant or writ
- Obtain or seek a liability order
- Sell or take control of debtors property or goods
- Proceed with legal proceedings against the debtor (including bankruptcy petitions)
- Apply for a default judgement for a claim against the debtor
- Seek to install a pre-payment meter
- Seek to disconnect the supply of gas or electricity from the debtor’s premises
- Serve a notice to take possession of a property let to the debtor on the grounds of rent arrears due up to the start of the Breathing Space
- Contact the debtor about the enforcement of a debt subject to a Breathing Space
However, a Breathing Space is not a payment holiday and payments towards debts can be made and ongoing liabilities should be maintained.
At the end of a Breathing Space, the debtor may have entered into a debt solution such as a DRO, IVA, or bankruptcy.
Like its corporate counterpart, the moratorium for companies, this is a potentially useful tool that will allow individuals struggling with debt time to assess their options without the threat of bankruptcy or other creditor enforcement.
Creditors will need to have processes in place to comply with their obligations when a notification is received. Early action will still be important, as often it is the cumulative effect of creditor action that leads individuals to seek advice.