The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (“Breathing Space”) comes into force on 4 May 2021.
There are two types of Breathing Space:-
Standard Breathing Space - available to anyone with problem debt, providing legal protection from creditors for up to 60 days.
Mental health Breathing Space - only available when someone is receiving mental health crisis treatment, providing legal protection from creditors for as long as the treatment for mental health crisis, plus 30 days.
Protection includes pausing most enforcement action and contact from creditors and also freezes most interest and charges on their debts. In the case of mental health Breathing Space the protection is stronger.
A Breathing Space is not a payment holiday. While a creditor cannot enforce a Breathing Space debt during a Breathing Space or charge interest or fees on it the 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 and the creditor can continue to accept these payments.
Who can apply?
Any debtor who cannot or is unlikely to be able to repay debts can apply for a Breathing Space. This can only be accessed by seeking debt advice from a debt advice provider – who is authorised by the Financial Conduct Authority to offer debt counselling or a local authority providing debt advice to residents (“debt adviser”).
The debt adviser provider is thereafter responsible for the administration of a Breathing Space and is the point of contact for the creditor.
In addition to the debtor themself, the following people can apply to a debt adviser on behalf of a debtor for a mental health crisis Breathing Space:
- the debtor’s carer
- approved Mental Health Professionals
- care co-ordinators appointed for the debtor
- mental health nurses
- social workers
- independent mental health advocates or mental capacity advocates appointed for the debtor
- the debtor’s representative.
Eligibility / Qualifying Debts
Before a Breathing Space can be entered a debt adviser must ensure that:-
- the debtor is an individual;
- the debtor owes at least one qualifying debt to a creditor being ;
- credit card / store cards;
- personal loans
- payday loans
- utility bill arrears;
- mortgage / rent arrears;
- the debtor resides or usually resides in England or Wales;
- the debtor does not have a debt relief order, an individual voluntary arrangement, an interim order or be an undischarged bankrupt at the time of applying;
- the debtor does not already have a Breathing Space in place and has not entered a Breathing Space within the last 12 months at the time of applying;
- the debtor cannot, or is unlikely to be able to repay all or some of their debt;
- a Breathing Space is appropriate for the debtor.
In the case of a mental health crisis Breathing Space the above applies and the debtor must also be in receipt of mental health crisis treatment at the time the application is made. A debtor who has entered into a standard Breathing Space or a mental health crisis Breathing Space in the last 12 months may be eligible to apply for a mental health crisis Breathing Space and there is no limit on how many times a debtor may enter into a mental health crisis Breathing Space.
Qualifying debts can include joint debts even if only one debtor applies. The same protection would apply to the joint debtor(s) in relation to the qualifying debt.
Notification of a Breathing Space
The creditor will receive a notification from The Insolvency Service (who is maintaining the electronic service). The notification will provide details of the debt and the date the Breathing Space started as well as information about the debt adviser. Protection from the debt must be applied from the date set out in the notification. In the case of electronic notifications, protection will apply from the date it is sent, in the case of postal notifications it is four working days after posting.
When a creditor receives notification, they must:-
- identify the debt owned by the debtor and whether there are additional debts owed to them by the debtor;
- tell any agents they have appointed to recover the debt;
- stop the debtor having to pay interest, fees, penalties or charges for the debt during the Breathing Space;
- stop contacting the debtor to request payment of the debt (unless they have permission from the Court;
- stop any enforcement or recovering action to recover the debt; including
- collecting or enforcing a Breathing Space debt, either by the creditor directly or by an appointed agent. This does not include an existing attachment of earnings order made before the start of the Breathing Space, which may continue;
- apply to DWP for a new third party deduction to be taken from benefit payments;
- enforce a judgment or order issued by a Court or Tribunal before or during the Breathing Space, without the Court’s permission;
- enforce security over a Breathing Space debt;
- obtain a warrant or writ;
- obtain or seek to obtain a liability order,
- sell or take control of the debtor’s property or goods. If a bailiff or enforcement agent has taken control of ay goods by removing them and securing them elsewhere before the Breathing Space started those goods may be sold during the Breathing Space and the costs of the sale deducted from the proceeds, however fees accrued for storage cannot be charged during the Breathing Space or after it ends;
- start any action or legal proceedings – including bankruptcy petitions – against the debtor;
- make an application for default judgment;
- 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, or take possession of property let to the debtor having served such notice prior to the start of the Breathing Space;
- contact the debtor about enforcement of the debt.
Creditors can contact debtors with information about how they will deal with the Breathing Space and anything not related to the Breathing Space debt such as ongoing liabilities or an excluded debt, but they must not ask the debtor for payment and as such any communication must be worded to make sure it cannot be read as though it is asking the debtor to pay the debt.
If an additional debt is identified the creditor must contact the debt adviser as soon as reasonably practicable. The debt adviser must then decide whether this is a qualifying debt. A creditor does not need to apply protection to any additional debt until notification is received that it is a Breathing Space debt.
If a creditor has already filed a petition for bankruptcy or started any other action in a Court or Tribunal relating to a debt now in a Breathing Space they must tell the Court or Tribunal in writing as soon as notification of the Breathing Space is received. The Court must then stop the bankruptcy proceedings until such time as the Breathing Space ends or it is cancelled. Court orders and judgments which were made before the Breathing Space began cannot be enforced until the Breathing Space ends, unless the Court or Tribunal gives permission for them to continue.
Existing legal proceedings can continue when the Breathing Space ends. Any time limit for enforcement relating to the debt which ran out during the Breathing Space will be extended to 8 weeks after it ends.
Breathing Space Reviews
Between day 25 and day 35 of a standard Breathing Space a debt adviser must carry out a midway review.
If the debt adviser thinks the debtor has been meeting their obligations and communicating with them, the standard Breathing Space will continue until the end date.
If the debt adviser thinks any of the following apply, they can cancel the standard Breathing Space in respect of some or all of the debts:-
- the debtor has not met one or all of their obligations. This includes them not paying their ongoing liabilities (unless the debt adviser considers that the debtor did not have the financial means to do so);
- they have put a debt solution in place;
- they have not been able to communicate with the debtor about their Breathing Space. This includes where the debtor is not contactable or is not available;
- there is an issue with the debtor’s application, or there has been some unfair prejudice to the creditor’s interest, after completing a creditor’s request for a review (see below).
The creditor can also request that the debt adviser reviews the Breathing Space or review specific debts included, within 20 days of the Breathing Space starting or within 20 days of an additional debt being added to the Breathing Space, if they consider that:-
- the Breathing Space unfairly prejudices their interests;
- the debtor does not meet at least one eligibility criteria;
- the debt does not qualify;
- the debtor has enough funds to repay the debt.
A review must be requested in writing to the debt adviser along with any supporting evidence. The debtor can decide to carry out the requested review as part of the midway review process. If the debtor agrees with any of the above and they do not consider that the debtor’s personal circumstances would make it unfair or unreasonable the debt adviser must cancel the standard Breathing Space. If a creditor does not agree with the decision of the debt adviser they can take further action by applying to Court within 50 days of the Breathing Space starting, or 50 days after being notified of an additional debt being added to the Breathing Space. You cannot apply to Court before the debtor has completed their review.
There is no midway review for a mental health crisis Breathing Space. The debt adviser will regularly check that the debtor is still receiving mental health crisis treatment. However the mental health crisis Breathing Space must be cancelled if:-
- they believe the evidence provided about the debtor’s mental health crisis treatment contains inaccurate or fraudulent information; or
- the debtor asks for the mental health crisis Breathing Space to be cancelled.
If a Breathing Space is cancelled the creditor will receive a notification. After receipt enforcement action can be recommended but interest or fees accrued during the Breathing Space cannot be backdated unless permission is received from the Court.
The end of a Breathing Space
When a Breathing Space ends a creditor will receive notification which will include the date the Breathing Space ended and the reason in the event of cancellation.
Once a Breathing Space ends and assuming that the debtor has not gone into a debt solution such as an individual voluntary agreement, creditors can:-
- begin applying interest, fees, penalties and charges to the debt from the date of the end of the Breathing Space;
- continue any action to enforce the debt, including contacting the debtor for payment;
- start or continue any legal proceedings.
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