As of 4th May 2021, there will be a new scheme, which will allow struggling debtors time to ‘breathe’ and time to sort out their financial struggles. This new scheme is called The Debt Respite Scheme (Breathing Space) Guidance and comes from a new piece of legislation called The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, a full explanation of which can be found here.
The scheme allows two types of breathing space. The first is a standard Breathing Space and the second is a mental health crisis Breathing Space.
What does this mean?
If a debtor contacts us and asks for breathing space, then we will require proof that they are actively trying to solve their financial problems and have applied to a debt advice provider who is authorised by the Financial Conduct Authority to offer debt assistance and is able to apply for a breathing space moratorium on the debtor’s behalf. Provided that a debtor has legitimate financial problems, we will be required by law to allow 60 days of Breathing Space, meaning that we can take no legal action during this time. If the debtor has provided proof of a mental health crisis, we are required to place the matter on hold for as long as the mental treatment is ongoing, plus an additional 30 days. If a debtor is receiving treatment for a mental health crisis, then provided this has been certified by a Mental Health Professional, a debt management company can apply for the moratorium in the same way as a standard moratorium.
Can anyone apply for a Breathing Space?
In order to be eligible, a debtor must be:
- An individual living in England or Wales
- Owe a qualifying debt to a creditor
- Not have a debt relief order or an individual voluntary arrangement, or be an undischarged bankrupt at the time of application
- Not already had a Breathing Space in the previous 12 months at the time of application (there are no such limits on a mental health Breathing Space)
It is likely that all personal debts will be qualifying debts, and includes sole traders only where they are not registered for VAT.
The Breathing Space is designed to enable debtors the time to work out how they will deal with debts, what sort of a payment plan a debtor can come to each month, and whether a debt management plan would be an appropriate step to take. It is worth noting that a debtor who has assets then they may not be granted a Breathing Space.
What does it prevent creditors from doing?
During the breathing space we will not be able to:
- 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
- Obtain a warrant or writ
- Sell or take control of debtor’s property or goods
- Proceed with legal proceedings against the debtor (including bankruptcy petitions)
- Apply for a default judgment for a claim against the debtor
- 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 debt subject to a Breathing Space
A Breathing Space allows debtors the time and space required to get their house in order and is another tool provided by the Government to relieve the pressure on debtors who may be struggling. The issue of vulnerable debtors is not new, and we should stand together to help those who are struggling with mental health issues.
It is worth remembering though that debtors can continue to make payments during their breathing space. It is possible that at the end of a Breathing Space moratorium, the debtor may have entered a debt solution such as a Debt Relief Order, Individual Voluntary Arrangement, or bankruptcy.
If you have any queries or concerns about this new scheme, please do not hesitate to get in touch with us.