BLOGS

Back in February 2020, there were talks of introducing a scheme to help people who cannot pay their debts or are unlikely to be able to pay their debts. The Debt Respite Scheme (breathing space) is now set to be introduced in May 2021 to “level up” the country and help millions of people in problem debt. There will be two types of breathing space: standard and a mental health crisis breathing space.

 Standard breathing space will be available to any individual with problem debt and will give them legal protection from creditor action for up to 60 days. The protections will include pausing most enforcement action, contact from creditors and freezing most interest and charges on their debts.

Standard breathing space will only be accessible through an approved debt advisor registered with the Financial Conduct Authority or a local authority if it is approved to offer this kind of advice to its residents. Anyone who cannot or is unlikely to be able to repay their debts can apply to a debt advisor for a standard breathing space. 

 There are various criteria the debtor must meet and the debt advisor will advise if the debtor is eligible for a breathing space. For example, if a debtor could pay their debts with some budgeting help then breathing space is not appropriate for them.

 A mental health crisis breathing space provides more robust protection than the standard breathing space and can last as long as the debtor’s mental health crisis treatment plus an additional 30 days thereafter. The debtor must still meet the same criteria for a standard breathing space but they must also be receiving mental health crisis treatment at the time the application is made.

In addition to debtors, social workers, carers, mental health nurses, debtor’s representatives etc. can apply on behalf of the debtor for a mental health crisis breathing space.

Qualifying debts will include (but are not limited to) the following:

• ·       Credit cards/store cards
• ·         Personal loans
• ·         Overdrafts
• ·         Pay day loans
• ·         Utility bill arears
• ·         Mortgage or rent arrears

Therefore, the breathing space scheme will apply to many creditors including landlords whose tenants owe arrears. If you are a creditor landlord and are told a debt owed to you is in a breathing space, you must stop all related action in trying to recover that debt and apply the protections for the relevant period until the breathing space ends. The rent arrears owed will not be written off, just action to recover the same cannot be taken within the breathing space.

Creditors will be made aware of a debt owed to you being in a “breathing space”, you must apply the protections from the date set out in the notification (this will either be via post or electronically).

If you do not comply with the breathing space, any action taken will be null and void and you may be liable for the debtor’s costs.

When a breathing space ends, you can start applying interest, fees, penalties and charges to the debt from the date the breathing space ends. It is important to note you cannot backdate these penalties unless a court allows you to do so. You can then take any action to enforce the debt/continue any legal proceedings etc as long as the debtor has not gone into a debt solution (debt relief order or bankruptcy) or you have made a formal arrangement to deal with the debt.

Full guidance on the Debt Respite Scheme can be found here: https://www.gov.uk/government/publications/debt-respite-scheme-breathing-space-guidance/debt-respite-scheme-breathing-space-guidance-for-creditors