Sometimes, through no fault of their own, people can get into debt, certainly the various lockdowns and increased redundancies during the Covid pandemic have led to many people slipping into debt. In October 2020 the Government passed into law the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. This was then brought into force on the 4th of May 2021. In this article we will take a look at what these regulations mean.
Essentially the new regulations are there to allow someone who is in debt to get some breathing space to sort out the debt and come to a solution to pay off the debt or a payment plan to repay the debt. During this period the creditor cannot apply fees or interest to the debt and cannot take enforcement action.
There are two types of breathing space given under the new legislation:
1) Standard breathing space is where anyone with a problem debt can get these legal protections for 60 days from application
2) Mental health crisis is where anyone undergoing mental health crisis treatment can have breathing space for the period of treatment plus 30 days
• credit cards
• store cards
• personal loans
• pay day loans
• utility bill arrears
• mortgage or rent arrears
The debtor must apply to a debt advice provider who is qualified and authorised by the FCA to provide debt counselling or a local authority who offer debt advice. Subject to satisfactorily passing the eligibility criteria the debt adviser will then take all relevant information and enter it onto the breathing space register. The creditor should then get notification either electronically or in the post of the start of the breathing space requirement. The start is typically the day after the details have been put onto the register.
To apply for mental health crisis breathing space, the debtor must be certified by an approved mental health professional as undergoing mental health crisis treatment. In mental health crisis cases, the debtor, the debtor’s carer, an approved mental health professional, social workers or a representative of the debtor can all apply to a debt advisor for breathing space. Other than that, the eligibility and application process are the same.
Once a breathing space application has been officially notified the creditor must immediately stop:
• the debtor having to pay certain interest, fees, penalties or charges for that debt during the breathing space
• any enforcement or recovery action to recover that debt, by you or any agent you’ve appointed
• contacting the debtor to request repayment of that debt, unless they have permission from the court.
The application for breathing space does not absolve the debtor from paying their ongoing liabilities and things like rent should continue to be paid if possible while the arrears are sorted under the breathing space period. If these ongoing liabilities are not paid, the debt advisor can cancel the breathing space order as part of the midway review. A creditor can, however, request a review of the breathing space order within 20 days of the start of the period under certain conditions.
At the end of a breathing space period a creditor can, unless the debtor has gone into a debt solution program or an individual voluntary agreement, start applying interest and fees to the debt once again, but this cannot be backdated. The creditor can also start court proceedings to recover the debt or continue with existing legal proceedings.
This new legislation is designed to help those in debt to work with a professional debt counsellor to resolve the arrears without further financial penalties or legal action. During this period any creditor, which could be a landlord or their agent must halt any actions on the debt. It is important that a landlord fully researches their responsibilities under this new legislation to ensure they are compliant.