The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311) will come into force on 4 May 2021.
The new law offers legal protection to individuals in debt from their creditors. There are two types of breathing space categories defined within the Regulations:
- Standard Breathing Space – available to anyone with problem with debt. The protections include pausing most enforcement action, restricting contact from creditor, freezing most interest and charges on their debts for up to 60 days.
- Mental Health Crisis Breathing Space – available to those in receipt of formal treatment for mental health. It offers the same protections as the standard breathing space, but extends for as long as the individuals’ mental health treatment is in place, plus 30 days (regardless of how long the treatment lasts).
Who will be responsible for the administration?
The Insolvency Service will host a register of individuals who are in the scheme and a system, i.e. online portal to provide notifications of an individual’s admission into the breathing space scheme to their creditors.
Individuals who believe they should be registered in the breathing space scheme should access debt advice and be assessed by a debt advisor as being in debt. If the individual meets the eligibility criteria and is found to be eligible for the scheme, the debt advisor would enter the relevant details of the Debtor and its Creditors on the portal hosted by the Insolvency Service. This would provide Creditors with notification, with a further notification due upon exit from the scheme, i.e. after 60 days, or in the circumstance of the mental health breathing space upon expiry of the time allowed.
All personal debts and liabilities are qualifying debts.
While guarantor loans can be included in a breathing space, the protections do not extend to the guarantor. The guarantor can apply for their own breathing space, if they’re eligible.
Qualifying debts can include any debts that the debtor had before the Breathing Space legislation came into force on 4 May 2021.
New debts incurred during a breathing space are not qualifying debts. Neither are new arrears on a secured debt that arises during breathing space.
Not all types of debts are included in the protection, e.g. secured debts, fraudulently incurred debts, fines imposed by a court, child maintenance or obligations under an order made in family court proceedings. The protection also does not cover crisis/budgeting loan, student loans, damages for death or personal injury, advance payment of Universal Credit, council tax liabilities.
While some business debts also qualify for the breathing space, they do not qualify if the debt only relates to the business (not the debtor personally) and the debtor is VAT registered, or the debtor is a partner in a business with someone else.
An eligible non-domestic rates debt (or business rates) is a qualifying debt if all instalments for that financial year have fallen due and have not been paid. If a debtor has been served with a ‘further notice’, the remaining liability for that financial year is a qualifying debt.
What does this mean for the Creditors?
Creditors will need to be aware of when and how these protections apply, so as to avoid taking enforcement action at the wrong time which could give rise to wasted costs.
However, the Regulations allow for the Courts to have a certain level of discretion to set the moratorium aside if it feels appropriate to do so.
If you have any questions regarding the above article or any aspect of Debt Recovery or Litigation, please do not hesitate to contact Jackie Ray on email@example.com or Daria Stepien on firstname.lastname@example.org.