The Debt Respite Scheme, known as “breathing space”

The law around problem debt has changed. On Tuesday 4^th May 2021, the government-led “Breathing Space” legislation came into force. What is this new legislation, and how does it affect you, or your business?

Whether you owe money to a person or a company and are struggling to repay it, or whether you are an individual or business who is owed money by someone else, this new law is worth knowing about.

So, what is ‘breathing space’?

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. The aim is to give someone with problem debt (debt they are unable to pay) the right to legal protections from their creditors for a period of time. It is hoped that during this moratorium period, people will be able seek debt advice and take the appropriate steps necessary to manage their finances.

There are two types of breathing space: a standard breathing space and a mental health crisis breathing space.

1. A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts. To be eligible for a standard breathing space, you must:

1. be an individual
2. owe a qualifying debt to a creditor
3. live or usually reside in England or Wales
4. not have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order, or be an undischarged bankrupt at the time they apply
5. not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply
6. additionally, a debt adviser must also be satisfied that:
   1. their client cannot, or is unlikely to be able to, repay all or some of their debt
   1. a breathing space is appropriate for their client

• A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

What does this mean for Creditors?

As a creditor, if you’re told that a debt owed to you is in a breathing space, you must stop all action related to that debt and apply the protections. These protections must stay in place until the breathing space ends.

As a creditor, you will be notified of the debtors breathing space application by the electronic service. The electronic service will send you a detailed notification to tell you about each debt owed to you in a breathing space and the date the breathing space started. You need to make sure you apply the protections to these debts from the date set out in the notification.

If you are a creditor, it’s also possible your debt might be added to a breathing space at a later date, because it is only identified after the breathing space has started. In this case, you have to apply the protections from the date you get the notification, or when the regulations consider you to have received it, whichever is the earliest.

For electronic notifications this is the date they are sent. For postal notifications this is 4 working days after it was posted.

What does this mean for Debtors?

Debtors can only access a breathing space by seeking debt advice from a debt adviser.

Anyone who cannot or is unlikely to be able to repay their debts can apply to a debt adviser for a standard breathing space. Although all applications must be considered, the debt adviser might decide a breathing space is not appropriate for a debtor.

For example, if a person can access funds or income, they might be able to pay their debts with some budgeting help. Another example would be if they already have assets that could easily be sold to clear the debt. In these cases, a breathing space would not be the right solution. A breathing space may also be inappropriate if a person is able to enter a more suitable debt solution straight away, without needing the protections.

Qualifying Debts

Debts included in a breathing space must be qualifying debts. Most debts are likely to be qualifying debts. These will include:

• credit cards
• store cards
• personal loans
• pay day loans
• overdrafts
• utility bill arrears
• mortgage or rent arrears

Excluded Debts

All personal debts and liabilities are qualifying debts, except for:

• secured debts (like mortgages, hire purchase or conditional sale agreements). You can only include arrears on these debts that exist at the date of an application for a breathing space.
• debts incurred from fraud or fraudulent breach of trust.
• liabilities to pay fines imposed by a court for an offence. This includes any interest on the fine and any penalties connected to it. This does not include penalty charge notices, like a parking ticket
• obligations from a confiscation order
• child maintenance or obligations under an order made in family court proceedings
• a crisis or budgeting loan from the social fund
• student loans
• damages they need to pay for death or personal injury caused to someone else
• advance payments of Universal Credit
• council tax liabilities have not yet fallen due. If all instalments for that financial year have fallen due and have not been paid, these are considered to be a qualifying debt. If a debtor has been served with a ‘reminder notice’ to pay a council tax bill, the remaining liability for the financial year is a qualifying debt

What does this mean for landlords, does this affect Section 8 Possessions?

The National Residential Landlords Association (NRLA) has explained how this affects landlords. They have explained that where a tenant is in rent arrears, and has successfully applied for ‘breathing space’ the landlord will not be able to serve a section 8 notice, obtain a money judgment, possession order or warrant during the breathing space period. They should also not contact the tenant to request payment of the debt during this time.

If it is the case that a section 8 notice has already been served prior to the tenant being granted a breathing space, the landlord will be prevented from applying for a possession order under these grounds until the breathing space ends.

In cases where the landlord has already been granted a possession order and then the tenant is given a breathing space, the possession order will not be enforceable until the breathing space ends.

Further information around breathing space, eligibility, making an application, or around what this means for you if you are owed money can be found at gov.uk/breathingspace. https://www.gov.uk/government/publications/debt-respite-scheme-breathing-space-guidance/

If you require specialist advice regarding any aspect of this blog, please do not hesitate to contact Pepperells and speak with one of our experts.