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'Breathing Space' protection available to debtors

As of the 4th May 2021 the Debt Respite Scheme (colloquially termed ‘Breathing Space’) will come into force. This scheme will give debtors the right to legal protection from their creditors.

Our team of debt recovery and insolvency specialists are available to provide expert advice to those impacted by this new legislation, and here have produced some headline information on what this change will mean.

Debt Respite Scheme

There will be two types of breathing space that a debtor can apply for;

  • a standard breathing space; and
  • a mental health crisis breathing space.

A standard breathing space will be available to anyone with problem debt and it will mean that the debtor can be granted legal protection from creditors for up to 60 days. This protection will mean that most enforcement action and correspondence from creditors is paused. During the breathing space interest and charges added to the debt will also be paused.

A mental health crisis breathing space will only be available to individuals who are receiving treatment for a mental health crisis. It will offer stronger protection and will last for as long as the mental health treatment does, plus an additional 30 days.

What does this mean for creditors?

If you are a creditor and you are informed that a debt owed to you is in a breathing space, all action in relation to that debt must stop. Creditors will be informed by an electronic service and the notification will outline the date which the breathing space started. The protections must be applied retrospectively to ensure that they are applied from the start of the breathing space. The creditor must not add interest or any charges during the breathing space.

If a creditor is informed that a debt has been granted a breathing space, the creditor must search its systems for any additional debts owed by the debtor. If an additional debt is found, the creditor must inform the debt adviser who will decide whether the debt qualifies for a breathing space. Additional debt added to the breathing space will not impact the start and end date. If a creditor informs the debt adviser of an additional debt, the creditor does not need to apply the protections until they are informed by the electronic service that the debt qualifies. If the creditor is not informed by the electronic service in relation to the additional debt, then the creditor should contact the debt adviser to find out what is happening in relation to the breathing space.

If a creditor is informed that a debt has gone into a breathing space, it is the creditor’s responsibility to ensure all agents and anyone acting on its behalf are informed and stop enforcement action. It is also the creditor’s responsibility to inform the court or tribunal of the breathing space if proceedings have already started.

A breathing space is not a payment holiday. If a payment plan has been agreed, the debtor must continue to make the payments, and if a payment is missed, enforcement action cannot take place until after the breathing space has ended. Any time limits given within the plan will be extended to eight weeks following the end of the breathing space. Following the end of the breathing space any missed payments can be considered a breach of the payment plan.

A creditor can request in writing to the debt adviser that a breathing space is reviewed within 20 days of the breathing space starting, on the grounds of material irregularity which could be for the following reasons:

  • the debtor did not meet the relevant eligibility criteria when the application for the moratorium was made,
  • a moratorium debt is not a qualifying debt, or
  • the debtor has sufficient funds to discharge or liquidate their debt as it falls due.

When the breathing space ends

Creditors will receive a notification that the breathing space has ended, unless the breathing space has ended due to the debtor dying or it is cancelled following a creditor’s request or a midway review.

Once the breathing space period has ended creditors can restart applying interest, fees, penalties, or charges to the debt. These cannot be backdated unless allowed by the court. The creditor can resume any enforcement action and can contact the debtor.

Ongoing liabilities during a standard breathing space

A debtor must continue to pay ongoing liabilities, like mortgages or rent for their primary residence and utilities, during a standard breathing space – and if the debtor fails to maintain payments on ongoing liabilities the debt adviser can cancel the standard breathing space.

If you would like to discuss your personal circumstances and how this new legislation might affect you, please do contact us here at Fosters on 01603 723708 or 01603 723783.

This article was produced on the 4th March 2021 by our Litigation & Dispute Resolution team for information purposes only and should not be construed or relied upon as specific legal advice.