Breathing Space

A new statutory breathing space scheme will start on 4 May 2021. The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 which govern the scheme were approved by Parliament in October 2020. The scheme aims to help people in problem debt to better manage their finances, seek professional debt advice and reach sustainable solutions. Almost all kinds of debts can be included in a breathing space.

What is the Debt Respite Scheme?

A standard breathing space will provide protections for people in problem debt by pausing enforcement action from creditors and freezing charges, fees and most interest on qualifying debts for up to 60 days. There is also an alternative way into the scheme for people receiving mental health crisis treatment. A mental health crisis breathing space lasts as long as a person’s mental health crisis treatment, plus 30 days.

 

 

To whom does the scheme apply?

A standard breathing space is available to anyone in problem debt who is resident in England or Wales, who accesses debt advice and meets the eligibility criteria and conditions. A person receiving mental health crisis treatment does not have to access debt advice first, but evidence from an Approved Mental Health Professional will be needed to allow a debt advice provider to start a mental health crisis breathing space for them.

 

What does this mean for creditors?

When creditors are notified about a debt owed to them which is included in a breathing space, they must pause enforcement action and freeze charges, fees and most types of interest for the duration of the breathing space. Creditors must also conduct a reasonable search of their records for any additional debt(s) owed to them by the debtor, as they may be eligible to be added to the breathing space. The Insolvency Service is designing a service which will, on behalf of the Secretary of State notify creditors when a debt/s has entered a breathing space. The service will also be used by debt advisers to start a breathing space for their clients.

 

Guidance for creditors and debt advisers has been published to assist them in understanding the regulations.