The Debt Respite Scheme comes into force on the 4 May 2021, and will give people who in debt legal protection from their creditors. This scheme is known as “Breathing Space.”
Types of breathing space:
A standard breathing space
A standard breathing space is available to anyone with problem debt. It gives them legal protection from creditor action for up to 60 days. The protections include pausing most enforcement action, contact from creditors and freezing most interest and charges on their debts.
A mental health crisis breathing space
Breathing space for a mental health crisis is only available to someone who is receiving treatment for their mental health. This type of breathing space also 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 it 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 outlined in the respite scheme. These protections must stay in place until the breathing space ends.
What does it mean for debtors?
You or your solicitor will receive a notification of each debt owed by you in a breathing space, and the date the breathing space started. It is 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.
How does someone enter breathing space?
A breathing space can only be started by:
- a debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling
- a local authority (where they provide debt advice to residents)
Debt advice providers (debt advisors) are responsible for the administration of a breathing space. They are the point of contact for the debtor, their creditors (and appointed agents), and the Insolvency Service. The Insolvency Service will maintain the electronic service that debt advisors use to start the breathing space process and send notifications to creditors during the breathing space period.
The Insolvency Service will also maintain a register of details of people whose debts are in a breathing space, and the date a breathing space ended or was cancelled within the last 15 months.
Debtors can only access a breathing space by seeking debt advice from a debt advisor, and anyone who cannot or is unlikely to be able to repay their debts can apply to a debt advisor for a standard breathing space. Although all applications are considered by law, the debt advisor might decide a breathing space is not appropriate for the 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 might also not be appropriate for someone who can enter a more suitable debt solution straight away, without needing the protections.
A debtor’s eligibility for a standard breathing space has to be considered, and before a debt advisor can start the breathing space, they must confirm eligibility. The following conditions must be met:
- they must be an individual
- they must owe a qualifying debt to a creditor
- they must live or usually reside in England or Wales
- they must 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
- they must not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply
In addition, both of the following conditions must also be met:
- the debtor cannot, or is unlikely to be able to, repay all or some of their debt
- a breathing space is appropriate
A debtor must have at least one qualifying debt owed to a creditor, and this must be included in their application for breathing space. The debtor must tell the debt advisor about all of the debts they know about and give them the contact details they have for each creditor.
If they know about a debt collection agent acting on a creditor’s behalf, they might also give the debt advisor those details. This does not change the legal standing of either the agent or the creditor.
Which types of debt qualify for breathing space?
Debts included in a breathing space must be qualifying debts. Debts are any sum of money owed by the debtor to you, while liabilities are any obligation on the debtor to pay money to you. Most debts are likely to be qualifying debts. These will include:
- credit cards
- store cards
- personal loans
- pay day loans
- utility bill arrears
- mortgage or rent arrears
Government debts like tax and benefit debts are all likely to qualify, unless they are included in the list of excluded debts.
Joint debts can be included in a breathing space, even if only one person applies for a breathing space. The joint debt would become a breathing space debt, and you must apply the same protections to the other people who owe that debt to you. The breathing space does not affect the other people’s debts and liabilities in their own names.
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 that the debtor had before the Breathing Space legislation came into force on 4 May 2021.
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. Any new secured debt arrears that happen after the breathing space starts are not protected. If a secured debt is also an ongoing liability and a debtor misses payments, it could mean the debt advisor stops their breathing space.
- Debts incurred from fraud or fraudulent breach of trust. You should think of this in the same way you would if a person is bankrupt. Discharge from bankruptcy does not release a person from bankruptcy debts which they incurred by fraud. If you request a review of a breathing space because of fraud or suspected fraud, you might have to provide evidence to the debt advisor or to a court.
- 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 if 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
New debts incurred during a breathing space are not qualifying debts. Neither are new arrears on a secured debt that arises during a breathing space.
Eligibility for mental health breathing space
For a debtor to be eligible for a mental health crisis breathing space they must still meet the same criteria and conditions for a standard breathing space, but they must also be receiving mental health crisis treatment at the time that an application is made.
A debtor who has had a standard or mental health crisis breathing space in the last 12 months may be eligible for a mental health crisis breathing space. There is no limit to how many times a debtor can enter a mental health crisis breathing space.
It should also be noted that 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.
The purpose of the breathing space is to allow those with problem debt time to deal with their debts, and as a creditor you should be aware that a breathing space is not a payment holiday. While you cannot enforce a breathing space debt during a breathing space or charge interest or fees on it, a debtor is still legally required to pay their debts and liabilities.
During the Breathing Space, the debtor should continue to pay any debts and liabilities they owe you. You can continue to accept these payments, including those you get from existing direct debits.
How we can help
As solicitors dealing with recovery of your debts, we will receive notification of any breathing space and will pause and action we are taking for the relevant period. We will also inform you of the start of the breathing space and anticipated end date, save for in some mental health cases where the pause can be unlimited. If any enforcement action is being taken, we will ensure this is not pursued within the requisite period and this will include action taken by any third parties, such as High Court enforcement officers.