The Debt Respite (Breathing Space) Scheme is due to come into force on 04 May 2021. It will give individuals that are struggling to pay their debt a 60 day “breathing space” where creditors will be banned from carrying out most debt recovery actions.
This blog will outline the scheme, its aims and what this means for various stakeholders.
What is the Breathing Space Scheme?
The Breathing Space Scheme will give individuals due to make debt repayments a breathing space of 60 days to find a solution to their debt issues and seek professional debt advice.
During the 60 day breathing space, debtors will not face most enforcement actions. Most interest and charges on their debts will also be frozen. The Scheme is available to individuals with qualifying debts, which include, but are not limited to, credit cards, mortgages, payday loans and overdrafts.
Individuals can apply to two types of Breathing Spaces:
- Standard Breathing Space – this is available to anyone struggling to repay their debt
- Mental Health Crisis Breathing Space – this is available to anyone struggling to repay their debt who is receiving treatment for mental health issues
The Mental Health Crisis Breathing Space offers stronger protections than the Standard Breathing Space. It lasts for as long as the person’s mental health crisis treatment, plus an additional 30 days (regardless of how long the crisis treatment lasts).
How do I get a Breathing Space?
If you owe debt and are struggling to repay you must first apply to a debt adviser requesting a Breathing Space. It will be down to the adviser to determine whether the breathing space will be granted. This will be assessed on an individual basis. The adviser could decide on a number of grounds that you are not be eligible, such as:
- you have assets that could be sold to clear the debt
- you have a source of income that could be used to clear the debt
- you are able to enter an alternative debt solution and do not need the protections offered by the scheme
If you are suffering from mental health issues you can apply for a Mental Health Crisis Breathing Space. To be eligible, an Approved Mental Health Professional (AMHP) will have to confirm that you are receiving treatment. This will be used as proof by a debt adviser to grant a Breathing Space. If you cannot apply on your own, or you are worried about an individual, then the people below can apply on your behalf:
- debtor’s carer
- mental health nurses
- social worker
- debtor’s representative
- independent mental health advocates
What are the eligibility requirements for obtaining a Breathing Space?
If you are applying for a Standard Breathing Space you must:
- be an individual
- owe a qualifying debt to a creditor
- live in England or Wales
- not be bankrupt, have a debt relief order or an individual voluntary arrangement at the time of application
- not have already had a breathing space in the last 12 months
If you are applying for a Mental Health Crisis Breathing Space you must:
- meet all the criteria set out for a standard breathing space, and;
- be receiving mental health treatment
Unlike the Standard Breathing Space, there is no limit to how many times a debtor can enter a Mental Health Crisis Breathing Space.
After the Breathing Space elapses, debtors may wish to create a Letter proposing payments in instalments.
What does this mean for creditors?
If you are a creditor it is important that you familiarise yourself with this Scheme.
Remember, a creditor is a business or individual to whom money is owed. Creditors include:
- landlords who are owed money by existing tenants
- utility companies owed money by private individuals
- personal loan providers, where the private individuals has defaulted on the loan repayments
- banks who are owed overdraft fees
If you are notified that someone who owes you debt is in a Breathing Space you must stop any debt reinforcement action and stop any interest and other charges accruing on the debt. You must make sure not to contact the person owing the debt to request repayment, unless a court permits you to do so. You will not be able to start any legal proceedings to recover the debt or issue a bankruptcy petition whilst the individual is in a breathing space, unless a court decides otherwise.
Once the Breathing Space is over, creditors may wish to consider creating a Debt recovery letter, a Second debt recovery letter, a Letter accepting payment in instalments or a Letter before action to recover money owed. Creditors may also wish to consider alternatives to legal action before issuing formal court proceedings.
What does this mean for landlords?
If a tenant is in rent arrears they can also apply for a breathing space. If this is granted and you are a landlord, you are banned from serving a Section 8 eviction notice, seeking repayment or seeking a possession order of the property during the time the protections are in place for your tenant.
Landlords should also not contact tenants to seek payment of the rent arrears. However, landlords can continue to contact their tenants about topics unrelated to the debt (eg to carry out maintenance of repairs) and can respond to tenants that reach out to them directly to discuss the debt.
Landlords will need to make sure that systems and operations are put in place to ensure that no actions are taken against tenants covered by the Breathing Space grace period. Similarly, they need to make sure that no interest and charges do not accrue on debts during this period.
Once the Breathing Space ends, tenants will need to repay the rent owed to the landlord, in addition to any interest, fees, penalties or charges due on the rent. Such interest, fees, penalties or charges can be applied to the debt from the day the Breathing Space ends. They can only be backdated and applied to the debt during the Breathing Space if a court allows it.
As soon as the Breathing Space ends, landlords can resume recovery actions such as seeking repayment or possession orders for the property and serving eviction notices to their tenants. Landlords may wish to create a Rent demand letter, a Final rent demand letter or a Section 8 notice. Landlords may also wish to create a Rent repayment plan if a tenant has asked for a rent holiday/delay their repayments.
For more information and to ensure you are dealing with tenant evictions legally, read our guide on tenant evictions.
If you need more advice about the Debt Respite Scheme you can Ask a lawyer.