Breathing Space – The Debt Respite Scheme Launched to Help Debtors

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force on 4 May 2021.

What is Breathing Space?

The Debt Respite Scheme, also known as Breathing Space, is a new free government scheme which is intended to give debtors temporary relief from the pressure of dealing with their creditors. This period of ‘breathing space’ allows debtors the time to seek advice on their outstanding debts and, where possible, to arrange debt solutions such as setting up manageable payment plans.

Subject to meeting the eligibility criteria under the scheme, creditors will be prevented from adding interest and fees to those debts included in a Breathing Space, and they will not be able to take enforcement action against you for a period of 60 days.

There are two types of Breathing Space available to debtors:

  1. A standard breathing space; and,
  2. A mental health crisis breathing space.

A standard breathing space is available to anyone with ‘qualifying debt’ under the scheme which will pause most creditor enforcement action and contact from creditors, and prevent further interest and fees being added to those debts for a period of 60 days.

A mental health crisis breathing space is only available to debtors who are receiving mental health crisis treatment. This requires the debtor to have received treatment from an Approved Mental Health Professional (AMHP) who has certified that the debtor is receiving such treatment.

This type of Breathing Space offers further protection for the debtor than the standard Breathing Space as it will last for as long as the person is receiving mental health crisis treatment, plus 30 days thereafter (no matter how long the crisis treatment lasts).

Most debts are likely to be qualifying debts, they may include but are not limited to:

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

Breathing Space is not a payment holiday, therefore if the debtor can afford to make their regular payments then they should do so.

How do I apply for Breathing Space?

Applications can either be made through a debt management service who are authorised by the FCA or via the local authority.

If the application is approved, then the temporary protection will be noted on the register maintained by the Insolvency Service in relation to the debts included in the application. The period of Breathing Space will begin on the day after the debtor’s details were added to the register.

Joint debts can be included in a Breathing Space, even if only one person makes the application. The joint debt would be protected, and the enforcement action protections must be applied to the other people who jointly owe the debt.

During the initial 20 days, creditors are given an opportunity to challenge the application and the specific debts included in it. Such request will likely prompt a review of the specific debts included in the debtor’s application. Otherwise, the review may not be carried out until mid-way through the Breathing Space. This review aims to ensure that the debtor is complying with their obligations, such as keeping up payments on other liabilities not included in the Breathing Space.

Further debts cannot be added to an existing Breathing Space unless the debts were incurred before the date on which the Breathing Space started. Those debts incurred after the Breathing Space started will not be protected under the scheme.

Debts which are added to an existing Breathing Space will not be afforded protection for a full 60 days from the date they were added, they will only benefit from the Breathing Space for the number of days remaining within that existing Breathing Space.

After a Breathing Space begins

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.

Creditors should receive a notification with information about each debt owed to them in a Breathing Space and confirmation of the date the Breathing Space started. Creditors must make sure the protections are applied from the date on the notification, as the debt could have been added by the debtor mid-way through an existing Breathing Space.

Creditors should inform any agent acting on their behalf for recovery of a debt about a Breathing Space, such as High Court Enforcement Officers.

Creditors, throughout the duration of a Breathing Space, must not pursue debtors in relation to the debts listed in that Breathing Space as follows:

  • apply interest, fees, penalties or charges to a debt;
  • take any enforcement action to recover a debt; or
  • chase a debtor for repayment of a debt (without Court permission).

However, creditors may still apply interest to the principal debt, but not on the arrears.

After a Breathing Space ends

Unless a Breathing Space is ended early, for example if a debtor enters into a debt solution before the end of the 60-day period or if a decision is taken to end the Breathing Space upon on a review, then creditors must wait until the expiry of the Breathing Space period.

Creditors should be notified when a Breathing Space ends, following which they can continue with any actions that had been paused during that Breathing Space – unless the debtor has already entered into a debt solution or formal arrangement in relation to the debt.