Room to breathe – The Debt Respite Scheme regulations

What is the Debt Respite Scheme?

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force in May 2021 and were introduced to provide legal protection by way of a moratorium to individuals who are struggling with debt. Debtors can apply for ‘Breathing Space’ from a debt advice provider authorised by the FCA such as StepChange or a local authority. Debtors are unable to start an application for breathing space on their own.

There are two forms of Breathing Space: Standard Breathing Space and Mental Health Crisis Breathing Space.

Standard Breathing Space

This provides debtors with legal protection from creditor action for up to 60 days. Individuals who owe a ‘qualifying debt’ to a creditor and live or reside in England or Wales will be eligible for this scheme. However, they must not have a DRO, IVA, interim order or be an undischarged bankrupt at the time they apply nor applied for Breathing Space in the last 12 months.

Mental Health Crisis Breathing Space

This provides debtors undergoing mental health crisis treatment with legal protection from creditor action for the length of time of their treatment plus a further 30 days. Individuals receiving mental health crisis treatment are eligible.

What is a ‘Qualifying Debt’?

Most debts will fall under the above term such as credit or store cards, overdrafts, utility bills and personal loans. However, some debts are excluded such as secured debts, court fines, obligations under a confiscation order, child maintenance, damages for death or personal injury cases and any obligations under orders made in family proceedings.

The Notification

Once a debtor receives approval for a Breathing Space scheme, a notification is sent on the Breathing Space Register to the creditor. The creditor must make a ‘reasonable search’ to identify the debt and search for additional debts that may be owed. Once creditors have identified the debt, they must stop all action as soon as possible. This includes interest, fees, penalties, charges, contacting the debtor and any enforcement action. If this is not done any action the creditor takes will be void and they may be liable for the debtor’s costs resulting from the action.

During Breathing Space

Creditors are permitted to send communications to the debtor however they should not show interest, fees or charges that accrue nor request or demand payment.

It follows that such communication must be very carefully drafted to avoid breaching the Regulations.

If you are a creditor and you need assistance with your ‘Breathing Space’ procedures, then please contact our Regulatory team.

Naila Hussain

NailaHussain@chadlaw.co.uk