The Debt Respite Scheme (Breathing Space), launched May 4^th gives someone in problem debt the right to legal protections from their creditors.

(courtesy HM GovUK)

There are two types of breathing space in the legislation: a standard breathing space and a mental health crisis breathing space. Where there is a difference between them in the explanation below, there is reference specifically to either a standard breathing space or a mental health crisis breathing space. Where there is no difference, it is simply referred to a breathing space.

A standard breathing space is available to anyone with problem debt. It gives legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action, contact from creditors, freezing most interest and charges on their debts.

A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it 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).

The legislation this guidance references is The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.

What a Creditor must do:

If you are a creditor and you’re advised 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.

The electronic service will send any creditor a notification to advise about each debt owed to them in a breathing space and the date the breathing space started. A creditor needs to make sure they apply the protections to these debts from the date set out in the notification.

It may also possible a debt might be added to a breathing space at a later date, because it was only identified after the breathing space had started. In such cases, a creditor has to apply the protections from the date they get the notification, or when the regulations consider the creditor to have received it, whichever is the earliest.

For electronic notifications this is the date they are sent. For postal notifications this is 4 working days after it was posted. If there are any queries about a breathing space notification that has been received, contact the debt advice provider whose details are in the notification.

Debt advice providers:

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 (referred to in this guidance as debt advisers) 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 (who own and maintain the electronic service).

The Insolvency Service:

This is the service that maintains the electronic service that debt advisers use to start the breathing space process, and it is this service that sends notifications to creditors during it.

It also maintain a private register of:

·         details of people whose debts are in a breathing space

·         the date a breathing space ended or was cancelled in the last 15 months

·         The Insolvency Service does not help with individual case enquiries.

Starting a breathing space:

Applying for a standard breathing space:

Debtors can only access a breathing space by seeking debt advice from a debt adviser.

Anyone who cannot or is unlikely to be able to repay their debts can apply to a debt adviser for a standard breathing space.

Although all applications must be considered, the debt adviser might decide a breathing space is not appropriate for a 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 a someone who can enter a more suitable debt solution straight away, without needing the protections.

Applying for a mental health crisis breathing space.

The government committed to develop an alternative route to access the protections for people receiving mental health crisis treatment, so that they do not have to access debt advice first. If an Approved Mental Health Professional (AMHP) certifies that a person is receiving mental health crisis treatment, the AMHP’s evidence can be used by a debt adviser to start a mental health crisis breathing space.

In addition to the debtor, under the legislation the following people can apply to a debt adviser on behalf of a debtor for a mental health crisis breathing space:

·         any debtor receiving mental health crisis treatment

·         the debtor’s carer

·         Approved Mental Health Professionals

·         care co-ordinators appointed for the debtor

·         mental health nurses

·         social workers

·         independent mental health advocates or mental capacity advocates appointed for the debtor

·         a debtor’s representative

Debtor eligibility criteria for a standard breathing space

Before a debt adviser can start the breathing space, they must confirm their client is eligible and meets all the conditions. These are that the debtor must:

·         be an individual

·         owe a qualifying debt to a creditor

·         live or usually reside in England or Wales

·         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

·         not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply

The debt adviser must also be satisfied that their client meets both of the following conditions:

·         their client cannot, or is unlikely to be able to, repay all or some of their debt

·         a breathing space is appropriate for their client

Debtor eligibility for a mental health crisis breathing space.

A debtor 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.

Information the debt adviser needs.

To apply, a debtor must provide their debt adviser with their:

·         full name

·         date of birth

·         usual residential address (in some very limited circumstances, this address might be withheld from the breathing space register and any notification to creditors)

·         details of the debts that they owe, including the type of debt they owe

·         the name and contact details for the creditor

·         if relevant and known, the name and contact details for any agent appointed by the creditor

If the debtor is a sole trader and has business debts to include, they must also provide:

·         their trading name or names

·         any business address

Debt advisers will also try to find out and provide extra information that might help you identify the debtor or their debt. This might include:

·         the debtor’s previous names and addresses, if they’ve recently changed

·         details of any amounts or references relevant to the debt (such as the debtor’s National Insurance number, if the debt is a government debt, or a credit card number)

However, this information is not required before a debt adviser can start a breathing space.

A debtor must have at least one qualifying debt owed to a creditor, and this must be included in the application. The debtor must tell the debt adviser 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 adviser those details. This does not change the legal standing of either the agent or the creditor.

Qualifying debts:

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

·         overdrafts

·         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 enforcement action protections to the other people who owe that debt to you. You are still able to charge the other people interest or fees, and 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.

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.

Excluded debts

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 adviser stops their breathing space

·         debts incurred from fraud or fraudulent breach of trust.

·         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 that have 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

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.

Request to not disclose debtor’s address

When applying for a breathing space, a debtor or their representative can ask their debt adviser to withhold their usual residential address from creditors.

The address can be withheld if it is reasonably expected that showing the address would lead to violence against them or someone who normally lives with them. If the debt adviser decides that the debtor’s address should be withheld, it will not appear in any notifications sent to creditors and will not be on the register maintained by the Insolvency Service.

When a breathing space starts

A breathing space will start the day after the debtor’s details are put onto the breathing space register.

Creditor’s and debtor’s receive electronic notifications about the start of a breathing space, and should receive a notification the same day that details are put onto the register. It’s likely this will be the day before the breathing space starts. If a creditor/debtor receive notifications by post, it’s likely this will be received it after the breathing space has started.

Once a debtor’s details have been put onto the register, a creditor receives a notification, advising the breathing space start date and details of the qualifying debt (if the debt adviser had those details). If the debt adviser is aware that a creditor is owed more than one qualifying debt, a notification for each debt is sent . 

You can receive notifications by:

·         electronic communication (either a notification directly from the electronic service or an email). The Insolvency Service can only send electronic communications if opted in through the electronic service

·         post

·         someone leaving a copy of the notification at your address

The regulations consider that you’ve received:

·         an electronic notification on the day it was sent

·         a postal notification 4 business days after the notification was posted

·         a notification left at your address on the day it was left

What to do during a breathing space

When a creditor receives a notification

When a creditor receives a notification, they must search their own records to identify the debt owed by the debtor urgently. If they have only received notification about one debt, but are owed two debts (for example, the debtor has an overdraft and credit card debt) then the creditor should consider applying the protections set out below to both debts and, in all cases, and should tell the debt adviser about the additional debt. It is the debt adviser who will decide if the additional debt qualifies for the breathing space.

The Creditor must make sure that they stop:

·         the debtor having to pay certain interest, fees, penalties or charges for that debt during the breathing space

·         any enforcement or recovery action to recover that debt, by the creitor or any agent they’ve appointed

·         contacting the debtor to request repayment of that debt, unless you’ve got permission from the court

Interest can still be charged on the principal in secured debt, but not on the arrears.

If it’s not possible to stop interest, fees, penalties or charges accruing on the debt during the breathing space (for example, this could be because of IT system limitations), it can continue to accrue. However, the debtor must not be required to pay charges or interest that accrue in this way either during or after the breathing space.

Nothing in the regulations changes what a customer is contracted to pay. For example, if a payment is due during the breathing space and it includes interest that would have been due normally, creditors are not expected to make complex system changes to recalculate these payment amounts. Instead, creditors can make an adjustment to the overall balance owing on the debtor’s account as soon as they can.