New Debt Respite Scheme (breathing space) – changes for debtors and creditors

Providing encouragement and legal protection for those in problem debt, debtors and creditors must understand the ‘breathing space’

A new scheme designed to encourage people with problem debt to seek advice has been launched by the Insolvency Service. The scheme, known as the Debt Respite Scheme or Breathing Space service, came into force on 4 May 2021 and seeks to help people sort out their finances before they are at crisis point. Creditors legal responsibilities under the scheme.

A breathing space is not a payment holiday, and the debtor should continue to pay their debts during the breathing space. Should they fail to do so, debt advisers must cancel the breathing space at a midway review, unless the debtor’s personal circumstances would make cancellation unfair or unreasonable.

Protection

There are two types of ‘breathing space’ offered under the scheme.

Standard breathing space

A standard breathing space is designed to provide legal protection from creditors by pausing recovery action on qualifying debts for up to 60 days. Within that time interest, fees and charges are frozen by the creditor and enforcement action is paused.

Access to these protections is only though an FCA-authorised debt advice provider or a local authority. They must be satisfied that the debtor is eligible for the scheme, cannot, or is unlikely to, repay all or some of their debt, and that a breathing space is appropriate.

The protected period allows debtors to engage fully with professional advice without the stress caused by spiralling debt and impending enforcement action. It assists debtors in entering a realistic and sustainable debt solution which, in turn, can also increase creditor recoveries.

Mental Health Crisis Breathing Space

A mental health crisis breathing space is designed to provide protection to debtors receiving mental health crisis treatment and allows space to receive treatment without creditor pressure. This breathing space remains in place for as long as an individual receives mental health crisis treatment plus 30 days, irrespective of how long their treatment lasts.

The route to accessing a mental health crisis breathing space differs from the standard breathing space, in that it can be accessed through an Approved Mental Health Provider who passes the information to a debt adviser to commence a mental health crisis breathing space. There is no need to access initial debt advice.

What must a creditor do?

A breathing space starts the day after a debtor’s details are put onto the breathing space register maintained by the Insolvency Service.

If, as a creditor, you receive notification that a debt owed to you is in a breathing space, you must stop all action related to that debt and apply the protections set out above. In addition, you must stop contacting the debtor to request payment of that debt, unless you have the permission of the court.

If your software does not allow you to freeze interest, fees and charges, then they can continue to accrue. However, you must not seek payment of these either during or after the breathing space.

Notification of the date on which a breathing space ends or is cancelled will be sent to each creditor. Unless the debtor is in a debt solution, including a debt relief order or in bankruptcy, you can start applying interest, fees and charges to the debt from the date the breathing space ended. You can also take recovery action and start or continue legal proceedings on the debt.

Breathing space reviews

As a creditor you can ask a debt adviser to review the breathing space or a specific debt included in it, in certain circumstances. including if a creditor considers that the breathing space unfairly prejudices its interests, or that the debtor has enough funds to repay their debts.

A debt adviser may decide to cancel a breathing space after a creditor request for a review, and will update the Insolvency Service of any cancellation, for which a creditor will receive notification.

How can we help?

We can assist you if you have received notification that a debt due to you is in a breathing space. This includes liaising with debt advisers about a review of the breathing space, or a specific debt included in it.

We can also assist you if you are seeking the protection of a breathing space to help you manage your debt situation.

If you would like more information or advice relating to a breathing space, or any other debt recovery matter, please do not hesitate to contact Anna Hinchliffe on 01727 798053.

© SA LAW 2021

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.