On 4 May 2021, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England & Wales) Regulations 2020 (the “Regulations”) came into force without much fanfare.
What are the Regulations?
In short, they provide two types of moratorium (or breathing space) for individuals who owe debts. These are:
- Standard Breathing Space (“SBS”)
A debtor can only access this breathing space by taking advice from a debt advisor. A debtor who cannot or is unlikely to be able to repay their debts can apply. If a debt advisor does not consider a breathing space to be appropriate, for example because the debtor has access to funds, they need not progress matters.
A SBS lasts for 60 days unless cut short by the debt advisor or the court (see below).
In order to be eligible, the debtor must:
a. Be an individual
b. Owe a qualifying debt;
c. Live or usually reside in England and Wales;
d. Not have a debt relief order, individual voluntary arrangement, interim order or be an undischarged bankrupt at the time that they apply; and
e. Not have had a breathing space in the last 12 months.
2. Mental Health Crisis Breathing Space (“MHBS”)
Here the debtor must meet the same criteria as for an SBS. However, they must also be receiving mental health crisis treatment at the time that the application is made.
A debtor, who has had a SBS in the last 12 months, may be eligible for a MHBS. There are no limits to how many times a debtor can enter a MHBS.
A MHBS ends either 30 days after the crisis treatment ended or 30 days after a debt advisor has had no contact with the debtor or their point of contact.
Qualifying debts
Qualifying debts are broadly drawn under the Regulations being any sum of money owed by the debtor to a creditor. Most debts are likely to qualify.
Some debts are specifically excluded and include:
- Secured debts (although arrears on these debts may qualify for a breathing space);
- Debts incurred from fraud or fraudulent breach of trust;
- Liability to pay fines imposed by a court for an offence;
- Child maintenance or obligations under an order in family court proceedings;
- Student loans;
- Damages ordered to be paid for death or personal injury; and
- Obligations from a confiscation order.
When does a breathing space start?
A breathing space will start the day after the debtor’s details are entered onto the breathing space register.
The creditor will receive an electronic notification about the start of the breathing space. This should arrive on the same day as the details go on the register. If you do not have email, then you may receive notification by post which may be after the breathing space has started.
The notification should tell you when the breathing space starts and which debts it relates to. You should receive a notification for each debt.
What actions should you take?
On receiving a notification you should:
- Search your own records to identify the debt; and
- If the debtor owes you other debts which you have not received a notification for, you should notify the debt advisor of the other debts. They can then decide if the additional debt qualifies for the breathing space. The protections do not apply to the additional debts.
You must stop:
- Certain interest, fees, penalties or charges for the notified debt during the breathing space. Interest can still be charged on secured debt but not on the arrears.
- Any enforcement or recovery action by you or an agent;
- Contacting the debtor to request payment of the debt unless you have court permission; and
- If you have sold the debt on, you must notify the new creditor and tell the debt advisor.
Existing Legal Proceedings
If you have already filed a bankruptcy petition or issued proceedings relating to a debt that now has a breathing space, you must notify the court of the breathing space as soon as you have received notification of it.
Any court receiving notification of the breathing space must stop a bankruptcy petition until the breathing space ends. Other court proceedings continue until an order or judgment is made (this excludes enforcement action which must stop).
Where the court judgment or order has been made, unless the court gives you permission to continue, you must make sure any action or enforcement proceedings stops during the breathing space.
Contact
You cannot contact the debtor, but can contact the debt advisor during the breathing space about a breathing space debt.
You can make contact about anything not related to the breathing space debt.
If the debtor contacts you to discuss the breathing space debt or a solution to it, then you may speak with them. Similarly, if they contact you with a query or a complaint, you make answer it. If they contact you about legal proceedings the court have allowed, then again, you may deal with them.
Payments
The debtor should continue to make payments during the breathing space. It is not a payment holiday.
Debt advisor midway review
Between days 25 and 35 of a breathing space commencing, the debt advisor should carry out a review.
If the debt advisor believes that the debtor is keeping to their obligations, then the breathing space can continue to its end date. If the debtor is not keeping to their obligations, then the debt advisor can cancel the breathing space.
Requesting a breathing space review
You can ask the debt adviser to review the breathing space, or specific debts included in it, only if you consider:
- The breathing space unfairly prejudices your interests – e.g. your debt treatment has been discriminatory;
- The debtor does not meet at least one of the eligibility criteria;
- Any of the debts in the breathing space do not qualify; and
- The debtor has enough funds to pay the debt.
Time to request the review is limited to either:
- 20 days from it starting; and
- Within 20 days of an additional debt being added to it.
To request a review you must write to the debt advisor with a written statement with your reasons and any supporting documentary evidence.
You will receive notification if the breathing space is cancelled or if the review has failed.
If you do not agree with the debt advisor’s decision, you can apply to court to have the breathing space cancelled.
You need to apply within 50 days of the breathing space starting or an additional debt being added.
You should notify the debt advisor of your court application and the application should be based on the same grounds as your request for a review. You cannot back date any interest, penalties, fees or charges accrued during the breathing space unless the court allows you to.
What if you ignore the breathing space?
Any actions you take when you are not supposed to will be null and void and you may be liable for the debtor’s costs.
The debt advisor can also tell the Insolvency Service, who can contact you directly. However, it is unclear what the penalty will be – if anything.
Notification of end
You will be notified when a breathing space ends.
Be ready!
Once the breathing space is over, start applying interest, penalties, charges etc. again once the breathing space ends.
Take action to enforce debts
Be ready to continue any court proceedings, or be ready to start them.
Conclusion
It is early days to know whether the Government’s latest attempt to protect the economy from coronavirus will have any significant impact. While the issues confronting a debtor who is suffering mental health issues is one things, it is difficult to see how giving an SBS will not simply remove pressure from one debtor, while causing problems for their creditors who may also not be in the best financial shape. However, we have seen that the Government is not always sensitive to this, one example being the moratorium enjoyed by tenants on paying rent and not being evicted.
However, if you receive notification of a breathing space, be sure to understand the which debts are included and as set out above what you can do to seek a review.
If you have any specific issues, please do not hesitate to contact the writer, Graham Mead, a partner in our commercial and construction dispute resolution team on 01473 298234 or by email at gmead@prettys.co.uk.
