Debt Respite Scheme: Breathing space for Debtors but further delay for CreditorsMarch 30, 2021
The pandemic has led to devastating financial situations for both businesses and individuals alike. Coupled with a mental health crisis unfolding across the UK - the situation is dire for many. To help ease the pressure on Debtors, the Government has announced the launch of a Debt Respite Scheme “Breathing Space”; designed for any Debtors suffering adverse financial consequences from the pandemic.
The scheme is designed to allow individuals who have been adversely financially impacted by Covid-19 time to get their finances back on track. The new scheme will allow Debtors to apply for “breathing space” against Creditor enforcement action. Holly Manners, Senior Associate in our Dispute Resolution Team, clarifies what breathing space is and what it means for Debtors and Creditors.
Two categories of breathing space
Under the scheme, Debtors can either seek standard or mental health crisis breathing space:
Under standard breathing space, Debtors will be given relief against creditor action for up to 60 days. This includes pausing most enforcement action and contact from Creditors as well as freezing interest and other charges on the debt.
2. Mental Health Crisis
Unlike the 60-day maximum protection under the standard category, under the mental health crisis breathing space, Debtors will be afforded protection from enforcement action throughout the Debtor’s mental health crisis treatment (regardless of how long the treatment lasts) and a further 30 days of protection from the conclusion of the treatment. In order for Debtors to qualify for this higher standard of protection, they will need to obtain certification from an Approved Mental Health Professional (AMHP) that they are receiving mental health crisis treatment.
Advice for Debtors – Standard Breathing Space
How do Debtors start an application?
The relief can only be accessed by seeking advice from a debt adviser and it is important that you engage with an adviser as soon as possible. Please be aware that the debt adviser may decide that the relief is not appropriate but they will be able to assist with advising you of a more appropriate solution.
Does the Debtor qualify?
In order to qualify for the standard breathing space, debt advisors acting for Debtors will need to confirm that the Debtor:
- Is an individual;
- Owes a qualifying debt to a Creditor (see below);
- Lives or resides in England or Wales;
- Is not subject to a debt relief order, an individual voluntary arrangement, an interim order, or an undischarged bankrupt at the time of application; and
- Does not have a breathing space in place already or have had one in the 12 months prior to the application.
The debt advisor will also need to be satisfied that the Debtor cannot, or is unlikely to be able to, repay some or all of their debt and a breathing space is appropriate. The debt advisor will also need to consider whether the debts are qualifying debts.
Assuming the Debtor is provided with standard breathing space, the debt adviser must carry out periodic reviews during the 60-day period to determine whether the breathing space moratorium must remain in place or should be cancelled. During the moratorium, the Debtor is obligated to inform the debt advisor of a material change in circumstances or financial position. In addition, the Debtor must also make payments in respect of on-going liabilities, not obtain additional credit exceeding £500 and engage with the debt adviser.
Once a Debtor is granted relief they will be entered onto an electronic register of individuals whose debts are in breathing space which will be maintained by the Insolvency Service. Once registered, notification will be sent to the creditors accordingly either via the electronic system, email or post.
Advice for Creditors
Creditors who are in receipt of a notification will need to act quickly to seek advice as to what they are required to do to ensure that they comply with the regulations including: • Stopping enforcement action; • Not contacting the creditor requesting payment; and • Stopping interest and charges for the duration of the breathing space. Our Dispute Resolution team can advise you on the best course of action and support you if you require additional advice.
The breathing space scheme is due to come into effect on 4 May 2021, and only then will we see the impact on Creditors. It is important that Debtors looking to seek relief under the scheme seek the assistance of a debt adviser as soon as possible and Creditors seek legal advice to ensure compliance.
For more information about the debt respite scheme or other legal advice, please get in touch with a member of our Dispute Resolution team.