Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
On 04 May 2021 the government’s Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will come into force, giving individuals with problem debt legal protections from their creditors.
What Is a Breathing Space?
A debt adviser authorised by the FCA can offer an individual breathing space on problem debts. Under the new regulations, there are two types of breathing space.
- A standard breathing space will pause all action to recover the debts for up to 60 days with a review date set at around day 23.
- A mental health crisis breathing space will pause action to recover the debt for the duration of the individuals’ crisis treatment, plus an additional 30 days. An authorised mental health practitioner will provide evidence to a debt adviser showing that the individual is receiving treatment.
What Does This Mean for Creditors?
The new regulations do offer further support to debtors; however, the debtor is not absolved of liability for the debt and they will eventually be required to pay. While there is a pause on action to recover the debt, it is not a repayment holiday. If the debtor is already making payments under an agreement, they are advised to continue to make those payments. The debt adviser will also check to see if there is not a better course of action available to the debtor, this includes selling assets that are readily available, entry into a DRO, or entry into an IVA.
The insolvency service will send out the breathing space notifications to creditors and maintain its register of persons who have entered a breathing space within the last 15 months. Notifications will be sent electronically, or by post. It is important that any notification received is acted on upon receipt of the notification. Once received you must apply the following protections:
- Identify the individuals’ debts and inform the debt adviser of any that have not been included on the notification.
- Stop all interest and charges on the debt for the duration of the breathing space.
- Stop any recovery efforts or enforcement actions in relation to the debt.
- Cease communications with the debtor, including communications from your solicitors. (You can write to the debtor to let them know that the interest on the debt has been stopped for the duration of the breathing space, but this is not required.)
- If you have issued proceedings, you must write to the courts to inform them that you have received a breathing space notification
If these protections are not put into place or are broken, a debtor can make a claim for costs associated with defending a claim made during the moratorium.
Can a Creditor Challenge the Moratorium
A debtor that has cash readily available to pay the debt will not be permitted to enter into a breathing space period. If a creditor can prove the debtor does have cash available to pay their debt, they have 20 days to appeal the moratorium, however evidence of this will need to be provided to the debt adviser. If the debt adviser does not make a cancellation of the moratorium after receiving the evidence, an application to review the moratorium can be made to the county court.
It is vital that the new regulations be incorporated into the processes and procedures of any business that recovers debts from individuals and sole traders before 04 May 2021.