Breathing Space and Mental Health Crisis Moratoriums – what do they mean for creditors?

On 4^th May 2021 the government introduced some new legislation, which seeks to help households cope with debt, entitled The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England & Wales) Regulations 2020.

The Regulations apply to debtors who reside or are domiciled in England and Wales, and largely to personal debts. Some business debts are eligible but not if they relate solely to the business and the debtor is VAT registered, or if the debtor is in partnership with someone else.

Standard Breathing Space

Under the new rules. a debtor can have debt proceedings which have been started against them placed on hold, for up to 60 days, but this can only be done by them contacting a debt advisor authorised by the Financial Conduct Authority for debt counselling, or by contacting the local authority in their area of residence.

The debt advisor/local authority is then responsible for dealing with the debtor’s Breathing Space in relation to their creditors, who will each receive a formal notification from the Insolvency Service confirming that a Breathing Space has commenced (which also usually includes the date that it will expire).

During the Breathing Space, interest, fees and administration charges are stopped as well as enforcement action. Creditors are also unable to contact the debtor during this time, unless they obtain permission from the court.

If the debtor fails to make an agreement with creditors on how the debts are going to paid, either during or after the Breathing Space has expired, then creditors can continue with their claim.

Mental Health Breathing Space

If a debtor is receiving mental health treatment, an approved mental health professional can apply on their behalf for a Mental Health Crisis Breathing Space. There are no restrictions on how many times a person can apply during ongoing treatment for their mental health.

The debtor’s approved mental health professional will have to directly apply to the Mental Health Crisis Breathing Space Team via their website to officially start the Breathing Space, and by submitting a completed evidence form. 

Once the Breathing Space comes into force, debt recovery proceedings will be placed on hold during the time in which the debtor is being treated, plus another 30 days after the treatment has ended.

Further information

Please follow the link here for further useful guidance on the Debt Respite Scheme.