Insights

Harriet Smith

Published 10 July 2023
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Do You Need Breathing Space?

The Cost-of-Living crisis is still very much with us, and the impact felt by many cannot be overstated. However, the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) Regulations provide some help and relief. The regulations came into force on 4 May 2021 and provide help for tenants in debt in two ways: a “standard breathing space” moratorium and a “mental health crisis breathing space” moratorium.

Standard breathing space moratorium

When applicable, the standard breathing space moratorium restricts enforcement action by creditors and freezes interest, fees, and charges on debts caught by the moratorium. In order to take advantage of the relief, a tenant must apply to and seek debt advice from a debt adviser. The debt adviser (who must be an authorised person) will review the application and assess whether the tenant is unable, or is unlikely to be able, to repay some or all of their debt as it falls due. 

Eligibility and qualifying debts

There are eligibility criteria to be met. The applicant must be an individual (domiciled or ordinarily resident in England or Wales) with a qualifying debt and not subject to a debt relief order, an interim order, or an individual voluntary arrangement and must not be an undischarged bankrupt. They must also not already be subject to another breathing space moratorium or a mental health crisis moratorium. Qualifying debts are not limited to rent arrears and can be debts arising from court orders. The regulations list non-eligible debts.

The moratorium

The application will succeed if the debt adviser considers that the debtor is unable, or is unlikely to be able, to repay some or all of their debt as it falls due, and a breathing space moratorium would be appropriate.

In so deciding, the debt adviser must consider whether:

  • the debtor has sufficient funds or income to discharge or liquidate their debt as it falls due
  • it would benefit the debtor to enter into a debt solution
  • the debtor may be eligible to enter into a debt solution during the moratorium or as soon as reasonably practicable after the moratorium ends
  • the moratorium period is necessary in order for the debt advice provider to assess which debt solution would be appropriate for the debtor, to advise the debtor on which debt solution would be appropriate, or for a debt solution to be put in place.

The is also a list of other considerations that the debt adviser can take into account.

If the application is successful, the debtor will benefit from legal protection from creditor action for up to 60 days (although this must be reviewed by the debt adviser between days 26 to 35). Once the 60 days have expired, a further application cannot be made for another 12 months.

This means landlord creditors are unable to serve a notice pursuant to section 8 of the Housing Act 1988 which relies on grounds relating to rent arrears, commence or continue possession proceedings based on a section 8 notice relying on rent arrears, commence proceedings against the tenant debtor for the debt or require the tenant debtor to pay interest or fees incurred as a result of the debt.

Any existing bankruptcy proceedings will be stopped by the court. The creditor is required to inform the court/tribunal in writing as soon as they receive notification of the breathing space moratorium.

Mental health crisis breathing space moratorium

In order to apply for a mental health crisis breathing space moratorium, the debtor must be receiving mental health crisis treatment. They also have to comply with the standard breathing space moratorium requirements.

The application for a moratorium may be made by the debtor or their carer, an approved mental health professional, a care co-ordinator appointed in respect of the debtor, a social worker, and various other people specified in the regulations. The application will need to include evidence that the debtor is receiving mental health crisis treatment.

A mental health crisis breathing space moratorium will end either 30 days after the tenant debtor’s mental health crisis treatment ended, or 30 days after the date a debt adviser had no response after asking for confirmation from the nominated point of contact about a debtor’s ongoing mental health crisis treatment.

Breathing space register

A breathing space register has details about a tenant debtor, including how much is owed to the landlord creditor and when the moratorium starts and ends. Landlords can access this information in respect of their tenants, and the debts owed to them only.

Comment

It is also important to note that Breathing Space is not a payment holiday.  A payment holiday is:

  • An agreement is agreed upon at the discretion of your creditors.
  • When you are on a payment holiday, you do not need to make payments to your creditors, but it does mean that interest rates and fees will still be added on.
  • You will also have to make your arrears payment after your payment holiday has finished.

A Breathing Space works differently and does not stop payments from becoming due.  A debtor still needs to do everything they can to pay their debts, however, interest and charges will temporarily stop.  Furthermore, creditors cannot pursue the debtor for payments. A bailiff is not allowed to take control of the debtor’s goods if there is a breathing space moratorium.

If you would like to discuss the implications of the breathing space scheme either as a debtor or a creditor, please get in touch.

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