On 19 of November 2020 the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311) (“the Regulations”) were published and are expected to come into force on 4 May 2021.
The Regulations are designed to give debtors legal protection from their creditors and to create a “breathing space” so that they are able to seek appropriate advice or to implement a manageable payment plan for their debts. The debts must be qualifying debts as identified under the Regulations.
There will be two types of breathing space. The standard breathing space and the mental health crisis breathing space. The standard breathing space allows debtors 60 day protection whereas the mental health crisis breathing space allows as long as the debtor is receiving treatment for the condition plus 30 days thereafter.
A debtor will need to apply for the breathing space through either a debt management company or their Local Authority. If the debtor is granted breathing space then the Insolvency Service will add the debtor to a register, much like the Personal Insolvency Register.
What is a qualifying debt?
Debts that are included in the breathing space must be qualifying debts as defined in the Regulations. Debts are defined as monies owed to creditors by debtors and also liabilities which create obligations for the debtor to pay monies to a creditor. Most debts will be counted as a qualifying debt, but these could include but are not limited to:
- Utility arrears;
- Credit card debts;
- Payday loans;
- Mortgage or rent arrears
The debts need to have been incurred before the debtor applied for the breathing space under the Regulations. Debts incurred after will not be included and are recoverable as the creditor sees fit.
Once the debtor has been granted the breathing space, notification will be sent to the creditor by email, post or personal service. Service by email and personal service will be deemed served the same day. If the notification is given by post then it will be deemed served 4 business days after the date the notification was posted.
What does this mean for creditors?
If the debtor is granted breathing space then a legal moratorium will be created whereby the creditor will not be able to take action against the debtor for the debt (as long as that debt is included). Upon receiving notice the creditor should check their records to identify any debts which are included in the breathing space. Once the relevant debts have been identified the creditor must:
- Freeze any interest penalties or charges on the debt;
- Stop contacting the debtor requesting payment of the debt, unless the creditor has leave from the court to do so.
- Cease any enforcement action in respect of the debt, which includes starting any legal proceedings against the debtor or the enforcement of a judgment;
- If proceedings have already been issued then the court will allow to continue until judgment or an order has been granted;
- Where a bankruptcy petition has been issued the court will stop the proceedings until the breathing space ends or is cancelled.
For further help or assistance in relation to this article, please contact Dan Elsworth on 0113 2802000 or firstname.lastname@example.org.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.