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Debt Respite Scheme – Time to breathe…

Debt Respite Scheme image of wooden house and coins

The catchily entitled Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 come into force on 4th May 2021 and have been causing concern for creditor and landlords alike.

Under the Debt Respite Scheme someone in problem debt will have some legal protection from their creditors. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts. 

(There is also provision for people suffering a mental health crisis, but we will not consider this here. Primarily this is aimed at people who are so mentally unwell that they are at the point of being committed to hospital for their own welfare.)

If a person cannot or is unlikely to be able to repay their debts, they can approach a Financial Conduct Authority authorised debt advice provider or local authority (where the local authority provides debt advice to residents) who will assess if the debtor is suitable for a “breathing space” of 60 days.  It is not automatic, and the advisor has to think it is appropriate. The debtor must meet all of the following criteria to qualify:

– be an individual

– owe a qualifying debt to a creditor

– live or usually reside in England or Wales

– not have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order, or be an undischarged bankrupt at the time they apply

– not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply

If the advisor grants  a breathing space, you will be notified of it. Once notified then you must :

  1. Not contact the debtor seeking payment of the debt during the breathing space. This does not mean you cannot contact the debt advisor it you need to negotiate over the debt– for instance discussing if you will be seeking possession proceeding.
  2. Charge interest, fees, penalties or charges during the breathing space period
  3. Issue or proceed with any enforcement action to recover the debt.

Importantly for Landlords the rent due is still payable under the Debt Respite Scheme – the breathing space is not a payment holiday. The debtor should continue to pay their rent. If they do not you can contact their advisor who can cancel the breathing space if they consider it fair and reasonable to do so.

At the end of the breathing space, you can resume enforcement unless the debtor has entered into a debt relief order, bankruptcy or an IVA.

For more information on our Landlord and Tenant services.

Stewart Bailey

Managing Partner

Stewart started his legal career in the City before making the decision to balance work and play more evenly. Returning to his Cheshire roots he joined what was then Durrad Davies & Co, experiencing the firm evolve into the Legal 500 recognised Hibberts LLP.