New statutory ‘breathing space’ scheme to help people in problem debt

12 February 2021

A new statutory breathing space scheme will begin on 4 May 2021 to help people in problem debt, including rent arrears, better manage their finances, seek professional debt advice and reach sustainable solutions. The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 sets out the new rules.

The scheme is designed to give someone with debt problems the right to legal protections from their creditors for a limited period of time. There are two types. The first is standard breathing space, which is available to anyone with a qualifying debt who is resident in England or Wales, who accesses debt advice (local authority or FCA registered) and meets the eligibility criteria and conditions. This gives protections from a creditor for up to 60 days and includes pausing most enforcement action and contact from creditors.

The second is a mental health crisis breathing space, which is given to someone who is receiving mental health crisis treatment and lasts as long as the treatment, plus 30 days (no matter how long the crisis treatment last). The person receiving mental health crisis treatment does not have to access debt advice first, but evidence from an Approved Mental Health Professional is required to allow a debt advice provider to start a moratorium.

When creditors, such as housing associations are notified about a moratorium debt, they must pause enforcement action. Creditors must also conduct a reasonable search of their records for any additional debt(s) owed to them by the debtor, as they may be eligible to be added to the moratorium. Housing associations should ensure no letters, statements, notices or contact is made with the tenant over the issue.

The Insolvency Service will run and operate the scheme and will notify creditors of all the details and keep records. Creditors will need to prepare to receive notifications from the Insolvency Service and process them in order to implement the protections. Ahead of the scheme’s commencement on 4 May, housing association landlords should consider whether they need to make any changes to their existing systems and processes to comply with the regulations. New debts incurred during a breathing space are not qualifying debts – the legislation is clear that the debtor needs to meet ongoing rent obligation. If payments are not made, the debt adviser may cancel the standard breathing space.

Guidance for creditors was published at the end of 2020, to assist housing associations in understanding the regulations. Housing association landlords are advised to contact to discuss their options for receiving and managing notifications, if they have not already done so.