The Debt Respite Scheme – An Overview

The Debt Respite Scheme – An Overview

The Debt Respite (Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020 comes into force on 4th May 2021 and will give someone in problem debt the right to legal protections from creditor action.
There are two types of breathing space

• Standard breathing space
• Mental health crisis breathing space

Standard Breathing space
This gives the debtor legal protection from creditor action for up to 60 days including pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts. Only one breathing space is allowed a year.

Mental Health Crisis Breathing Space
A Mental Health Crisis Breathing Space has some stronger protections in that it lasts as long as the person’s mental health crisis treatment plus 30 days no matter how long the crisis treatment lasts.

This is only available to those receiving mental health crisis treatment. An approved mental health professional (AMHP) must certify the person is in mental health crisis treatment. AMHPs are mental health professionals approved by local authorities who have specific training in mental health and mental capacity law and are the only professional group who can provide evidence that a client is receiving mental health crisis treatment. It cannot be provided by other doctors or GPs, but doctors or GPs can refer a client to an AMHP.

A debtor is receiving mental health crisis treatment when the debtor has:

• Been detained in hospital for assessment or treatment under the mental Health Act
• Has been removed to a place of safety by a police constable under the Mental Health Act
• Has been detained in hospital for assessment or treatment under the Mental Health Act
• Is receiving any other crisis, emergency or acute care or treatment in hospital or in the community from a specialist mental health service in relation to a mental disorder of a serious nature.

Conditions for starting a breathing Space
In both cases, the debtor must:
1. Meet eligibility criteria
2. Have at least one qualifying debt
3. Cannot or are unlikely to be able to repay all or some of their debt as it falls dueIn addition, a certification from an AMHP that they are receiving mental health crisis treatment, in respect of mental health crisis breathing space.

Qualifying Debts
In both cases, most debts are likely to be qualifying debts, including

• Credit cards
• Store cards
• Personal loans
• Payday loans
• Overdrafts
• Arrears on utility bills

Joint debts such as arrears on a joint mortgage or rent arrears on joint tenancies can be included even if only one debtor goes into the scheme. The joint debt would become a breathing space debt.Guarantor loans can be included but the protections do not extend to guarantors, who would need to apply for their own breathing space if eligible.

Excluded debts include:

• Secured debts – only arrears on these debts that exist at the time of the application are included
• Debts incurred because of fraud
• Liabilities to pay fines imposed by a court for an offence
• Obligations from a confiscation order
• Child maintenance or obligations under an order made in family court proceedings
• A crisis or budgeting loan from the social fund
• Student loans
• Damages the debtor needs to pay for the death or personal injury caused to someone else
• Advance payments of universal credit
  Council tax liabilities that have not yet fallen due.

Certain debts are considered “ongoing liabilities” in a standard breathing space and the debtor should keep paying these if they can. If they do not then the DAP can decide to cancel the standard breathing space.
An ongoing payment includes:

• A mortgage secured against the debtor’s primary residence (but not arrears accrued up to the start of the breathing space)
• A lease or rental agreement of the debtor’s primary residence (but not arrears of rent accrued up to the start of the breathing space)
• An insurance agreement
• Any taxes, duties and national insurance contributions
• Local taxes and rates
• Water, sewerage, electricity, gas etc

Who can start a breathing space
In both cases, a breathing space can only be started by debt advice providers (DAP) on behalf of the debtor who are authorised by the Financial Conduct Authority to offer debt counselling, or a Local Authority where they provide debt advice to residents. The DAP will be the point of contact between the client, their creditors and appointed agents, and the Insolvency Service.The DAP must consider any application for a breathing space and can decide it is not appropriate (for example if the client would be able to pay their debts with some help with their budgeting or if they have assets that could easily be sold to clear the debt or if the client can enter into another suitable debt solution immediately without needing the protections).

Current Court Proceedings
If there is a breathing space, no proceedings can be issued, default judgments applied for, rent arrears notices served, possession proceedings issued, or goods seized. However, aside from bankruptcy proceedings, in circumstances where proceedings have already been issued but a judgment or order has not yet been made, the proceedings can continue until the court or tribunal makes an order or judgment. A breathing space also does not prevent a creditor obtaining a judgment where the debtor makes an admission before or during the breathing space.

Creditors can apply to the court for permission to take specific enforcement action but will only be granted permission where it is reasonable, not detrimental to the debtor and does not significantly undermine the protections of the breathing space.

Reviews
During a standard breathing space a DAP must carry out a midway review between day 25 and 35. The DAP has the power to cancel the standard breathing space if they consider that the debtor has not met all the obligations.

A mental health crisis breathing space does not have a midway review but the DA will regularly check that the person is still receiving treatment. The DAP can cancel the breathing space if they believe the evidence provided about the mental health treatment is inaccurate, misleading or fraudulent.

A creditor can ask a DAP to review but only if the creditor considers:

• The breathing space unfairly prejudiced the creditor’s interest (discriminatory treatment of the creditor or the creditor’s debt)
• The debtor is not eligible
• The debtor has funds to repay their debts

A creditor has a limited time to request a review:

• Within 20 days of the breathing space starting
• Within 20 days of an additional debt being added to the breathing space

After a review, if the creditor does not agree with the DAP’s decision the creditor can apply to the court to cancel the breathing space. This application needs to be made within 50 days of the breathing space starting or 50 days after being notified about an additional debt being added to it. 

After the Breathing Space
Once creditors have been notified of the end of the breathing space they can:

• Start applying interest, fees, penalties and charges to the debt from the date of the end of the breathing space
• Take any action to enforce the debt, including contacting the debtor
• Resume or commence legal proceedings

If you have any questions at all please do not hesitate to contact Rebecca Smith, Civil and Property Litigation Department on either 01730 265111 or Email: rebeccasmith@macklunt.co.ukDisclaimer
This article has been prepared to highlight some key issues. It is intended to be for general guidance only and is not a substitute for specific advice. It is based upon our understanding of the legal position as at January 2021 and may be affected by subsequent changes in the law.

Partners: Samantha Small LLB, & Sarah Baker-Brown LLB
Non practicing Consultant: Simon Mackarness TD BA

Mackarness & Lunt is authorised and regulated by the Solicitors Regulation Authority (SRA No 58323)