What is the Breathing Space scheme?
The Debt Respite Scheme, also known as the Breathing Space scheme, came into force on 4th May 2021 and gives those who owe money further legal protection from their creditors.
Who is the Breathing Space scheme for?
The Breathing Space scheme is free and designed to assist those who are in debt and struggling to pay their regular bills and manage credit commitments. The scheme gives those who owe money the right to legal protection from their creditors for a specified period of time.
The Debt Respite Scheme is split into two categories:
- Standard breathing space
- Mental health crisis breathing space
Although there are differences between the two, most of the rules will apply to both.
Standard Breathing space
This is available to anyone who is in debt and will offer legal protection from creditors for up to 60 days. Standard Breathing Space protections may include:
- Pausing most enforcement actions;
- Pausing contact from creditors; and
- Freezing most interest and charges on debts.
Breathing Spaces will be reviewed after 30 days and can sometimes be cancelled. Some debts may also be removed from the scheme (in certain circumstances). However, in most cases, the scheme will continue for the full 60 days.
Mental health crisis Breathing Space
This is only available to someone who is currently receiving treatment for a mental health crisis. This scheme will offer the same cover as the standard Breathing Space but has some stronger protections and will last an additional 30 days after the standard 60-day period. This time extension will stand regardless of how long the mental health treatment is needed.
What debts are covered by Breathing Space?
To apply for the Debt Respite Scheme, the debt must be a qualifying debt. Most debts where someone (a debtor) owes someone else (a creditor) a sum of money, and the debtor is under obligation to repay this sum, will likely be a qualifying debt.
Examples of a qualifying debt include:
- Credit cards
- Store cards
- Personal loans
- Payday loans
- Utility bill arrears
- Mortgage or rent arrears
Tax and benefit debts are, however, unlikely to qualify under the scheme.
Joint debts can also qualify for Breathing Space, even if only one debtor applies for it. It is the debt itself that is entered into the Breathing Space as opposed to the debtor. This, however, cannot be extended to any guarantors (those who have promised to pay the debtor’s debt in the event the debtor cannot), unless the guarantor is eligible and applies for the Debt Respite Scheme themselves.
It is possible that debts can be added to a Breathing Space period after it formally begins because certain debts have only been identified after the period has started.
Responsibilities of creditors
If you, the creditor, are told that a debtor is in Breathing Space, you must stop all action related to their debt and apply the aforementioned protections. These protections must last until the end of the Breathing Space (60 days).
You will be notified by the electronic service regarding each debt owed which is in Breathing Space and what date it started. You will need to ensure that you apply these protections for the dates set out in the notification.
For electronic notifications, this will be the day they are sent and for postal notifications, it will be four working days after it was posted. Notifications will be sent by the Insolvency Service which has a private register of the details of those in Breathing Space, and the date it ended or was cancelled (in the last 15 months). If a debt is in Breathing Space, you can request to see this information.
If you do not comply with the rules of the Debt Respite Scheme, you may be liable for the debtor’s losses and they may complain not only to yourselves but also to any external ombudsman or regulatory body.
Sold debts and the Breathing Space scheme
If you have sold debt to another creditor (an ‘assigned’ creditor), you must inform them if you receive a notification that the debtor is in Breathing Space. You must also give the new creditor’s details to the debt adviser. If you do not do this as soon as possible, you will be liable for any losses of the debtor or assigned creditor, as a result.
Making payments during a Breathing Space
A Breathing Space is not a payment holiday and the debtor should continue to pay their debts during this time. This space is to prevent enforcement and put a stop to interest and fees during this period. Creditors can continue to accept payments during this time.
A debtor should continue to pay their ongoing liabilities (e.g. mortgage payments, taxes, utility bills, rent and insurance agreements) if they can. If they do not, the debt advisor may cancel the standard Breathing Space. Cancellation will take effect the following day after the register has been updated and the debtor and creditor have been informed.
What happens after the Breathing Space period ends?
Once you receive notification that the Breathing Space has stopped, you can resume action. Creditors cannot, however, backdate interest, fees, penalties or charges which would have accrued during the Breathing Space.
Contact our debt recovery solicitors in Bristol
If you are a creditor in dispute regarding debt and would like some legal advice, our debt recovery lawyers may be able to help. Call us on 0117 325 2929 or complete our online enquiry form to arrange a meeting.