More than 60,000 people have entered the Debt Respite Scheme, including Breathing Space, since it became effective in May 2021. TLT solicitors Heff Heathcote, Sophie Ross and Thomas Lillie talked training delegates in Leeds and London through all relevant aspects of the scheme.
 
Facts from first 12 months of scheme’s introduction 4 May 2021:
 

• A total 63,864, or 1 in 736 adults (a rate of 13.6 per 10,000), entered Breathing Space
• Debt charity StepChange registered 66.5% of entrants, while Citizens Advice registered 15.1%
• Local authorities with higher individual insolvency rates in 2021 tended to have higher Breathing Space rates also
• Breathing Space rates were highest for adults 25 to 44 and lowest for adults aged 65+.
• 75% of individuals entering Breathing Space were aged 25 to 54, despite this group making up only half of the adult population.

 
Legislation: Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020
 
Debt Respite Scheme – Standard
Available to individuals with a qualifying debt
Offers legal protections from creditor action for up to 60 days
Protections include
a) pausing enforcement action
b) no contact from creditors
c) freezing interest and charges on debts
 
 
Debt Respite Scheme – Mental Health Crisis

• Available to individuals in mental health crisis, such as:
  • hospital treatment
  • removed to a place of safety by the police or any other emergency
  • acute treatment in hospital or in the community from a specialist mental health service in relation to a mental disorder of a serious nature

 

• Stronger protections than Standard Breathing Space
• Protection lasts as long as the individual’s treatment plus 30 days

 
 
Qualifying debts
 
Most debts and liabilities are likely to be qualifying debts. They may result from:

• credit cards
• unsecured loans
• overdrafts
• utility bill arrears
• mortgage arrears
• rent arrears

Excluded debts are:
secured debt (mortgages, not arrears)

• debts incurred from the debtor’s fraud or fraudulent breach of trust
• liabilities to pay fines imposed by a court
• obligations from a confiscation order
• child maintenance obligations
• student loans
• damages for death or personal injury
• advance payments of Universal Credit
• council tax liabilities

 
Who can initiate a Breathing Space?

1. Debt advice provider authorised by the FCA to offer debt counselling
2. Local authorities (where they provide debt advice to residents)

 
Eligibility
 
Applies to Standard and Mental Health Crisis Breathing Space:

• must owe a ‘qualifying debt’
• must not already be insolvent
• debt advisor must be satisfied the debtor cannot replay their debt

 
Standard Breathing Space

• Only one can be grated every 12 months

 
Applies to Mental Health Crisis Breathing Space only:

• No limit to how many MHCBS in a year
• Evidence must be provided by an approved mental health professional

 
 
Options available to creditors
 
Apply to cancel a Breathing Space under s19 of the Regulations where:

• the debtor and/or debt is not eligible or the debtor appears to have means to pay, or
• the Breathing Space unfairly prejudices the interests of the creditor

 
Apply for permission to enforce during the Breathing Space under s7(2)(b) of the Regulations, if the creditor can show:

• it is reasonable for them to take this step
• it will not be detrimental to the debtor or significantly undermine the protections of the Breathing Space

 
Receivership considerations
 
Breathing Space prior to appointment

1. Lender cannot appoint
2. Moratorium precludes enforcement of security
3. Lender should first wait for Breathing Space to end

Breathing Space after appointment

1. May impact receivership progress
2. Decisions must carefully be taken on case-by-case basis; legal advice should be sought
3. Lender may wish to challenge Breathing Space

 
Tenant in Breathing Space

1. Rent arrears are a ‘qualifying debt’
2. Enforcement action taken by Receivers may be affected

 
Effect on proceedings

• No new proceedings may be commenced after (and during) a Breathing Space
• If proceedings have already started, the creditor can proceed up until a possession order is obtained but the order cannot then be enforced
• The court must be notified if the debtor has entered a Breathing Space

In recent case law updates – Kaye v Lees and Guy V Brake – the court recognised the purpose of the scheme was not to evade judgement debt and it was willing to use its discretion, where the debtor is trying to delay proceedings.

What can a creditor do once a Breathing Space ends?

• Start applying fees, interest and penalities on the debt
• Start or resume legal proceedings against the debtor
• Take action to enforce the debt