Government have introduced a new debt respite scheme (the
Breathing Space Scheme) to give someone in problem debt the right
to legal protections from creditors. Almost all kinds of debt can
be included in a moratorium on enforcement action, including rent
arrears and local authority landlords will need to prepare for the
introduction of the scheme in May 2021.
The new statutory Breathing Space Scheme,
introducing the breathing space moratorium and mental health crisis
moratorium, will commence on 4 May 2021. The Debt Respite Scheme (Breathing Space Moratorium
and Mental Health Crisis Moratorium) (England and Wales)
Regulations 2020 which govern the scheme were approved
by Parliament in October 2020. The scheme aims to help people in
problem debt to better manage their finances, seek professional
debt advice and reach sustainable solutions.
The Breathing Space Moratorium will provide
protections for people in problem debt by pausing enforcement
action from creditors and freezing charges, fees and certain
interest on qualifying debts for up to 60 days. There is also an
alternative way into the scheme for people receiving mental health
crisis treatment. A Mental Health Crisis Moratorium lasts as long
as a person's mental health crisis treatment, plus 30 days.
The Breathing Space Moratorium is available
to anyone in problem debt who is resident in England or Wales, who
accesses debt advice and meets the eligibility criteria and
conditions. A person receiving mental health crisis treatment does
not have to access debt advice first, but evidence from an Approved
Mental Health Professional will be needed to allow a debt advice
provider to start a moratorium for them.
The definition of a "qualifying debt," for
the purposes of a moratorium, can be found in Regulation 5.
When creditors, such as local authority
landlords are notified about a moratorium debt, they must pause
enforcement action and freeze charges, fees and certain interest
for the duration of the moratorium. Further information can be
found in Regulation 7. 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.
Creditors must decide what constitutes a reasonable search, based
on their circumstances.
The Insolvency Service will on behalf of the
Secretary of State, notify creditors when a debt/s has entered a
moratorium. 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 2021, local authority landlords should consider whether
they need to make any changes to their rent collection and arrears
recovery systems and processes to comply with the regulations.
If they have not done so already, we would
recommend that local authority landlords please contact breathingspace@insolvency.gov.uk
to discuss their options for receiving and managing
notifications.
Guidance for creditors was published at the
end of last year to assist them in understanding the regulations
and is available online on the Government website.