What does ‘Breathing Space’ mean for debt recovery?
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, and what does it mean for debt recovery and enforcement?
What is a Breathing Space?
There are two types of Breathing Space for which a debtor can apply:
- Standard: this is available to anyone with problem debt, giving them legal protection from creditors for up to sixty days.
- Mental Health: this is only available to those who are receiving mental health crisis treatment. Some of the protections it provides are stronger than those for the standard Breathing Space, and it lasts as long as the person’s treatment, plus another 30 days (there is no limit on how long treatment can last).
The scheme cannot be used where the debt is commercial and only relates to the business, as opposed to the debtor personally.
A Breathing Space can also only be started by a debt advice provider authorised by the FCA to offer debt counselling or a local authority (“debt advisors”), to whom debtors must apply.
What are the creditor’s responsibilities?
If as a creditor you receive a notification to let you know that a debtor has obtained a Breathing Space, it is your responsibility to
- search your records to identify the debt to which it applies, and ensure there are no other debts owed to you by the same debtor;
- inform the debt advisor of any additional debt;
- ensure the debtor does not have to pay certain interest, fees, penalties or charges for the debt during their protected days;
- stop any enforcement or recovery action in regards to the debt, including where you have employed the services of an enforcement agent; and
- not contact the debtor to request payment of the debt, unless permission has been granted by the court from the date set out in the notification until you receive notification that the Breathing Space has ended.
This in no way changes what a customer is contracted to pay, and the scheme is not a payment holiday; it simply means that a Breathing Space debt cannot be enforced, nor any interest or fees charged on it, but the debtor is still legally required to pay their debts, and should continue to do so.
If a creditor does not comply with these responsibilities once notified, any action they take is null and void and they may be liable for the debtor’s costs.
What does stopping enforcement entail?
Stopping enforcement means that a creditor, or anybody acting on their behalf, must not take any enforcement actions against the debtor or anyone jointly liable with them for the Breathing Space debt for the duration of the Breathing Space.
“Enforcement actions” include:
- collecting or enforcing a Breathing Space debt;
- trying to enforce a judgment or order issued by a court or tribunal before or during the protected days without the court’s permission;
- starting any action or legal proceedings against the debtor during the protected days;
- selling or taking control of the debtor’s property or goods (unless these have been removed and secured by a bailiff before the protected days started, in which case they can be sold during the protected days and the costs of sale deducted from the proceeds); and
- contacting the debtor about the enforcement of a Breathing Space debt among other provisions.
However, a creditor can continue to communicate with the debtor about anything unrelated to the Breathing Space debt and in other limited circumstances, and can also contact the debt adviser.
What do Breathing Space mean for creditors?
If you are a creditor and you receive a Breathing Space notice, certain responsibilities are imposed on you to ensure that the debtor does not feel undue pressure to pay off their debt(s) to you. However, the debtor remains responsible for paying the debt, and as the creditor you are entitled to apply for a review if you consider that the Breathing Space unfairly prejudices your interests, or you believe the debtor was not eligible in the first place.