The Debt Respite Scheme came into force earlier this month on 4th May and is intended to offer ‘breathing space’ to those in problem debt via the right to legal protection from their creditors.
Under the scheme, there are two different types of ‘breathing space’ offered – one that is classed as a standard breathing space and which is available to anyone with problem debt (giving legal protection from creditors for 60 days), and one classed as a mental health crisis breathing space and which is only available to those receiving mental health crisis treatment. The latter has stronger protections than the standard and lasts for as long as the mental health crisis treatment plus 30 days.
As a creditor, it is vital that you are aware of and understand the regulations surrounding the scheme in line with the The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.
Key information to note:
- If, as a creditor, you are informed that a debt owed to you has been placed under the scheme, then you must immediately cease all action related to the debt and impose the protections
- The electronic service from the scheme will issue a notification to you informing you that a debt owed to you has been placed in a breathing space
- A breathing space can only be started by a debt advice provider authorised by the Financial Conduct Authority (FCA), or by a local authority who provides debt advice to its residents
- Most debts are likely to qualify under the scheme, including credit cards, personal loans, store cards, payday loans, overdrafts, mortgage or rent arrears, and utility bill arrears
- A breathing space will start the day after the debtor’s details are entered onto the breathing space register
- If you have sold on a debt that is placed under the scheme, then it is your responsibility to inform the creditor/enforcement agency you sold it to that it has entered the scheme and you must also give their contact details to the debt adviser who placed the debt in the breathing space
- Enforcement action, or any other action, must not take place on a debt that is under the scheme; to do this is a breach of regulations
- During a breathing space, you, as the creditor, must not contact the debtor regarding the debt, though you can contact the debt adviser
- A breathing space is not the same as a payment holiday and payments to the debt should still be made by the debtor during this time, though you as a creditor cannot enforce a debt, or add interest / fees to it during this time
- The debt adviser is obliged to action a review 25 – 35 days into a standard breathing space to ensure the debtor is complying correctly; these reviews are not carried out on a mental health crisis breathing space
Once a breathing space has reached its end, as a creditor you will receive a notification informing you of the date upon which it ended. If a breathing space has been cancelled and ended this way, you will also be informed as to the reason why it has been cancelled. Providing a debtor has not entered into a debt solution including bankruptcy or debt relief, you can resume applying interest, fees, charges etc. to the debt once more. These cannot be backdated and can only commence from the date the breathing space ended. You will also be permitted to carry out any enforcement action and begin/continue with any legal proceedings.
You can find out further information regarding the scheme and its regulations here – https://www.gov.uk/government/publications/debt-respite-scheme-breathing-space-guidance/debt-respite-scheme-breathing-space-guidance-for-creditors