Publication of The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. If approved by Parliament the scheme will come into force on 4 May 2021.

Who is this designed to help? It is designed for individuals in problem debt who seek professional debt advice and is aimed at giving them the right to certain legal protection from creditor action during a 60 day moratorium window (which will become more commonly known as a “breathing space”). During that period they will benefit from protection from interest, charges and creditor action whilst advice is sought. The Regulations also provide for a Mental Health Crisis Moratorium.

How is the Breathing Space Moratorium initiated? An individual must apply to a debt advice provider (defined as an authorised person who has Part 4A permission to carry on any regulated activity of the kind specified in article 39E (debt-counselling) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001) for a breathing space moratorium. Individuals who are in receipt of mental health crisis treatment can access the protections afforded by the moratorium for the duration of their crisis treatment.

Eligible debts include sums an individual is liable to pay under or in relation to an order or warrant for possession of their residence or place of business, a Court judgment and any debt or liability payable to the Crown. Secured debts are “non-eligible” although arrears in respect of the secured debt are expressly carved out as being “eligible”. Debts arising out of family proceedings and child maintenance are also “non eligible” as well as student loans and other debts considered unsuitable for this sort of relief.

The debt advice provider has to provide advice first (in person or virtually) without payment of any fee before the provider can initiate a breathing space moratorium.

Consideration has to be given as to whether the debtor has sufficient income or funds to discharge their debts as they fall due, whether a debt solution (such as an Individual Voluntary Arrangement (IVA), voluntary debt management plan or bankruptcy) would be beneficial to that debtor and whether the moratorium is necessary so as to allow time for an assessment of the appropriateness of such a debt solution.

The debtor must not already be subject to any form of insolvency process (such as an IVA or DRO) and must not have had a moratorium in the previous 12 months.

The debt advice provider has to review between days 25 and 35 of the 60 day moratorium whether it should remain or be cancelled. The debtor has notification obligations in respect of changes of circumstance. When the moratorium begins or ends the moratorium creditors will be notified through a government portal.

How will it work? During the 60 day period of the moratorium, creditors of eligible debts may not, directly or through agents, do the following in respect of moratorium debt during the moratorium period:

• require an individual to pay interest accruing
• require an individual to pay fees, penalties or other charges for the moratorium period
• take any enforcement action (unless permission is given by the Court or other tribunal)

Debt advice providers will have a discretionary power to cancel the moratorium if the debtor does not pay ongoing liabilities during the period. Creditors will have the option of applying to Court to cancel the moratorium following the review if the debt advice provider does not cancel it on the grounds indicated in the Regulations. These include:-

• the moratorium unfairly prejudices the interests of the creditor
• other irregularities including incorrect initial assessment of eligibility of the debt and/or the assessment of the debtor’s ability to pay debts as they fall due during the moratorium period.

The Mental Health Crisis Moratorium

In the case of debtors receiving treatment for a mental health crisis the inception of the moratorium is slightly different. The debt advice provider will be able to initiate the moratorium if provided with evidence that the debtor is in receipt of mental health crisis care. There will be no obligation on the debt advice provider to carry out a full financial assessment of the individual. The production of assessments of mental health crisis care will be by Approved Mental Health Professionals.

The debt advice provider will need to assess whether the debts are qualifying debts and obtain information regarding the debtor from at least one credit reference agency. If the debt advice provider instigates the moratorium it will run potentially well beyond 60 days and will not end until 30 days after the debtor stops receiving mental health crisis treatment; 30 days after the provider makes a request to the debtor’s nominated point of contact but receives no response; the provider otherwise decides to cancel the moratorium or the debtor dies.

What does this all really mean and will it work? Bearing in mind debt advice providers cannot charge a fee for the moratorium, it remains to be seen how easy it will be to access what is expected to be a significant demand. Debt advice providers will need systems which enable them to keep to the tight timescales involved in initiation and review of the moratoriums. Creditors will need systems in place to ensure that neither they nor their agents take action against individuals subject to moratorium.

However, individuals in debt will have free access to advice. Creditors, many of whom even prior to the pandemic were providing breathing space to customers to support them, should be comforted that the new scheme will bring greater formality and early involvement of debt professionals.

In view of the proposed implementation on 4 May 2021 debt advice providers and creditors alike will need to ensure their systems are in place and tested in good time.