Debt Respite Scheme (Breathing Space)

On 4 May 2020, the Debt Respite Scheme (Breathing Spaces Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force.

The purpose of the Regulations is to give individuals in debt time to get advice and find appropriate debt solutions to problems they have without having the further pressure of enforcement action or letters pursuing them for that debt during the period.

Two types of breathing spaces have been introduced: the standard breathing space and the mental health crisis breathing space.

A standard breathing space is available to any person with a problem debt. It is only accessible through a debt advice provider authorised by the FCA to offer debt counselling or a local authority authorised to provide debt advice. The standard breathing space would be in force for 60 days, with a midway review between 25-35 days of the breathing space. Any ongoing or new enforcement action and contact should be paused during the period and interest and penalty charges cannot be applied during the period.

An individual can only apply for a standard breathing space once every 12 months and all contact should be via the debt advisor with the creditors. The debt advisor’s role is to check for eligibility and appropriateness. It will only be available to those residing in England and Wales, who do not already have some kind of bankruptcy order in place.  It also should not be granted where the individual would be able to pay off their debts with the help from budgeting or if they have some assets they would be able to sell.  The individual is expected to meet their ongoing obligations such as current rent payments, if they cannot do so then a breathing space will not be appropriate.

Mental health crisis breathing spaces are for those individuals with a qualifying debt who are being treated for mental health issues. It would be applied for by those nominated as acting for the individual in crisis, and the evidence that the person is in mental health crisis can only be obtained from an “Approved Mental Health Professional”. This is a defined term, a medical professional who is approved by the local social services authority to provide that service. Contact with the debt advisor would be via a nominated point of contact. A mental health crisis breathing space will last for so long as the tenant is being treated as is in crisis plus a further 30 days. There is no limit to how many times an individual can apply for a mental health crisis breathing space.

What does this mean for landlords?

Rent is a qualifying debt so will be included within the debt covered by the standard or mental health crisis breathing space. The landlord will be notified by the Insolvency Service of the breathing space being in place as close to the start date as possible.

As soon as the landlord receives notification of the breathing space it must stop any ongoing enforcement action related to the debt and it should not send its usual communications to the tenant about the debt covered by the breathing space. The landlord can continue to contact the tenant about all other matters to do with tenancy management.  It may also write to confirm that they have received the breathing space and what it will be doing about it. The landlord cannot serve a Notice of Seeking Possession on rent arrears grounds during the moratorium period.

The landlord should also look at the sums covered by the breathing space. If the figures are not correct then the landlord must inform the debt adviser of the correct sums owed.

Note that the moratorium period does not apply to existing attachment of earnings orders. However it will include enforcement action via agents, this includes the Department for Work and Pensions taking payments from benefits (not including Universal Credit) so those agents must be notified to cease enforcement action for the moratorium period.

The landlord cannot enforce any existing judgment based on the debt covered by the breathing space without the permission of the Court that the case was heard in, nor would it be able to obtain a warrant or get default judgment.

If there are existing legal proceedings that have not yet concluded, those proceedings can continue once the landlord has notified the Court. The Court is able to send further notices and correspondence to the debtor in relation to the Court process but there should not be any hearings about the debt during that period. If a landlord already has a possession order based on the debt or money judgment then the Court should take all the necessary steps to ensure that any action to enforce doesn’t progress during the moratorium period.

Landlords will no doubt be concerned about the potential disruption to their income management procedures however may take some comfort from disruption for standard breathing spaces is limited to 60 days and that the breathing spaces are only be accessible via authorised debt advisors who are obliged to assess the suitability and eligibility for those individuals.

For more information, please contact Anna Bennett, Solicitor in our Housing Management & Property Litigation team.

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