Debt Recovery: The new Debt Respite Scheme – an outline of what it is, how to qualify for it and how to apply

The difficult economic situation caused by the pandemic has resulted in many people facing financial difficulties as a result of pay cuts, furlough and redundancies. However, many debtors will be relieved to hear that some support has been provided to individuals as of 4 May 2021, when the new Debt Respite Scheme (Breathing Space) (“the Scheme”) is implemented, following The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 coming into force.

What is the Scheme?

In summary, the Scheme will provide those facing financial difficulty with some form of temporary legal protection from creditors in two possible ways:

1. Standard breathing space: this applies where someone has problem debts. It gives them protection from creditors taking action for a period of up to 60 days. This results in most methods of enforcement being paused, as well as communication from creditors. The Scheme also results in interest and charges being frozen.
2. Mental health crisis breathing space: this is an enhanced form of breathing space that applies where someone is receiving mental health crisis treatment. As a result, it provides a longer period of breathing space to the debtor. The breathing space lasts as long as the person is receiving mental health crisis treatment, plus 30 days in addition to the period of treatment. There is no limit on how many times a debtor can enter into a mental health crisis breathing space.

Debtors are still, however, legally required to pay their debts and liabilities during this period, and creditors can still accept payments that may be received via existing direct debits; they just cannot take steps to enforce the debts if they are not paid during the breathing space period.

How do I apply for the Scheme?

Understandably, many debtors will want to know how to get this process underway. The process is not automatic, and can only be started by very specific authorised persons, namely:

• A debt advice provider authorised by the Financial Conduct Authority (FCA) that offers debt counselling services; or
• A local authority that provides debt advice to residents.

The Insolvency Service maintains the Scheme, operated by an electronic service that the authorised persons above use, to start the Scheme. Once this is activated, the Insolvency Service sends a notification to the debtor’s creditors, to make them aware of it. There is also a private register that stores details of people who are affected and have a debt included within the Scheme,as well as the date the breathing space ended or was cancelled, in the last 15 months.

How do I qualify for the Scheme?

The Scheme only applies to the following persons:

• Individuals;
• Who owe a ‘qualifying debt’ to a creditor;
• The individual must live or reside in England or Wales;
• The individual must not be subject to a Debt Relief Order (DRO), Individual Voluntary Arrangement (IVA), interim order, or be an undischarged bankrupt at the time they apply for the Scheme; and
• Not already have a breathing space in force or have previously had one in force within the last 12 months at the time of applying.

For the mental health breathing space application, evidence must be provided to support the fact that the individual is receiving ongoing mental health treatment.

What is a ‘qualifying debt’ under the Scheme?

Most debts are likely to fall within the Scheme, but the Government guidance has outlined the following as qualifying:

• Credit and store cards
• Personal loans
• Payday loans
• Overdrafts
• Utility bill arrears
• Mortgage or rent arrears.

If they do not fall within the meaning of a qualifying debt, they shall be excluded from the Scheme. It can be seen from the Government guidance that the Scheme affects not just debtors, but also creditors. We intend on covering the scope of the Scheme in further detail in a series of blogs that are set to be published over the next few weeks.

How can Ellis Jones help you?

If you are a debtor faced with a creditor that is applying pressure on you to settle a debt owed to them, or, you are a creditor that has a debt owed to you and you want to make sure you pursue the debt in the correct way, we would be happy to discuss your case and see if we are able to assist. Should you wish to discuss this further, please do not hesitate to contact our specialist Dispute Resolution team on 01202 525333.