The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will come into force on 4 May 2021. The Regulations provide additional protection to people who are in difficulty with debt and who actively seek assistance from the debt advice sector. Creditors may be notified at any stage of the debt recovery process that a debtor is entering a moratorium and must have processes in place to ensure compliance.
What is the Debt Respite Scheme?
The Regulations provide eligible individuals who are in debt with a right to a “breathing space” from creditor enforcement action. There are two types of breathing space:
- Breathing space moratorium: this is the “standard” breathing space where creditor enforcement action is paused, and interest, fees and charges are frozen for a 60-day period in relation to the moratorium debt(s).
- Mental health crisis moratorium: individuals receiving mental health crisis treatment will have access to a similar breathing space for as long as their mental health crisis treatment lasts, plus an additional 30 days.
To obtain a moratorium, a debtor must seek advice from a “debt advice provider”, that is a debt advisor who is authorised by the Financial Conduct Authority or a local authority where they provide debt advice to residents. If the debtor is eligible, the debt advice provider will initiate the process.
The Regulations have two key aims: to incentivise more people to access debt advice and to access it sooner, helping them to reach sustainable debt solutions; and to provide debtors who engage with this advice with the headspace to find a debt solution.
Who is eligible for a breathing space moratorium?
In order to qualify, the debtor must:
- Be an individual living in England or Wales.
- Owe a “qualifying debt” to a creditor (see below).
- Not be subject to a debt relief order or individual voluntary arrangement or be an undischarged bankrupt.
- Not have had a breathing space moratorium in the last 12 months.
The debt advice provider must also be satisfied that the debtor is unable to pay all or some of their debt and that a moratorium would be appropriate.
Who is eligible for a mental health crisis moratorium?
Debtors who are receiving mental health crisis treatment do not have to access debt advice first. If an Approved Mental Health Professional (AMHP) certifies that a person is receiving such treatment, the AMHP’s evidence can be used by a debt advice provider to start a mental health crisis moratorium. A carer, social worker, etc. can apply to a debt advice provider for a moratorium on the debtor’s behalf if necessary.
There is no limit on how many times a debtor can enter a mental health crisis moratorium, unlike a debtor in a breathing space moratorium, who only has access once in a 12-month period. Otherwise, the eligibility criteria are the same.
What is a qualifying debt?
Debts included in a moratorium must be qualifying debts. All existing personal debts and liabilities are likely to be qualifying debts including credit cards, loans, utility bill arrears and mortgage or rent arrears, subject to some exceptions.
For example, secured debts (like mortgages, hire purchase or conditional sale agreements) are an exception but arrears are not, which means that a debtor in arrears on their mortgage will be entitled to the protection afforded by the Regulations in relation to their arrears but not their ongoing liability to make mortgage payments which the debtor must continue to pay during the moratorium (if the debtor misses these payments, the debt advice provider may decide to cancel their moratorium).
How will creditors be notified about a moratorium?
Debt advice providers are responsible for the administration of a moratorium. They are the point of contact for the debtor, their creditors, and the Insolvency Service (who will maintain the electronic service that debt advice providers will use to start a moratorium). The Insolvency Service will send notifications to creditors and will also maintain a private register of individuals whose debts are in a moratorium.
What should a creditor do when it has been notified about a moratorium?
The creditor should:
- Note the moratorium debt(s) and moratorium period and update their records.
- Carry out a search of their records. Any debts owed by the debtor to the creditor that are not included in the moratorium must be flagged to the debt advice provider who may add these to the moratorium. If the moratorium debt(s) have been sold on, the creditor must notify the creditor by assignment of the moratorium and provide their contact details to the debt advice provider.
- Instruct any agent acting on its behalf to stop enforcement action.
- If court proceedings have been commenced, notify the court of the moratorium. The court will stay bankruptcy proceedings or proceedings to enforce a court order or judgment until the moratorium ends or is cancelled. Other proceedings about the debt can continue until the court makes an order or judgment.
During the moratorium period the creditor must not in relation to the moratorium debt(s):
- Apply fees, penalties, charges or interest.
- Take enforcement action or contact the debtor in relation to enforcement action. If a limitation time period is due to expire during the moratorium, this will automatically be extended to 8 weeks after the moratorium ends.
Any action taken which is contrary to the above will be void and the creditor may be liable for any losses incurred.
What obligations does the debtor have during the moratorium?
The debtor must:
- Engage with the debt advice provider and inform them of any material change in their circumstances or financial position.
- Make any payment due in relation to an ongoing liability as it falls due to be paid during the moratorium period.
- Not obtain additional credit which exceeds £500.
What if the creditor disagrees with the moratorium?
The debt advice provider must carry out a midway review of a breathing space moratorium (or regular reviews in the case of a mental health crisis moratorium) to determine whether it should continue or be cancelled. A creditor may also request a review, and this may be escalated to a court in certain circumstances.
The policy behind the Debt Respite Scheme pre-dates the coronavirus pandemic, but given the current financial difficulties of many people, its introduction may be well-timed. However, the Scheme will understandably be of concern to creditors worried about the length of time it may now take to recoup outstanding debts.
If you require further information or assistance in relation to debt recovery, please contact a member of the Dispute Resolution Team.
A version of this article was originally published on the LawWales website.
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