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The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) Regulations 2020

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) Regulations 2020 will come into force on Tuesday 4th May 2021. The regulations provide additional protection to people who are in difficulty with debt and who actively seek assistance from debt advisors. Creditors can be notified at any stage of the process that a debtor is entering the scheme and must have processes in place to ensure compliance.

What is the Debt Respite Scheme (moratorium)?

There are two types of moratorium. A ‘breathing space’ moratorium, which lasts for up to 60 days, and a mental health crisis breathing space moratorium, which lasts as long as the treatment continues, plus 30 days. Once the breathing space has been entered, creditors have an obligation stop all action relating to that debt and apply the protections. If a creditor has commenced legal proceedings, either in-house or instructed external legal action, these must be put on hold.

Types of debt covered by the scheme

The type of debts covered by the Debt Respite Scheme include;

  • Credit cards
  • Utility bill arrears
  • Pay day loans
  • Government debt such as council tax
  • Store cards
  • Personal loans
  • Overdrafts
  • Mortgage or rent arrears
  • Debt owed by an individual to a business or another individual

In order to qualify for the scheme individuals must also;

  • Reside in England or Wales
  • Not be subject to a Debt Relief Order or Individual Voluntary Arrangement
  • Not have been inclusive of a ‘breathing space’ in the last 12 months
Creditor Obligations

Debt advisors are responsible for the administration of the moratorium and will be the single point of contact for both the debtor and creditor. It will be the responsibility of the Insolvency Service to maintain a private register of individuals whose debts are in a moratorium which will be updated by debt advice organisations.

Creditors will be notified by the Insolvency Service when an individual enters a ‘breathing space’. Once notified, creditors must cease all enforcement action and inform any agents acting on their behalf. Creditors are also prohibited from applying fees, charges or interest to the original debt during this time.

Debtor Obligations

The debtor must engage with a debt advice organisation in order to inform them of their financial situation and to be entered into the ‘breathing space’. The debt advice provider must also be satisfied that the debtor is unable to pay all or some of their debt and that a breathing space/moratorium would be appropriate. Debtors must also ensure they make any payments due during this time relating to ongoing liabilities and refrain from obtaining additional credit in excess of £500.

Creditors may request a review of an individual moratorium which can proceed to court in certain circumstances.

The Debt Respite Scheme introduction may be timed well, however, the scheme will understandably be of concern to creditors worried about the length of time it may now take to recover outstanding debts.

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