Breathing Space Regulations

On 4th May 2021 new Breathing Space Regulations came into force to assist individuals and sole traders with problem debt.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 more commonly known as the Breathing Space Regulations will impact on the your debt recovery process if individuals or sole traders in England and Wales owe you money.

In short, an individual or sole trader (that is not VAT registered) can ask a debt adviser to activate a Breathing Space period if they are struggling with debt. This means that creditors will be prevented from any debt recovery activity for at least 60 days.

Detailed below are some frequently asked questions helping creditors to deal with the Breathing Space Regulations.

Frequently Asked Questions

    • Individuals or sole traders who are not VAT registered and are struggling with debt will have the ability to put a pause on debt collection activity against them for at least 60 days hence the term ‘breathing space’.

      There will be two different types of breathing space. These are:

      1. a standard breathing space

      2. mental health crisis breathing space

      The general principle of pausing activity are the same for both methods but the mental health crisis breathing space is likely to be longer than 60 days as detailed below.

    • Standard breathing space is available to an individual or sole trader with a problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most debt collection activity and enforcement action and contact from creditors and freezing most interest and charges on their debts.

    • A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections.

      It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

    • Debts included in a breathing space must be qualifying debts. Debts are any sum of money owed by the debtor to you. Most debts are likely to be qualifying debts. These will include but are not limited to:

      • credit or store cards
      • personal loans
      • pay day loans
      • overdrafts
      • utility bill arrears
      • mortgage or rent arrears

      Government debts like tax and benefit debts are all likely to qualify, unless they are included in the list of excluded debts.

      Joint debts can be included in a breathing space, even if only one person applies for a breathing space. The joint debt would become a breathing space debt, and you must apply the same protections to the other people who owe that debt to you. The breathing space does not affect the other people’s debts and liabilities in their own names.

      While guarantor loans can be included in a breathing space, the protections do not extend to the guarantor. The guarantor can apply for their own breathing space, if they’re eligible.

      Qualifying debts can include any that the debtor had before the Breathing Space legislation came into force on 4th May 2021.

    • If a debt is owed by an individual in their capacity as a sole traders and they are VAT registered, the Breathing Space Regulations are excluded.

      • secured debts (like mortgages, hire purchase or conditional sale agreements). You can only include arrears on these debts that exist at the date of an application for a breathing space. Any new secured debt arrears that happen after the breathing space starts are not protected. If a secured debt is also an ongoing liability and a debtor misses payments, it could mean the debt adviser stops their breathing space
      • debts incurred from fraud or fraudulent breach of trust. You should think of this in the same way you would if a person is bankrupt. Discharge from bankruptcy does not release a person from bankruptcy debts which they incurred by fraud. If you request a review of a breathing space because of fraud or suspected fraud, you might have to provide evidence to the debt adviser or to a court
      • liabilities to pay fines imposed by a court for an offence. This includes any interest on the fine and any penalties connected to it. This does not include penalty charge notices, like a parking ticket
      • obligations from a confiscation order
      • child maintenance or obligations under an order made in family court proceedings
      • a crisis or budgeting loan from the social fund
      • student loans
      • damages they need to pay for death or personal injury caused to someone else
      • advance payments of Universal Credit
      • council tax liabilities have not yet fallen due. If all instalments for that financial year have fallen due and have not been paid, these are considered to be a qualifying debt. If a debtor has been served with a ‘reminder notice’ to pay a council tax bill, the remaining liability for the financial year is a qualifying debt.
    • Standard breathing space is available to anyone with problem debt but can only be started by a debt advice provider who is authorised by the Financial Conduct Authority (FCA) or a local authority giving debt advice to residents.

      A mental health crisis breathing space is available to someone who is receiving mental health crisis treatment and it has some stronger protections. If an Approved Mental Health Professional (AMHP) certifies that a person is receiving mental health crisis treatment, the AMHP’s evidence can be used by a debt adviser to start a mental health crisis breathing space.

      In addition to the debtor, the following people can apply to a debt adviser on behalf of a debtor for a mental health crisis breathing space:

      • any debtor receiving mental health crisis treatment
      • the debtor’s carer
      • Approved Mental Health Professionals
      • care co-ordinators appointed for the debtor
      • mental health nurses
      • social workers
      • independent mental health advocates or mental capacity advocates appointed for the debtor
      • a debtor’s representative
    • You will either receive a notification by post or electronically by email or the Insolvency Service electronic notifications if you have signed up to their service. The regulations consider that you’ve received:

      • an electronic notification on the day it was sent
      • a postal notification 4 business days after the notification was posted
      • a notification left at your address on the day it was left
    • Breathing space will start the next business day after the debtor’s details are put onto the breathing space register. The regulations consider that you’ve received:

      • an electronic notification on the day it was sent
      • a postal notification 4 business days after the notification was posted
      • a notification left at your address on the day it was left
    • When you receive a notification, you must search your own records to identify the debt owed to you by the debtor. This needs to happen as soon as possible. If you have only received notification about one debt, but you are owed two debts (for example, the debtor has an overdraft and credit card debt with you.)

      You must make sure you stop:

      If you have instructed a third party debt collector, Solicitor or enforcement agent, you should also contact them immediately and ask them to stop any collection activity.

    • Interest can still be charged on the principal in secured debt, but not on the arrears.

      If it’s not possible to stop interest, fees, penalties or charges accruing on the debt during the breathing space (for example, this could be because of IT system limitations), it can continue to accrue. However, the debtor must not be required to pay charges or interest that accrue in this way either during or after the breathing space.

      Nothing in the regulations changes what a customer is contracted to pay. For example, if a payment is due during the breathing space and it includes interest that would have been due normally, creditors are not expected to make complex system changes to recalculate these payment amounts. Instead, creditors can make an adjustment to the overall balance owing on the debtor’s account as soon as they can.

      Ideally, communications you send debtors should not show interest, fees or charges that accrue during a breathing space. However, it does not breach the regulations to show them, as long as you do not require the debtor to pay. You must make sure you are not asking the debtor for payment. You might want to tell the debtor how you’ll deal with this accrual during the breathing space. You can contact the debtor with information about how you will deal with their breathing space.

    • Standard breathing space is available to an individual or sole trader with a problem debt. It gives them legal protections from creditor action for up to 60 days.

      A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

      What is classed as debt collection activity?

      Debt collection and enforcement activity is deemed to include:

      • collect or enforce a breathing space debt, including where this is done by any agent you’ve appointed. This includes the Department for Work and Pensions (DWP) where they are collecting a breathing space debt on your behalf through third party deductions. It does not include an existing attachment of earnings order made before the start of the breathing space, which may continue
      • try to enforce a judgment or order issued by a court or tribunal, before or during the breathing space, without the court’s permission
      • enforce your security over a breathing space debt
      • obtain a warrant or writ
      • sell or take control of the debtor’s property or goods. If a bailiff or enforcement agent has taken control of any goods by removing them and securing them elsewhere before a breathing space started, the goods may be sold during the breathing space and the costs of the sale deducted from the proceeds. However, fees accrued during the breathing space for storage of those goods cannot be charged either during the breathing space, or after it ends
      • start any action or legal proceedings (including bankruptcy petitions) against the debtor
      • make an application for a default judgment for a claim for money against the debtor
      • take steps to install a pre-payment meter or use a pre-payment meter already installed for the supply of gas or electricity, to collect payment for a debt in the breathing space, unless the debtor has already provided their consent to do so, before the breathing space starts
      • take steps to disconnect a debtor’s premises from a supply of gas or electricity, unless they have taken that supply illegally
      • serve a notice to take possession of a property let to the debtor on the grounds of rent arrears due up to the start of the breathing space; or take possession of a property let to the debtor having served such a notice prior to the start of the breathing space
      • contact the debtor about the enforcement of a breathing space debt.

      Overall, if Breathing Space applies, it is best not to contact the debtor during the breathing space period to protect yourself.

    • Any debt collection activity conducted during Breathing Space period will be invalid and If you do not do this as soon as possible, you may be liable for any losses the debtor suffers and you would not be able to recover any costs you incur during that period.

      The debtor or debt adviser could also complain to any external ombudsman or body that regulates you.

    • Under the Regulations the limitation period will be extended by 8 weeks after the breathing space has ended allowing you to issue court proceedings to avoid your debt becoming statute barred.

    • If you had already filed a petition for bankruptcy or started any other action in a court or tribunal relating to a debt that is now in breathing space, you must tell the court or tribunal in writing. You must do this as soon as you receive notification of the breathing space.

      Unless the court or tribunal gives you permission to continue, the court or tribunal must make sure any action to enforce a court order or judgment about a breathing space debt stops during the breathing space. These might be actions like:

      • holding a hearing during the breathing space
      • making or serving an order or warrant, writ of control, writ of execution or judgment summons
      • instructing an enforcement agent to serve an order, warrant, writ of control, writ, execution or judgment summons

      The court or tribunal can still send notices or correspondence to the debtor about an action or proceeding.

      Court orders and judgments for a breathing space debt, which were made before the breathing space began, cannot be enforced until the breathing space ends. This is unless the court or tribunal gives permission for these actions to continue.

      Existing legal proceedings can continue when the breathing space ends. If a time limit for enforcement or new legal claims related to the debt ran out during the breathing space, this is extended to 8 weeks after it ends.

      You can still start or continue any legal action relating to any debt that is not a breathing space debt, during a breathing space.

    • Generally, during a breathing space, you (or any agents you have instructed) must not contact a debtor about any collection or enforcement action for a breathing space debt.

      However, if you receive contact from the debtor or debt advisor requesting information or looking to put forward a payment proposal, you can communicate with them in response.

      Any communication you send should be minimal and must be carefully drafted to make sure it could not be read like it is about asking them to pay what they owe.

    • You and the debt adviser may contact each other during the breathing space on anything about the debtor and your debt. This might include things like:

      You will need to consider your own data protection obligations and decide what action you might need to take where you are sharing personal data. The regulations make clear that the duty to disclose information under the breathing space scheme should be taken into account in determining whether doing so would contravene data protection legislation. The Data Protection Act 2018 permits you to disclose personal data to a third party where you are required to do so by law.

    • A breathing space is not a payment holiday. While you cannot enforce a breathing space debt during a breathing space or charge interest or fees on it, a debtor is still legally required to pay their debts and liabilities. During the Breathing Space, the debtor should continue to pay any debts and liabilities they owe you. You can continue to accept these payments, including those you get from existing direct debits.

      If there is a controlled goods agreement in place with an enforcement agent on a qualifying debt and a repayment plan has been agreed between the debtor and the enforcement agent, the debtor should continue to make payments under that agreement as they fall due. Although no enforcement action may be taken during the moratorium period and any time limit within the plan will be extended until 8 weeks after the end of the moratorium period, when that time limit expires, any unpaid instalments may be treated as a breach of the repayment plan.

    • During a standard breathing space, a debt adviser must carry out a midway review between day 25 and day 35. This is to make sure they are satisfied the debtor is complying with their obligations.

      If the debt adviser thinks the debtor has been meeting their obligations and communicating with them, the standard breathing space will continue until the end date.

      If the debt adviser thinks the debtor has not met all of their obligations, they can cancel the standard breathing space in respect of some or all the debts.

      A mental health crisis breathing space does not have a midway review, but the debt adviser will regularly check that the person is still receiving mental health crisis treatment. The mental health crisis breathing space will continue for the duration of this treatment, plus 30 days.

    • Provided they do not consider that the debtor’s personal circumstances would make it unfair or unreasonable, the debt adviser must cancel a standard breathing space for one or more of the related debts after carrying out a midway review if they consider that:

      • the debtor has not met one or all of their obligations. This includes them not paying their ongoing liabilities (unless the debt adviser considers that the debtor did not have the financial means to do so)
      • they have put a debt solution in place
      • they have not been able to communicate with the debtor about their breathing space. This includes where the debtor is not contactable or is not available
      • there is an issue with the debtor’s application, or there has been some unfair prejudice to the creditor’s interest, after completing a creditor’s request for a review

      If the debt adviser decides it’s necessary to cancel a standard breathing space after a midway review, they should discuss this with the debtor before it’s cancelled, where they can. They must then:

      • notify the debtor that the breathing space is being cancelled
      • update the electronic service to tell the Insolvency Service the breathing space has been cancelled

      Updating the electronic service automatically updates the breathing space register. The cancellation takes effect on the following day. The electronic service will also send notifications to the creditors telling them the date of the cancellation and the reason the breathing space was ended.

      The debt adviser must cancel a mental health crisis breathing space if:

      • they believe the evidence provided to them about the debtor’s mental health crisis treatment contains inaccurate, misleading or fraudulent information, and they do not consider that the debtor’s personal circumstances would make the cancellation unfair or unreasonable
      • the debtor asks for the mental health crisis breathing space to be cancelled
    • You can ask a debt adviser to review the breathing space, or specific debts being included in it, only if you consider that:

      • the breathing space unfairly prejudices your interests. For example, you think that there has been discriminatory treatment in respect of you, or your debt
      • the debtor does not meet at least one of the eligibility criteria for a breathing space
      • any of the debts included in the breathing space do not qualify
      • the debtor has enough funds to repay their debts

      You have limited time to request a review, either:

      • within 20 days of the breathing space starting, based on the start date in the notification you received
      • within 20 days of an additional debt being added to the breathing space, based on the date when you received or were deemed to have received the notification

      To request a review, you need to give the debt adviser a written statement with the reasons you want a review and provide any supporting evidence you want to provide. This will need to be done outside of the electronic service.

      The debt adviser can decide to carry out the review you have requested as part of the breathing space midway review process.

      The debt adviser must cancel the breathing space in respect of all or some of the debts if they agree with you unless the debt adviser thinks cancelling the breathing space is unfair or unreasonable due to the debtor’s personal circumstances.

    • After a review, if you do not agree with a debt adviser’s decision, you can apply to a court to cancel the breathing space in respect of some or all of the debts.

      You need to apply to the court within 50 days of the breathing space starting, or 50 days after being notified about an additional debt being added to it. You cannot do this before the debt adviser has completed their review and has let you know the outcome.

      If you decide to apply to the court, you should tell the debt adviser. You must make the application based on the same reasons you sent to the debt adviser for your original review. The court will consider your case and tell you, the debtor, and the Insolvency Service of its decision. If the breathing space is cancelled for all of the debts or just some of them, the Insolvency Service will update the breathing space register. You will receive a notification that the breathing space has been cancelled, and whether this is for some or all of the debts.

      You cannot backdate any interest, penalties, fees or charges accrued during the breathing space period, unless a court lets you.

    • When a breathing space ends, you will be sent a notification. It will tell you the date the breathing space ended. If the breathing space was cancelled by the debt adviser or the court, or the debtor has died during the breathing space period, the notification will tell you the reason why it was cancelled.

      When a breathing space ends, you can:

      • start applying interest, fees, penalties and charges to the debt from the date that the breathing space ends. You cannot backdate or apply any interest, fees, penalties or charges that accrued or would have accrued during the Breathing Space period, unless a court allows you to do this
      • take any action to enforce your debt, including contacting the debtor
      • start or continue any legal proceedings about your debt

      You cannot take these actions if the debtor has gone into a debt solution. This could include a debt relief order or bankruptcy.

      You also cannot take action if they have made a formal arrangement with their creditors to deal with their debt, such as an individual voluntary arrangement.

    • A debtor can only a Standard Breathing Space once in a 12 month period.

      There is no limit to the amount of breathing space periods for a Mental Health Crisis  Breathing Space.

Summary

These new Breathing Space Regulations may seem a blow to creditors who have already suffered delays with their debt recovery process against individuals and sole traders through the introduction of the Pre-Action Protocol introduced in 2017.

Although a further potential delay of 60 days is unhelpful to creditors, it is hoped that the new Regulations will encourage debtor engagement via an approved Debt Advisor. This should hopefully result in regular payments being made to creditors rather than debtors simply burying their head in the sand which is a positive.

There is a lot of information to take in, therefore we would recommend downloading our simple flow chart guide for creditors below.

Breathing Space Regulations Flow Chart

Download our free Breathing Space Regulations Flow Chart Guidance for Creditors.

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