New statutory ‘Breathing Space’ scheme to help people in problem debt

A new statutory 'Breathing Space' scheme began on 4 May 2021 to help people in problem debt, including rent arrears, better manage their finances, seek professional debt advice and reach sustainable solutions.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 sets out the new rules.

Types of Breathing Space

The scheme is designed to give someone with debt problems the right to legal protections from their creditors for a limited period of time. There are two types. The first is standard Breathing Space, which is available to anyone with a qualifying debt who is resident in England or Wales, who accesses debt advice (local authority or FCA registered) and meets the eligibility criteria and conditions. This gives protections from a creditor for up to 60 days and includes pausing most enforcement action and contact from creditors.

The second is a mental health crisis Breathing Space, which is given to someone who is receiving mental health crisis treatment and lasts as long as the treatment, plus 30 days (no matter how long the crisis treatment last). The person receiving mental health crisis treatment does not have to access debt advice first, but evidence from an Approved Mental Health Professional is required to allow a debt advice provider to start a moratorium.

Information for housing associations

When creditors, such as housing associations, are notified about a moratorium debt, they must pause enforcement action. Creditors must also conduct a reasonable search of their records for any additional debt(s) owed to them by the debtor, as they may be eligible to be added to the moratorium. Housing associations should ensure no letters, statements, notices or contact is made with the tenant over the issue.

The Insolvency Service will run and operate the scheme and will notify creditors of all the details and keep records. Creditors will need to receive notifications from the Insolvency Service and process them in order to implement the protections. New debts incurred during a Breathing Space are not qualifying debts – the legislation is clear that the debtor needs to meet ongoing rent obligation. If payments are not made, the debt adviser may cancel the standard breathing space.

Recovering rent arrears through DWP Third Party Deductions (TPD)

• The landlord, as the creditor in these cases, will receive a notification from the Insolvency Service portal but the Department for Work and Pensions (DWP) will not be notified. Therefore the landlord will need to instruct the DWP to cease the deductions from the customer’s DWP benefit.
• Where the deduction is from a legacy benefit the landlord will notify the DWP to stop the deductions using a creditor template. This is the only way to notify the DWP to both stop and restart deductions when a Breathing Space moratorium has been put in place.
• Deductions will not automatically restart at the end of the moratorium period, as the customer’s debt position may have changed and deductions may no longer be appropriate.
• Where the deductions are being taken from the customer’s Universal Credit the landlord should not take any action to stop the deductions, as Universal Credit TPDs are not currently included in the protections of Breathing Space.

Guidance for creditors was published at the end of 2020 to assist housing associations in understanding the regulations. Housing association landlords are advised to contact breathingspace@insolvency.gov.uk to discuss their options for receiving and managing notifications, if they have not already done so.