Woodfi nes Solicitors
Breathing space for
those in debt
T e government has introduced a new Debt Respite Scheme (or Breathing Space) to help those with problem debt, including those with mental health problems. T e scheme, fi rst announced in February and eff ected on Tuesday
May 4, will give indebted people certain legal protections from their creditors for a set period, or ‘breathing space’. T ere are two types of breathing space available: a standard breathing space and a mental health crisis breathing space.
Standard breathing space Eligible debtors will be entitled to a 60-day breathing space, during which time they will be protected from creditor legal action and will not have to pay any interest or fees. T ose in a breathing space will have access to professional debt advice in order to fi nd a long-term solution to their fi nancial issues. To apply for a standard breathing space, the debtor must seek
advice from a debt adviser, who will assess their suitability. T ose who are unable or unlikely to repay their debt are more likely to be considered eligible.
Mental health crisis breathing space Figures from the Money and Mental Health Policy Institute show that nearly one in fi ve people (18%) experiencing mental health issues are in problem debt – three and a half times more than those without mental health problems (5%). A mental health crisis breathing space is designed for those
receiving mental health crisis treatment and lasts for the duration of the treatment plus 30 days afterwards. A carer or approved mental health professional can apply for a
mental health crisis breathing space on the candidate’s behalf. T e debt adviser will then use the evidence provided to assess the candidate’s suitability.
What are the eligibility criteria? To qualify for a breathing space, debtors will have to meet certain conditions. T ey must be in problem debt and live in England or Wales, and must not have any of the following; a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order or an undischarged bankruptcy. T ey must not already be in a breathing space or have had one in the past 12 months. As previously mentioned, those applying for a mental health
breathing space must be receiving mental health crisis treatment in addition to these criteria. Unlike with the standard breathing space, however, there is no limit on the number of times they can apply.
ALL THINGS BUSINESS
Claire Spencer Senior Associate Woodfi nes Solicitors
What kind of debt qualifies for a breathing space? Most debts are likely to qualify for a breathing space, including credit/store card debt, personal loans, payday loans, overdrafts, utility bill arrears, and mortgage/rent arrears. However, the following debts and liabilities
are excluded; secured debts (e.g. mortgage, hire purchase etc.) – only arrears on these debts that exist at the date of application are eligible for a breathing space; debts accumulated as a result of fraudulent activity; fi nes imposed by a court due to an off ence (not including penalty charge notices e.g. parking tickets); child maintenance; student loans; damages for death/personal injury caused to another person; council tax that has not yet fallen due (council tax that is due or overdue does qualify).
What happens during a breathing space? Creditors will receive a notification that a debt owed to them is in a breathing space and will be required to drop all action relating to that debt for the period the breathing space is in force. This includes stopping any interest, fees,
penalties or charges and ceasing any enforcement or recovery action.
The impact on creditors Any positive action to assist debtors will, by design, have a negative impact on creditors, with smaller creditors particularly likely to be relying on payments to meet their own liabilities. For example, the scheme is likely to have
significant implications for landlords, many of whom have already struggled over the past year as government fi scal measures have been enacted to protect renters from the impact of the coronavirus pandemic. If they are unable to recoup arrears during their
debtor’s breathing space, they may struggle to make their own buy-to-let mortgage payments. A breathing space is not a payment holiday,
however, so debtors will still be obliged to pay the full amount once the breathing space is over. Also, debtors are obliged to continue paying so-called ‘ongoing liabilities’ during the breathing space, i.e. rent, bills and other payments that become due after the application date.
To get in touch, email mail@woodfi
nes.co.uk or visit www.woodfi
nes.co.uk
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