Debt respite post covid – what’s the latest?
On 4 May 2021, the Debt Respite Scheme (Breathing Space) (“the Scheme”) came into force. The Scheme allows individuals to apply for a ‘Breathing Space’ from creditors under special circumstances.
The purpose of the Scheme is to allow individuals experiencing debt problems the opportunity to get their finances under control and to find a long-term solution.
Tenants in arrears due to covid
According to a survey by the National Residential Landlords Association in December 2020, as many as 800,000 private renters could be behind on their rent due to COVID-19. More recently, concerns have been expressed that homelessness will increase substantially by December 2021.
It is estimated that, in the first year, the Scheme will help over 700,000 people to obtain professional help, increasing to 1.2 million a year. Of this, it is estimated that 25,000 to 50,000 people who are obtaining mental health crisis treatment will benefit from the Scheme.
Protection from creditor legal action
There are two types of “Breathing Space”:
- Standard Breathing Space. This is available to anyone who has a problem debt. It provides protection from creditor action for a period of up to 60 days and includes pausing most enforcement actions, freezing interest and other charges relating to the debt.
- Mental Health Crisis Breathing Space. This is available only to those who are receiving mental health crisis treatment and will last for so long as the individual is receiving treatment, plus 30 days. It provides stronger protection than the Standard Breathing Space.
Debt advisors approved by the Financial Conduct Authority (FCA), together with local authorities providing debt advice, have the powers to grant Breathing Space to individuals in debt. They will consider whether the Scheme is appropriate and whether an individual can satisfy the debt owed through budgeting or selling assets.
If the Breathing Space is approved, an individual’s name will be added to an electronic record and the creditors will be notified.
To qualify the debtor must:
- Be an individual
- Owe a qualifying debt to a creditor
- Live or usually reside in England or Wales
- Not have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order, or be an undischarged bankrupt at the time they apply
- Not already have a Breathing Space or have had a standard Breathing Space in the past 12 months at the time they apply
The Standard Breathing Space has to be reviewed after 25 to 35 days of the 60-day moratorium to determine whether it should remain in place or be cancelled.
Eligible debts include sums incurred before 4 May 2021 in relation to an order or warrant for possession of individual’s residence or place of business, a Court judgement and any debt, or liability payable to the Crown.
Can creditors pursue secured debts post covid?
Secured debts (with the exception of arrears in respect of a secured debt) and debts under family proceedings, child maintenance and student loans are not eligible.
Debts which only relate to a business or a debtor who is a partner in a business are also not eligible.
Where a creditor is owed money and has been notified that the individual debtor has been accepted by the Scheme, the creditor will be unable to:
- Bring enforcement action
- Contact the debtor to request payment
- Charge interest or penalties during the period that they remain in the Scheme
If you are a landlord owed rent and you are made aware that your tenant has been granted a Breathing Space, you must cease all actions relating to that debt – in particular, you cannot:
- Serve a Section 8 notice under the Housing Act 1988
- Apply for a warrant or money judgement
- Receive a possession order on the ground of rent arrears
- Contact the tenant to request payment of the debt during this time
A tenant with a Breathing Space may not be able to avoid a claim for possession based on grounds other than rent, such as anti-social behaviour or because a landlord wants to live in the property himself. However, at present, the Government’s position in relation to the enforcement of possessions is unclear.
Alternatively, it may be possible to obtain possession following the service of a Section 21 notice under the Housing Act 1988 if the tenants have not vacated by the date specified in the Section 21 notice and where no rent arrears are being claimed.
After an expiry of the Breathing Space, separate proceedings for rent arrears can be issued.
For further information please contact Mira Arezina, Associate Solicitor, in Axiom DWFM’s Dispute Resolution Department by tel: 0203 827 6131 or email