A new government scheme coming into effect from 4 May will give those in problem debt in England and Wales the right to temporary legal protection from their creditors.
The Debt Respite Scheme, also known as breathing space, was first announced in 2019.
It will take two forms – a standard breathing space and a mental health crisis breathing space – with slightly different legal protection for each one.
The standard breathing space
The standard breathing space is available to anyone with a qualifying problem debt (see below) that they cannot or may not be able to repay.
It will offer them legal protection from creditor action for 60 days.
During this time, most enforcement actions and contact from creditors are paused – they have to apply to a court to get in touch with you. Most interest rates and charges on these debts are also frozen.
To apply, you cannot already have a breathing space in place, or have had a standard breathing space in the last 12 months.
In addition, you cannot have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order, or be an “undischarged bankrupt” individual (still in the process of bankruptcy) at the time you apply.
The mental health crisis breathing space
The mental health crisis breathing space is only available to those receiving mental health crisis treatment.
This applies to the duration of the mental health crisis treatment – regardless of how long this lasts – plus 30 days.
The same criteria and conditions for a standard breathing space applies here, although you can have a mental health crisis breathing space even if you’ve had a standard breathing space in the last 12 months. And you can have an unlimited number of them.
What it mean for you…
If you’re struggling with problem debt, it’s definitely an option to consider.
It’s a free service that starts within a couple of days of your application and can give you a chance to concentrate on repaying your existing debts.
It’s important to note that it’s not a payment holiday – you still have to repay your debts during this period if you can, but you won’t take on any additional burdens for the same debt through interest rates and charges. You also get a break from creditors chasing you for payment.
The breathing space won’t apply to any new debts you take on though.
You’ll have to pass an eligibility test, and creditors have an opportunity to challenge the breathing space in the first 20 days.
Applying for a breathing space
Applications for a standard breathing space can only be made through a debt adviser who’s authorised by the Financial Conduct Authority (FCA) to offer debt counselling, or a local authority that offers a debt advice service.
Charities like Step Change offer free debt advice, including helping you to apply for a breathing space.
Applications for the mental health crisis breathing space are also made through a debt adviser authorised by the FCA – an Approved Mental Health Professional (AMHP) is required to certify that the individual is receiving mental health crisis treatment for the application to be initiated.
However, apart from the person receiving the treatment, an application can also be initiated on their behalf by their carer, their representative, an AMHP, mental health nurses, social workers, and care coordinators and independent mental health advocates or mental capacity advocates appointed to the individual.
What counts as a qualifying debt?
Most debts will likely count as a qualifying debt, but specifically, the list includes:
- credit cards
- store cards
- personal loans
- pay day loans
- utility bill arrears
- mortgage or rent arrears (but not the mortgage itself)
- most debts like tax and benefit debts
- guarantor loans
These debts will have to have existed before you start your breathing space – anything acquired since won’t be included.
There are circumstances where a debt won’t qualify for a breathing space. These are:
- secured debts (like mortgages, hire purchase or conditional sale agreements, but not arrears)
- debts incurred from fraud or fraudulent breach of trust
- liabilities to pay fines imposed by a court for an offence
- 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 you 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