The Government is introducing a new kind of relief for people suffering from problem debts.
The new “Breathing Space” legislation which comes into force from 4 May 2021 allows either debt advice providers authorised by the Financial Conduct Authority or local authorities who give debt advice to issue Breathing Space notices to creditors. These notices grant individual debtors at least 60 days protection from debt recovery action.
There are two types of Breathing Space notices – a “standard” notice and a “mental health crisis” notice.
The Standard Notice
The standard notice is available to any individual with a “problem” debt and gives protection from creditor action for up to 60 days. Upon receipt of a standard Breathing Space notice, creditors must pause all enforcement action and contact with the debtor for this period and freeze interest and charges added to the debt.
Any individual can make an application for the standard notice, though not all applications will be granted. If a debtor has access to funds, income or assets, the debt adviser is required to consider whether the debtor can pay the debts, with budgeting assistance. If the debt adviser believes there is a more suitable solution, they should not grant the Breathing Space notice.
The Mental Health Crisis Notice
The mental health crisis notice is only available to individuals who are receiving mental health crisis treatment and provides longer protection to the debtor than a standard notice. The mental health crisis notice lasts the whole length of the individual’s treatment, plus an additional 30 days after treatment has ended. The mental health crisis notice again means that creditors must pause all enforcement action and contact with the debtor and freeze interest and charges added to the debt.
This wider reaching form of Breathing Space notice will only be granted if a mental health professional certifies that the individual is receiving mental health crisis treatment.
There are some restrictions on who can use Breathing Space notices. The debtor:
- Must reside in, or usually reside in England and Wales
- Must not have an existing Debt Relief Order, Individual Voluntary Arrangement, Interim Order, or undischarged bankruptcy order
- Must not have an existing Breathing Space order or have had a standard Breathing Space order within the last 12 months
- For a mental health crisis notice, the debtor must also be receiving mental health crisis treatment
The Breathing Space notice is not a payment holiday, therefore the debtor must continue making the agreed payments on any existing payment plans/obligations.
What debts are included?
The majority of existing debts, including tax and benefit debts, will qualify for temporary relief under the Breathing Space notice, however any new debts incurred while the notice is in place will not qualify for relief.
There are certain types of debt which do not qualify for relief:
- Secured debts such as payments under a mortgage, hire purchase agreement or conditional sale agreement. The existing arrears will be included, but new arrears are not qualifying debts.
- Debts incurred from fraud or fraudulent breach of trust.
- Liabilities to pay fines imposed by the Court for an offence (e.g. parking fines).
- Obligations under a confiscation order.
- Child maintenance payments or obligations under a family order.
- Crisis or budgeting loans from social funds.
- Student loans.
- Damages payable for death or personal injury caused to someone else.
- Advance payments for Universal Credit.
- Council tax liabilities not yet due. Like secured debts, the existing arrears will be included, but new arrears will not qualify.
When must the debt adviser cancel the notice?
The debt adviser is under an ongoing obligation to ensure that the debtor is eligible and meets their current obligations. They are obliged to cancel the Breathing Space notice if any of the following are true:
- The debtor has not met their existing obligations (i.e. is not paying their ongoing liabilities)
- The debtor has put a recognised debt management solution in place
- The debt adviser has been unable to correspond with or communicate with the debtor
- There is an issue with the debtor application, or there is some unfair prejudice to a creditor’s interest
Creditors can request a Review
If a Creditor is not happy with a Breathing Space notice, they can request that the debt adviser review it, provided the request is received within 20 days of the start date on the notice.
The Creditor is able to request a review if:
- The notice unfairly prejudices the creditor’s interest (the creditor will need to provide evidence of such allegation)
- The debtor does not meet the eligibility criteria
- The debt is not a qualifying debt
- The debtor has the funds to make payment of their debts
The debt adviser will either cancel or continue the Breathing Space notice following their review.
If the debt adviser continues the Breathing Space notice, the creditor is able to make an application to the Court to review the Breathing Space notice, and such application should be made within 50 days from the start date on the Breathing Space notice.
Implications for Creditors
While Breathing Space notices provide welcome relief for those in debt, they will have a negative impact on creditors who are owed money, particularly for smaller creditors who may be relying on receiving payment. Breathing Space notices will be used as a tool by debt advisors to delay enforcement while another form of debt relief is put in place, such as bankruptcy, a Debt Relief Order or an IVA. In many cases, once a debt advisor becomes involved then creditors are unlikely to receive much or any of the money they are owed by an individual.
Debt Recovery Advice for Businesses
If your business is owed money and you need help from a Debt Recovery expert then we are here to help. Our litigation solicitors can help recover money from both individuals and other businesses and if the debt is defended we can help you recover it through the courts.
For more information and to book a free 30 minute consultation to discuss your problem, please contact us today for help.
The Backhouse Solicitors Team
Tel: 01245 893400
Email: [email protected]
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