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New regulations will come into force on 4 May 2021 to help those struggling with debt to apply for much needed breathing space with the assistance of a regulated debt advisor, in order to benefit from legal protections against creditor action.

The Regulations, which you can view here, will create two types of statutory moratoriums.  The purpose of the moratorium will be to place specific duties on the creditors, meaning that if a moratorium is granted to the debtor the creditors are not allowed to:

  1. Charge any interest, penalties or fees on top of the debt;
  2. Take any enforcement action;
  3. Contact the debtor regarding the debt without permission from the court to contact the debtor.

A Breathing Space moratorium will last up to 60 days or until the debt advisor or court cancels, if earlier.  The Mental Health Crisis moratorium only ends 30 days after the debtor’s mental health crisis treatment has ended and ongoing treatment must be confirmed every 20 to 30 days.  Note here that a Mental Health Crisis moratorium is granted only where an approved mental health provider states the debtor is going through such a crisis.  There is no limit on the amount of times a debtor may have to engage the Mental Health Crisis moratorium, but a debtor can only engage the Breathing Space moratorium once a year.

An individual will not be able to apply for a Breathing Space moratorium if they have a debt relief order, are in an Individual Voluntary Arrangement (IVA), or be an undischarged bankrupt, and not already have had a Breathing Space moratorium within the last 12 months from when they apply. As with the Individual Insolvency Register, there will be a Breathing Space moratorium register in order to check this.

It is important to note that the debt must be a ‘qualifying debt’ – this is quite wide ranging and likely to include most types of debts.  It is stated to specifically exclude secured debts (like mortgages), debts incurred because of fraud, liabilities to pay court imposed fines (but does not include PCNs), child maintenance or other orders in family proceedings, student loans, obligations from a confiscation order, a crisis or budgeting loan from the social fund, damages payable for someone’s death or personal injury, advance payments of Universal Credit and council tax liabilities that have not yet fallen due.

Further, whilst this provides some breathing space and prevents enforcement action or additional costs being added to the debt, all payments must continue to be made, especially priority bills, as this is not a payment holiday.

For more information and guidance notes for creditors and debt advisors, you can find this on the Government’s website.

If you would like to discuss the Debt Respite Scheme further or require guidance on a bankruptcy-related matter, please email Adina-Leigh Collins or Bimal Kotecha or contact the team on 020 8308 3610.