The UK Government has now set out details of their new Debt Respite Scheme also known as Breathing Space. The Debt Respite Scheme will come into force from May 2021, the new details of the scheme are now set out on the GOV.UK site. The Breathing Space will be granted by a debt advice provider to the individual that is in debt to give them sometime to sort out there finances. During the breathing space time they do not have to repay certain debts, including rent arrears, and those they owe money to are not allowed to contact them about debt like eg: Credit cards, store cards, personal loans, pay day loans, overdrafts, utility bill arrears and mortgage or rent arrears.
There is two types of breathing space that an individual may enter into:
- A standard breathing space
- A mental health breathing space
A standard breathing space that an individual will enter will give them legal protections from anyone collecting debt from them for up to 60 days. The creditors will not be allowed to contact the individual directly to request any form of payment or take enforcement action to recover the debt including taking possession of a property. You will only get a standard breathing space through an approved debt advisor registered with the Financial Conduct Authority, or via a local authority if it is approved to offer this kind of advice to its local residents. The individual who will apply for this breathing space can get no more than one a year.
A mental health breathing space will only be available and be sought by an approved mental health professional and are primarily for people who have or will be detained in hospital for serious mental health treatment although they are also for people in receipt of emergency or crisis mental health treatment on an out-patient basis. The mental health breathing space will have stronger protections than the standard breathing space. It will last as long as the clients mental treatment, plus 30 additional days thereafter, no matter how long the crisis treatment lasts.
Once you have been approved into any of the two breathing spaces your name will be added to an electronic record and your creditors will be notified, the decision still can be challenged by the creditors.
IMPACT ON SECTION 8 POSSESIONS
For most landlords, this will usually occur where the tenant is in arrears. In these cases they cannot serve a Section 8 notice, apply for a warrant or money Judgment or receive a possession order during the ‘breathing space’. They should also not contact the tenant to request payment of the debt during this time. If there are judgements against the former tenant for damage to the property or any other unpaid bills/debts, this will also be covered if they enter a breathing space.
It is also worth noting that several debts aren’t covered by breathing space rules, so your mortgage lender would still expect to receive your mortgage payments during the period of time your tenant was in breathing space. If you explain the situation to your mortgage lender you might be able to come to some sort of agreement.
Once you have been notified that your tenant has entered into one of the two ‘breathing spaces’ you or your agents must not do the following:
- Contact the tenant directly in relation to the debt.
- Obtain a warrant in relation to the debt.
- Serve a notice seeking possession because of the debt.
- Sell on the debt to a third party.
- Charge interest on the debt over the period covered by breathing space.
- Apply for a judgment in relation to the debt.
- Enforce an existing money judgement for the debt.
- Take control of the tenants belongings during the breathing space.
- Request third party deductions from Universal Credit or other benefits.
- Start bankruptcy proceedings.
In addition, if you receive a notification of a breathing space debt that you have sold to another creditor- for example, you may have sold your buy to let property to another investor or owner occupier- you must tell that creditor the breathing space has started and give their contact details to the debt advisor. The Government advice has said ” If you do not do this as soon as possible, you’re liable for any losses the debtor or the assigned creditor have as a result.”
You can still contact your tenant if you need to discuss arranging repairs to the property, inspections on the property, electric and gas safety checks.
Debtors must, as a condition of a breathing space, continue to pay debts that arise during that breathing space as they fall due, this also includes their rent. Failure to do so allows a landlord to ask the debt advisor to end the breathing space term. During or by the end of a breathing space a debt solution or arrangement must have been entered into.
The Economic Secretary to the Treasury, John Glen, said: “Being trapped in debt can be an incredibly difficult experience, and with interest and potential enforcement action to contend with, its no surprise how stressful the impact can be. Todays figures underline just how critical it is that we roll out this policy, particularly on a day like today, where we should all work to reduce the stigma of mental health issues. That’s why we will introduce breathing space in early 2021 as planned, so we can level up to the whole country and help millions of people to rid themselves of problem debt.”
CEO of StepChange Debt Charity, Phil Andrew, said: “We know that debt is bad for your mental health, with all the additional stress and anxiety that it can create. Around two in five people who turn to us have an additional vulnerability on top of their debt-and for half of them, that vulnerability is a mental health problem. However the good news is that after debt advice, many people report improvements in their wellbeing such as being able to sleep better at night or cope better with day-to-day life. Breathing space will deliver much needed additional help in two important and connected ways. It will encourage more people to seek advice, and when they do, there will be better protections in place to stop further harm and help recovery.”
Joanna Elson OBE, Chief Executive of the Money Advice Trust, said: “Breathing space will provide a powerful new incentive for people in problem debt to seek the free advice they need, and give them the time and protections necessary to get back on the road to financial health. We are particularly pleased that debts to local authorities and other government creditors will be included. Breathing space will make a real difference to people in problem debt- and we look forward to playing our part in making this scheme a success.”
Craig Simmons, Head of Debt Policy and Strategy at the Money and Pensions Service, said: “Having worked on the policy behind breathing space, its great to see it coming into effect in 2021. We welcome the fact that many people will benefit from 60 days without contact from their creditors. In this time, they can get debt advice and put a plan of action in place, all without further interest and charges being added to their debts. Breathing space has a particular role in helping those struggling with mental health and money problems to receive appropriate support. This policy is one of the many landscape shifting initiatives we expect to see as part of the UK Strategy for Financial Wellbeing, and we continue to trial, deliver and promote other interventions which can make a real difference to peoples lives.”
The impact assessment for breathing space, published, forecasts that it will help over 700,000 people across the UK get professional help in its first year, increasing up to 1.2 million a year by the tenth year of operation. Of this 25,000 to 50,000 people in mental health crisis treatment are expected to benefit from breathing space every year.
As well as covering debts like credit cards and loans, breathing space will cover a wide range of government debts.
Creditors will also benefit from introducing breathing space, with over £400 million in extra repayments expected in the first year, as individuals get the support they need to get their payments back on track.
The announcement builds on previous government work to alleviate the impact of problem debt, including reforming regulation around consumer credit, widening access to professional debt advice and helping build individual financial resilience.
This is the governments attempt at this. Given that a lot of tenant rent arrears are never collected because the tenants are evicted and then just disappear, a scheme that keeps people in their homes and allows them to pay off their debts is likely to be beneficial. It will prevent tenants becoming homeless and will also help landlords in recovering money that would otherwise probably never be collected.