Breathing Space

A guide for advisers

The Breathing Space Debt Respite Scheme was introduced by Sections 6 and 7 of the Financial Guidance and Claims Act 2018. Regulations to implement the scheme were published on 20 November 2020 and come into force on 4 May 2021.

Objectives of the legislation:

• To enable more people in problem debt to get professional debt advice, to do so sooner, and to enable them to access a debt solution that is best for them.
• A moratorium under the scheme will pause creditor enforcement action and freeze charges and interest. This will give clients time to get the full benefit of debt advice by reducing the stress caused by spiralling debt and the threat of enforcement action.

There are two types of breathing space. The Standard Breathing Space will give clients in problem debt legal protection from most debt recovery action and charges, for 60 days as long as they stay in touch with a debt adviser and comply with other conditions of the scheme.

If your client is receiving treatment for a mental health crisis they can get a Mental Health Crisis Breathing Space. This will give the same legal protections as a standard breathing space, for as long as the client is getting mental health crisis treatment and for another 30 days after it ends.

The period free from debt recovery action and charges is called a ‘moratorium’. There are some key differences between the two types of breathing space which are summarised in this table.

Eligibility conditions for a standard breathing space

A client who is unable to pay their debts will be eligible for a standard breathing space if at the time of the application they:

• are an individual
• owe a ‘qualifying debt’
• are living in or usually live in England or Wales
• are not currently in a debt relief order moratorium period or an individual voluntary arrangement and are not currently bankrupt
• are not already in a breathing space moratorium
• have not been in a standard breathing space moratorium in the past 12 months

Qualifying debts

Most of your client’s debts are likely to be qualifying debts for the breathing space scheme. These include: credit cards, store cards, personal loans, payday loans, overdrafts, buy now pay later, benefit overpayments and civil penalties. Many priority debts such as rent arrears, fuel arrears and council tax arrears will also qualify. Qualifying debts are the same for both types of moratorium. Any debt owed by the client at the time of the application will be a qualifying debt unless it’s specifically excluded.

Excluded debts

Excluded debts can’t be included in the client’s breathing space and creditors owed these debts will be able to take recovery action or add fees and charges if the client doesn’t pay. The following are excluded debts:

• secured debts such as mortgages, secured loans and hire purchase agreements (arrears on these will not be excluded)
• business debt if the client is either VAT registered or trading in a business partnership at the time of the application
• a debt which the client has incurred because of their own fraud (for benefit overpayments an overpayment will only be classed as fraudulent where the client has either admitted fraud, been found guilty of fraud or accepted an administrative penalty in lieu of prosecution)
• a fine ordered by a court for an offence. Fine includes any amount payable under a conviction including orders for costs. This does not include non-criminal penalties for example local authority parking penalties, and NHS penalties. These will be qualifying debts
• child maintenance arrears under the statutory scheme and arrears of orders made in family cases
• payments on account at the beginning of a Universal Credit claim and Social Fund loans
• student loans made under the Teaching and Higher Education Act 1998 or The Education (Student Loans) Act 1990
• liability to pay damages for death or personal injury or payments due under a criminal confiscation order

New debts and additional debts

If the client takes out further debt during the breathing space this will not be covered. However, a debt that was owed before the application will be a qualifying debt and can be added later if it was left out by mistake or because the client did not have details of it at the time of the application.

Creditors have a duty to search for additional debts owed by clients when they receive a notification that a breathing space has started. The creditor must tell the debt adviser about the additional debt that they’ve found and the adviser will enter it into the breathing space. Where an additional debt is added after the breathing space has started the moratorium period won’t be extended.

Is breathing space appropriate?

Clients can only get a breathing space if they meet the eligibility criteria and a debt adviser thinks that it would be appropriate for them. A standard breathing space moratorium may be appropriate for a client if:

• they are unable, or likely to be unable, to pay their debts
• a debt solution would be helpful for them and they are likely to be able to get a debt solution during, or as soon after the moratorium ends
• time is needed for the client to get full advice about their options, and for an appropriate debt solution to chosen and be applied for.

Debt solutions can include formal remedies such as debt relief orders, IVAs and bankruptcy. They can also include informal arrangements such as debt management plans, offers in full and final settlement and agreements with creditors to write off the debt. A breathing space moratorium will not be appropriate for the client if they can get a debt solution right away.

Mental Health Crisis Breathing Space

Some of the same basic criteria apply as for the Standard Breathing Space; at the time of the application the client must be an individual who ordinarily has their home in England or Wales and owes at least one qualifying debt, they must not be bankrupt or have a debt relief order or an IVA, or already be in a breathing space moratorium.

In addition to these basic breathing space criteria, in order to get a mental health crisis breathing space the client must be receiving mental health crisis treatment and evidence of this treatment must be provided by an approved mental health professional.

Mental health crisis treatment

Mental health crisis treatment is defined in the regulations and will apply to your client if either they are detained under the Mental Health Act 1983 or they are receiving other crisis, emergency or acute care or treatment.

Detention under the Mental health Act involves compulsory detention of an individual in order to protect them from harming themselves or others.This may include where they are being kept in hospital for assessment or treatment or where they’ve been taken to a place of safety by a police officer.

Other crisis treatment may be in hospital or in the community. It must be from a specialist mental health service provided by:

• a crisis home treatment team
• a mental health liaison team
• a community mental health team
• any other specialist mental health crisis service

Therefore not all clients with mental health problems will qualify, they must be receiving crisis treatment at the time of the application and that treatment must be in relation to a “mental disorder of a serious nature”. Debt advisers will not be expected to assess this.

Evidence of the client’s mental health crisis treatment must be given by an approved mental health professional (AMHP) who is approved by the local authority and has specific training and experience in supporting people in mental health crises. Other health professionals, including GPs, cannot provide this evidence but can refer someone to an AMHP to ask them to do so.

When they get evidence from an AMHP that the client is receiving mental health crisis treatment, a debt adviser will need to assess whether a mental health crisis breathing space is appropriate for the client. The debt adviser does not have to provide debt advice to the client in order to do this but is required to get a credit report from at least one credit reference agency and assess whether the client’s debts are qualifying debts. The definition of qualifying debts is the same for both types of breathing space.

For a mental health crisis breathing space there is no requirement that the client is likely to be able to enter into a debt solution. A client can qualify again for a mental health crisis breathing space even if they’ve already had either a standard breathing space or mental health crisis breathing space, as long as they meet the eligibility criteria. There’s no limit to the number of mental health moratoriums a client can enter and the adviser does not have to check whether clients in a mental health breathing space are paying their ongoing liabilities.

Case study

Aaron’s standard breathing space moratorium ended 3 months ago but he’s not managed to enter into a debt solution because he’s become unwell with severe depression. He’s still struggling with his debts. As long as Aaron’s standard breathing space has come to an end and he meets the eligibility criteria he can apply for a mental health crisis breathing space even though he’s already had one breathing space in the last 12 months. An approved mental health professional will need to provide evidence that Aaron is receiving crisis treatment.

Breathing space protections

Once a breathing space starts, the client will be protected from most types of debt recovery action until the breathing space ends.These protections are the same for both types of moratorium.

During the breathing space moratorium the creditor or anyone acting for the creditor, such as a debt collector or bailiff, cannot:

• take steps to collect a breathing space debt without getting special permission (leave) from the court
• contact the client about collecting a breathing space debt
• ask the client to pay any fees, interest or charges on a breathing space debt

These protections apply to the client and also to anyone who is jointly liable with them, for example where they have a joint loan or overdraft or where a couple jointly owe council tax arrears. The protections do not apply to anyone who has acted as a guarantor for the client.

Debt recovery action that’s already started

If, when your client’s breathing space starts, a creditor has already started court action to collect a breathing space debt the creditor must tell the court about the breathing space. Court action that has already started is also known as ‘pending action’. Some common examples of pending action include where:

• a county court claim has been issued but a judgment has not yet been made
• a summons for a liability order has been sent to the client but the liability order has not yet been made
• a creditor bankruptcy petition has been sent but a bankruptcy order has not yet been made

If a creditor has issued a bankruptcy petition this will be put on hold whilst the moratorium is in place. Other types of pending action may continue until the court makes an order. For example if the creditor has issued a county court claim and the client admits the debt and offers to pay by installments the court can make an installment order.

However during a breathing space the court must not allow any action to enforce a breathing space debt.

Court action

If cout action has not already started the creditor or their agent cannot:

• start any court action or legal proceedings to collect a breathing space debt
• ask the court to make a court judgment (known as a judgment in default) if your client does not respond to a county court money claim
• take steps to enforce a court judgment or order in relation to a breathing space debt
• issue a bankruptcy petition

The client’s home

The creditor or their agent cannot:

• give your client a notice to start to take possession of your their home using rent arrears as grounds
• take possession of their home using rent arrears as grounds if a notice has already been given
• apply for a charging order to secure the debt (an existing charging order remains in place but cannot be enforced)
• take action to enforce security for a breathing space debt, for example by applying for a possession order for mortgage arrears

It’s important to note that the moratorium will only protect a tenant from possession action in relation to rent arrears and only in cases where a notice seeking possession is required to be served. Possession action taken for other reasons such as anti-social behaviour or where no notice is required (for example if the client is a lodger) is not prevented. Where a section 21 notice is issued by a private landlord this does not specify any grounds for possession at all, so this will not be caught by the protections and the landlord can carry on despite the moratorium.

Energy debt

The creditor or their agent cannot:

• take steps to fit a prepayment meter or use a prepayment meter already in place to take payments for a breathing space debt unless your client agreed for the pre-payment meter to be fitted before the moratorium started
• take steps to cut off your client’s supply of gas or electricity unless the client had taken that supply illegally, for example where they have tampered with the meter

Bailiff action

Where a creditor has already asked a bailiff (also known as an enforcement agent) to act on their behalf to collect a breathing space debt, the creditor must tell the bailiff about the moratorium and explain to them what it means.

During a breathing space, a bailiff must not:

• send or give a notice to the client about taking control of their goods
• visit the client’s home or business to take control of their goods
• take control of the client’s goods
• sell goods belonging to the client, unless the enforcement agent removed goods for sale before the moratorium started. If a bailiff has removed goods before a moratorium started, then they may be sold
• charge fees for storage of goods or for any other reason during the moratorium

Money taken from earnings and benefits

The creditor or their agent cannot get:

• a new order to take money from the client’s wages to enforce a county court judgment or to enforce a liability order for council tax arrears. However orders already in place before the start of the moratorium will continue
• a new order to deduct money from the client’s wages for benefit debts, but an existing order can continue if notice of the deduction was given before the start of the moratorium
• a new third party deduction from benefit unless this is from universal credit. Existing third party deductions will stay in place. Third party deductions include money taken from the client’s benefit for; council tax, rent, fuel, water charges, credit union debt.

Credit reports

A breathing space will not prevent theclient’s accounts from going into default. Creditors will be able to report defaults in the normal way and this will not be paused during breathing space. There will be no special notification of a breathing space moratorium on the client’s credit reference.

Action creditors can take

During the moratorium creditors will be able to:

• send certain notices to the client that are required under the Consumer Credit Act or about ongoing proceedings
• respond to client complaints
• contact the client about non payment of any of the specific ‘ongoing liabilities’ listed in the breathing space rules, or about any excluded debts owed to them

Conditions that apply to the client in a standard breathing space

Clients applying for a standard breathing space moratorium will be expected to comply with certain conditions. Before the application is made clients must take reasonable care to provide accurate information to their debt adviser and not deliberately withhold relevant information from the application. They must, to the best of their knowledge, provide details of the debts that they owe at the date of the application

During a standard breathing space moratorium the client must:

• report any material change in their circumstances or financial position to their debt adviser
• pay specific ‘ongoing liabilities’
• not take out new credit, either alone or with any other person, that adds up to more than £500
• stay in touch their debt adviser so that they can be given full debt advice and consider their options

Material change of circumstances

The Insolvency Service Guidance for Debt Advisers says a material change of circumstances: “could mean a new job or source of income, or a problem that would affect their ability to pay their ongoing liabilities or engage with you.” This is therefore not confined to increases to income or assets.

Ongoing liabilities

An ‘ongoing liability’ is a specific item of expenditure listed in the breathing space regulations as payments for:

• a mortgage secured on the client’s home (but not mortgage arrears owed up to the start of the moratorium)
• payment for rent or a lease on their home (but not rent arrears owed up to the start of the moratorium)
• insurance agreements
• income tax and national insurance contributions
• ongoing usage for water, electricity, gas, heating oil or solid fuel
• council tax and business rates (but where a council tax reminder notice has been issued the council tax payments will become a qualifying debt and will not count as an ongoing liability).

If a client does not manage to pay the specific ongoing liabilities in this list, the debt adviser may cancel the moratorium. However the debt adviser can decide not to cancel the breathing space if they can see that the client could not afford to meet all of their ongoing liabilities.

New credit

The client must not take out new credit of £500 or more once the moratorium has started. This includes an overdraft and any joint borrowing and the £500 is a cumulative total. For example if a client takes out one payday loan for £400 that’s not a problem but if they then borrow a further £101 whilst they are still in breathing space they will be in breach of this restriction because they have borrowed more than £500 in total. If this restriction is breached the debt adviser may cancel the moratorium.

The client must stay engaged with debt advice

Continued ‘engagement with debt advice’ is one of the main principles of the breathing space scheme. If the client deliberately ignores communication from their debt adviser or does not manage to keep appointments the moratorium may be cancelled.

Part way through the moratorium the debt adviser has to carry out a review of the case to check that the client is following these conditions. Creditors can also ask for a review if they think that the client didn’t qualify for breathing space, is not following the conditions or no longer qualifies for breathing space.

If the client doesn’t follow the conditions their breathing space could be cancelled by the debt adviser and debt recovery action and charges will start again. However, the debt adviser is not required to cancel a moratorium if they consider that their client’s personal circumstances would make the cancellation unfair or unreasonable.

The application process

Clients can only get a breathing space through a debt adviser. For the standard breathing space they must have had debt advice, either face to face, over the phone or electronically. A debt adviser will need to assess that a breathing space would be appropriate for the client. For a mental health crisis breathing space, an approved mental health professional must provide evidence to the debt adviser that a client is receiving mental health crisis treatment.

The debt adviser will make an application to the scheme on behalf of their client using the online portal administered by the Insolvency Service. There is no fee.

A client needing a mental health crisis moratorium will have a named person called a ‘nominated point of contact’. The nominated point of contact is someone likely to have ongoing involvement in the client’s crisis care. The debt adviser is required to contact the nominated person every 20–30 days to check that the client is still getting crisis treatment.

The role of the insolvency service

The Insolvency Service administers the scheme but does not make decisions about the client’s application or check eligibility. It’s up to the debt adviser to decide whether the client is eligible or not. The insolvency service will:

• run an electronic service to administer the scheme
• send notifications about the breathing space to creditors and clients
• keep a breathing space register

The breathing space register is not a public register but can be accessed by the debt adviser and each creditor owed a moratorium debt. Each entry onto the breathing space register will include the client’s name, date of birth and usual address and their trading name and address if they have one. The entry will also state the date the moratorium starts and, if the moratorium has ended, the date it ended.

Clients at risk of violence

If a client believes that they or someone who lives with them may be at risk of violence if their address is revealed to their creditors they can ask for their address details to be withheld from the register. If the debt adviser is satisfied that the client or anyone who normally lives with them is at risk they can agree to withhold the client’s address and it will not appear on the breathing space register or on notifications sent to creditors.

Start of the moratorium

The debt adviser must include all of the client’s qualifying debts in the application and once details of these are submitted they will be moratorium debts. Once an application has been completed by the debt adviser and submitted to the Insolvency Service the client’s details will be entered into the moratorium register by the end of the following working day. The protections of breathing space will start on the day after their details are entered onto the register. The Insolvency Service will send a notification to the client and their creditors that the breathing space has started.

Case study: Ping has had advice about her debts and is considering her options. She’s asked her debt adviser to get a breathing space for her while she decides what to do. Ping’s debt adviser submits an application for breathing space on Monday 5 July. Her breathing space moratorium starts on Wednesday 7July and the creditors included in it will get a notification. The breathing space protections will apply to Ping’s moratorium debts as soon as it starts on 7 July.

End of the moratorium

A standard breathing space moratorium will last for 60 days unless it’s cancelled early. A mental health crisis moratorium will last for as long as the mental health crisis treatment lasts plus an additional 30 days.

After a breathing space ends creditors won’t be able to charge any of the fees or interest that would have been charged during the moratorium unless the moratorium was ended early after a creditor review and the court has ordered that interest and fees will be applied.

Training

For free training on the breathing space scheme you can access Wiseradviser Breathing Space elearning which is aimed at debt caseworkers and supervisors. You will need a wiseradviser login and can register on the Wiseradviser website

Lorraine Charlton is a Debt Expert in the Expert Advice Team at Citizens Advice.