A new moratorium for consumer debtors - The “Breathing Space” Regulations  

England and Wales

The “Breathing Space” Regulations come into force on 4 May 2021 (the “Regulations”). The Regulations are designed to provide debtors the right to legal protections from their creditors, primarily focussing on consumer debt that has been incurred as a result of a contractual relationship. A consumer for the purposes of the Regulations is an individual as opposed to a corporate entity.

The Regulations work to pause enforcement action in relation to existing debt, and to freeze incurring any interest and late payment charges.

Under the Regulations, there are two types of Breathing Space:

1. Standard Breathing Space: A Standard Breathing Space is available for any debtor with problem debt and lasts up to 60 days with a review midway. A debtor can only benefit from one Breathing Space in any 12-month period.

2. Mental Health Crisis Breathing Space: A Mental Health Crisis Breathing Space is only available to a debtor who is receiving mental health crisis treatment. This Breathing Space lasts as long as the debtor’s mental health crisis treatment, plus 30 days after the treatment stops. There is no limit to the number of Breathing Spaces permitted, provided the criteria are met.

There is no maximum amount of debt that can be protected by a Breathing Space moratorium. Rent arrears can be included, as can most contractual consumer debt and some business debts, e.g. where the debtor is a sole trader not registered for VAT.

During the Breathing Space moratorium, the debtor is expected to make payments in relation to ongoing liabilities as they fall due. All other proceedings, including bankruptcy, will pause during the moratorium.

Standard Breathing Space moratorium

To be eligible the debtor must seek and receive professional debt advice. A Breathing Space can only be started by a debt advice provider who is authorised by the Financial Conduct Authority (the “FCA”) to offer debt counselling. In some circumstances it can also be started by a local authority in the event that they provide debt advice to their residents. Debt advice providers are responsible to monitor and administer a Breathing Space. They are the point of contact for the debtor, their creditors, and the Insolvency Service.

Once the application has been considered, the debt adviser will initiate a Breathing Space moratorium if they consider that:

  1. the debtor meets the eligible criteria;

  2. the requisite conditions are met; and

  3. the debs to be included in the moratorium are qualifying debts.

Mental Health Crisis Breathing Space moratorium

To be eligible, an Approved Mental Health Professional (the “AMHP”) must certify that a debtor is receiving mental health crisis treatment. Following which, the AMHP’s evidence can be used by a debt adviser to initiate a mental health crisis Breathing Space.

Where a debtor has been identified as receiving mental health crisis treatment, a debt adviser must still take steps to establish whether the debts are qualifying debts and carry out similar checks to those carried out in respect of a standard Breathing Space.

Impact for landlord creditors

Landlords are to face more eviction prevention hurdles after the Regulations come into force.

If a landlord is notified that one of their tenants has the benefit of a Breathing Space, they (or their agent) must not under any circumstances contact the debtor for the purpose of enforcement of any paused debt. Landlords can however correspond with debtors in relation to other landlord and tenant matters, including in relation to ongoing liabilities.

Once a Breathing Space has been granted and implemented, landlord creditors are prevented from the following:

  • demanding payment of the debt

  • enforcing any security held in respect of the debt

  • applying for default judgment in respect of the debt

  • serving a notice to take possession on grounds 8, 10 or 11 of the Housing Act 1988, or to take possession having served such a notice

Landlords must check their records to identify any other debts owed by the debtor and inform the debt adviser if there are debts that have not been disclosed

If Court proceedings are underway, landlords must notify the Court (and these proceedings will likely be stayed).

Challenging a moratorium

The Regulations include a mechanism allowing a creditor to challenge a moratorium within 20 days of a Breathing Space/mental health crisis treatment moratorium being granted and ask for it to be reviewed.

Where a debt adviser refuses to cancel the moratorium following a challenge, the creditor may apply to court. Further, where a court has cancelled a moratorium, they can require the debtor to pay any interest, fees or charges that accrued during the moratorium period in respect of the debt.

Practical consequences of the Regulations

  • There may be changes necessary to ensure that any automated action taken in respect of a debt is paused where notification of a Breathing Space has been given.

  • Care will need to be taken to ensure that interest or other charges are not inadvertently added to a moratorium debt. 

  • If the debtor is not meeting ongoing liabilities, landlords can inform the debt adviser who has the power to cancel the Breathing Space.

  • The Insolvency Service will operate a searchable online register of debtors with the benefit of Breathing Spaces.

For further advice on the real estate implications on the Regulations please speak to Stephen Scott, Sara Keag and Rebecca Hilditch.