The government has introduced a new Debt Respite Scheme (or Breathing Space) to help those with problem debt, including those with mental health problems.
The scheme, first announced in February and effected on Tuesday 4 May, will give indebted people certain legal protections from their creditors for a set period, or ‘breathing space’.
There are two types of breathing space available: a standard breathing space and a mental health crisis breathing space.
Standard breathing space
Eligible debtors will be entitled to a 60-day breathing space, during which time they will be protected from creditor legal action and will not have to pay any interest or fees.
Those in a breathing space will have access to professional debt advice in order to find a long-term solution to their financial issues.
To apply for a standard breathing space, the debtor must seek advice from a debt adviser, who will assess their suitability. Those who are unable or unlikely to repay their debt are more likely to be considered eligible.
Mental health crisis breathing space
Figures from the Money and Mental Health Policy Institute show that nearly one in five people (18%) experiencing mental health issues are in problem debt – three and a half times more than those without mental health problems (5%).
A mental health crisis breathing space is designed for those receiving mental health crisis treatment, and lasts for the duration of the treatment plus 30 days afterwards.
A carer or approved mental health professional can apply for a mental health crisis breathing space on the candidate’s behalf. The debt adviser will then use the evidence provided to assess the candidate’s suitability.
What are the eligibility criteria?
To qualify for a breathing space, debtors will have to meet certain conditions. They must be in problem debt and:
- Live in England or Wales
- Not have any of the following:
o A debt relief order (DRO)
o An individual voluntary arrangement (IVA)
o An interim order
o An undischarged bankruptcy
- Not already be in a breathing space or have had one in the past 12 months.
As previously mentioned, those applying for a mental health breathing space must be receiving mental health crisis treatment in addition to these criteria. Unlike with the standard breathing space, however, there is no limit on the number of times they can apply.
What kind of debt qualifies for a breathing space?
Most debts are likely to qualify for a breathing space, including:
- Credit/store card debt
- Personal loans
- Payday loans
- Utility bill arrears
- Mortgage/rent arrears.
However, the following debts and liabilities are excluded:
- Secured debts (e.g. mortgage, hire purchase etc.) – only arrears on these debts that exist at the date of application are eligible for a breathing space
- Debts accumulated as a result of fraudulent activity
- Fines imposed by a court due to an offence (not including penalty charge notices e.g. parking tickets)
- Child maintenance
- Student loans
- Damages for death/personal injury caused to another person
- Council tax that has not yet fallen due (council tax that is due or overdue does qualify)
What happens during a breathing space?
Creditors will receive a notification that a debt owed to them is in a breathing space, and will be required to drop all action relating to that debt for the period the breathing space is in force.
This includes stopping any interest, fees, penalties or charges and ceasing any enforcement or recovery action.
John Glen, Economic Secretary to the Treasury, commented in February when the scheme was first announced:
“Being trapped in debt can be an incredibly difficult experience, and with interest and potential enforcement action to contend with, it’s no surprise how stressful the impact can be. That’s why we will introduce breathing space in early 2021 as planned, so we can level up the whole country and help millions of people to rid themselves of problem debt.”
The impact on creditors
Any positive action to assist debtors will, by design, have a negative impact on creditors, with smaller creditors particularly likely to be relying on payments to meet their own liabilities.
For example, the scheme is likely to have significant implications for landlords, many of whom have already struggled over the past year as government fiscal measures have been enacted to protect renters from the impact of the coronavirus pandemic.
If they are unable to recoup arrears during their debtor’s breathing space, they may struggle to make their own buy-to-let mortgage payments.
There is a silver lining, however. A breathing space is not a payment holiday, so debtors will still be obliged to pay the full amount once the breathing space is over.
Also, debtors are obliged to continue paying so-called ‘ongoing liabilities’ during the breathing space, i.e. rent, bills and other payments that become due after the application date.