Debt Moratorium

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will come into force on 4th May 2021.

The new regulations allow those struggling with debt to apply for a moratorium through a regulated debt adviser. The regulations introduce two types of moratoriums; a Breathing Space Moratorium, which ends 60 days from the date it is started or when the court or debt adviser cancels it; and a Mental Health Crisis Moratorium, which can only be given if an Approved Mental Health Provider states the debtor is going through a mental health crisis. The latter of these two moratoriums would not end until 30 days after the debtor’s mental health crisis treatment has ended.

If a moratorium is granted to the debtor, it will bring in responsibilities for creditors to whom the debt is owed through the creation of a “breathing space”. The breathing space means the creditor must stop all action related to that debt and apply the protections. This means a creditor cannot:

  • Charge interest, fees, or penalties for the debt.
  • Take any enforcement action regarding to the debt.
  • Contact the debtor regarding the debt, unless permission is given by the court to contact the debtor.

For a debtor to be able to apply for a moratorium their debt must be a “qualifying debt”. A qualifying debt includes rent arrears, mortgage arrears and utility bills. Qualifying debts include those any debtor may have had before the legislation came into force.

Therefore, if a rent arrears debt owed to a landlord is put into a breathing space, the service of a section 8 notice based on that debt would not be possible. Any proceedings that have already been issued under a section 8 notice will also be halted. A moratorium will not hinder the ability to serve a section 21 notice or a section 8 notice which cites grounds other than those based on rental arrears.

These new regulations apply to both creditors and their agents, meaning agents cannot take any action on behalf of the creditor over a debt in a breathing space.

A debtor, who has applied for a breathing space, will be required to give details of who the debt is owed to so that the debt adviser can inform the creditor that the debt has been put in a breathing space. Where the debtor only has details for the agent of the creditor, the agent will be notified, and they must notify the creditor accordingly.

Further information on the regulations due to come into force on 4th May 2021 can be found on the government website:

https://www.gov.uk/government/publications/debt-respite-scheme-breathing-space-guidance/debt-respite-scheme-breathing-space-guidance-for-creditors