The Debt Respite Scheme
The new Debt Respite Scheme also known as Breathing Space comes into force until 4 May 2021.
This new scheme takes into consideration the damage and issues arising through multiple issues, including the Covid-19 crisis, which allows those in debt to have a respite, offering legal protection from their creditors.
This repiste comes in two forms: A standard breathing space and a mental health crisis breathing space.
Both of which offer assistance to those in deep debt, facing penalties and possible legal action taken against them.
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Standard Breathing Space for the debt respite scheme
This is offered to anyone who has ‘problem debt’. It allows them a 60 day protection from creditors, which includes legal enforcement and freezing interest plus any charges on debts they may have.
A Mental Health Crisis Breathing Space for the debt respite scheme
This is implemented for those who have severe mental health and are undergoing treatment. There are some stronger protections in place for this and can last a further 30 days following the end of their treatment. This also includes freezing of interest and any legal action.
It is important to know that when applying for a standard breathing space, you must seek out debt advice from an advisor for eligibility and provide any financial proof if requested. All applications will be considered although it is possible that this breathing space may not be deemed appropriate and other options may be considered.
If you are applying for a mental health crisis breathing space, you will need an approved Mental Health Professional (AMHP) to certify that this person is dealing with a crisis, that they are undergoing treatment and that they will benefit from this breathing space. If you are affiliated with the debtor undergoing mental health treatment, you can apply on their behalf; this includes:
- Any debtor receiving mental health crisis treatment
- The debtor’s carer
- Approved Mental Health Professionals
- Care co-ordinators appointed for the debtor
- Mental health nurses
- Social workers
- Independent mental health advocates or mental capacity advocates appointed for the debtor
- A debtor’s representative
There is no limit to how many times a debtor can enter a mental health crisis breathing space.
You will need to be eligible for the debt respite scheme
Before this breathing space can be approved, you must meet all the criteria for the scheme. A debt advisor will be required to meet the conditions also and be an individual, reside in England or Wales and not have any debt relief order (DRO) or individual voluntary arrangement (IVA). You must not have a breathing space already in place or within the past twelve months. If you are satisfied with this as the debt advisor, you should be 100% sure that the client in question is eligible and provide all the information that you will be asked for.
To apply you will need the following information available:
- Full name
- Residential address (in extreme circumstances this may be withheld but you should clarify this with your advisor if you are concerned)
- Details of the debts (amount and what it is for)
- The name and contact details for the creditor
- Any business details or tax information if it relates to a business
- National Insurance Number
You must be compliant with this information and honest in all aspects of the application, including past financial information, addresses and information that could help your claim.
What qualifies as a debt for the debt respite scheme
This varies as debts can result from business transactions or failure of payment, to credit cards repayments, store cards, personal and payday loans, or overdrafts. It also stretches to utility bills, including gas, electricity, mortgages and rent arrears.
There are some debts that are not classed as qualifying debts, which include:
- Student loans
- Council tax liabilities
- Advance payments for universal credit
Debts incurred from fraud or fraudulent breach of trust or secured debts.
Business debts are not always cleared for the scheme, as some do not qualify if the debt only relates to the business and not to the actual debtor (owner). If the debtor is VAT registered, this will affect the application and if they are in a partnership with someone else who is also registered to their business.
As a creditor, it is important that the information is known in detail and that they are aware of these new laws so that they can act accordingly. There are various rules and regulations to adhere to for creditors, debt advice providers, and the insolvency service; therefore it is vital to become well versed in this matter.
- Stop all action related to the debt including interest until the end of the breathing space.
- Apply the protections from the set date in notification (sent via electronic service)
- Apply for protections from the notification date if your debt is added to a breathing space.
Debt Advice providers MUST:
- Administer the breathing space as required.
- Remain the point of contact for the debtor and their creditors and he insolvency service and be available for communication.
When will the respite begin in the debt respite scheme
A breathing space commences the day after you are registered. You will receive electronic notifications relating to your breathing space and it will update you as the application progresses. You will also receive notifications by post but once you are on the register, you will see this notification within 24 hours. There will be appropriate advice to assist you in anything going forwards, if this is applicable.
Once this has been completed, you will need to search your own records to identify the debt owed and apply for any protections. Your debt advisors will be able to assist you as to whether or not you qualify for additional debt assistance. Interest may still be charged for secured debt, but not on rent arrears therefore it is important to get the relevant information from your debt advisor. You will not pay any additional fees during this time and you have the right to question this if the debts are still accruing (due to IT capacities), it may still show your account sinking deeper into the red. You are not required to pay this and creditors will make the adjustments as required.
Any additional debt found during the breathing space must be accounted for and you will be advised accordingly. The additional debt has to then go through the system until it can be classed as a breathing space.
No further action must be taken on both parts. Both debtors and creditors must not have any interaction during this time and communication should be minimal or done through a third party (debt advisor).
Information will be stored securely
All information from debtors and creditors will be stored on a register and all information will remain confidential.
This is not a holiday for repayments and you should continue to pay other debts and liabilities such as taxes, bills, insurance and rent. If you breach the rules of your breathing space, this could result in penalties. Between day day 25 and day 35 there will be a review to ensure that all obligations are met and that things are going well. This may mean cancelling the breathing space depending on circumstance or there may be no change at all. Cancellation can occur with a standard and mental health breathing space.
You MUST comply with all obligations to ensure this is smooth running or you may face legal proceedings. It will end 60 days after it has started.
Please consider all options and have the appropriate information to hand when you are applying.
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