The Debt Respite Scheme (‘Breathing Space’) – information for landlords and managing agents
What is the Debt Respite Scheme?
The government’s Debt Respite Scheme comes into force on 4 May 2021. The Scheme provides qualifying individuals with a ‘breathing space’ from creditor action. There are two types of breathing space:
- ‘Standard’ breathing space: Individuals who are in debt and actively seeking advice from an authorised debt advisor will have access to a 60 day breathing space from creditor action.
- Mental health crisis breathing space: Individuals receiving mental health crisis treatment will have access to a similar breathing space for as long as their treatment lasts, plus an additional 30 days.
A breathing space can only be started by a debt advice provider authorised by the FCA to offer debt counselling, or a local authority (where they provide debt advice to residents).
Landlords, including social housing providers, with tenants in rent or service charge arrears may be considered creditors under the Scheme. Landlords and/or their agents may be notified at any stage during the debt recovery process that a tenant (the debtor) is entering a breathing space and must have processes in place to ensure compliance.
Who is eligible?
To be eligible for a breathing space, the tenant must:
- be an individual
- owe a qualifying debt to a creditor
- live or usually reside in England or Wales
- not have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order, or be an undischarged bankrupt at the time they apply
- not already have a breathing space or have had a standard breathing space in the last 12 months at the time they apply
The debt adviser must also be satisfied that the debtor cannot, or is unlikely to be able to, repay all or some of their debt and that a breathing space is appropriate.
What is a qualifying debt?
Most debts, including rent and service charge arrears, are likely to be qualifying debts. Other examples include credit cards, store cards, personal loans, pay day loans, overdrafts, utility bill or mortgage arrears.
Note: Ongoing liabilities such as rent, mortgage repayments, taxes, and utilities, do not count as qualifying debts and should continue to be paid by the debtor during the breathing space. (Except for any arrears captured within the breathing space).
How does the Scheme work?
The debt advisor will assess the tenant’s eligibility for a breathing space. If eligible, the debt advisor will enter the tenant’s details (including details of their debts) onto the breathing space register. The register will not be open to the public. The breathing space takes effect from the day after details are entered onto the register.
Landlords and/or their agents will be notified of the breathing space by post or email. As soon as notification is received, landlords and/or their agents must ensure all protections are observed throughout the breathing space.
What must I do when notified of a breathing space?
On receipt of a breathing space notification you should immediately:
- Record the notification and identify the debt owed to you by the tenant.
- Notify any agents acting on your behalf of the breathing space.
- If recovery action is already in progress, notify the court or tribunal of the breathing space in writing so they can implement the appropriate protections.
Throughout the breathing space, you MUST NOT:
- Apply fees, penalties, charges and interest to the breathing space debt(s).
- Contact the tenant
- Take enforcement action. (This includes enforcing judgments, starting any action or legal proceedings, applying for judgment in default, serving notice to take possession of a property due to rent arrears, or taking possession of a property).
NOTE: If the breathing space protections are not applied, any action taken will be void and you may become liable for the tenant’s costs.
What if I disagree with the breathing space?
In some circumstances, including when a landlord is unfairly prejudiced by a moratorium, the landlord can request a review from the debt advisor or, if necessary, from the court. The initial request for a review must be made within 20 days of receiving the notification and should be supported by evidence.
The government’s Debt Respite Scheme (Breathing Space) guidance for creditors provides further details about the Scheme. Alternatively, please contact us for help understanding how the Scheme will affect you, implementing process changes to comply with the Scheme or to arrange training on the legislation for your in-house teams.