Breathing Space Debt Moratoriums

Introduction

Coming into force from May 4 2021, the Debt Respite Scheme (Breathing Space) allows people in England and Wales with unsustainable debts to arrange to enter a ‘breathing space’.

Once someone enters a breathing space their creditors are not allowed to contact them directly to request payment of the debt, or take enforcement action to recover the debt (including by taking possession of a property) while the breathing space is ongoing.

This is designed to provide people in debt with enough time to find a solution for their financial problems.

While this legislation is aimed primarily at large lenders such as banks, the obligations apply to any creditor, including landlords. In particular, landlords who are seeking possession because of rent arrears will need to be aware of these restrictions as it can cause issues for Section 8 proceedings.

The guidance below is aimed at familiarising landlords with this new legislation. In it we discuss how to comply and some best practice tips for mitigating the financial risks.

The different types of breathing space

There are two types of breathing space that a tenant may enter into: a standard breathing space and a mental health crisis breathing space.

For the most part, both types of breathing space operate in the same way. Creditors are prevented from taking steps to recover debt for the duration of the breathing space. However, the duration and frequency of the breathing spaces, as well as who can make the application will vary.

Who can apply for a breathing space?

I have a guarantor, can I contact them in relation to the debt while the breathing space is in place?

Yes. Unlike joint tenants, you can contact a guarantor in relation to the moratorium debt and you can require payment from the guarantor during the breathing space.

If the guarantor qualifies for a breathing space themselves, they may also enter one separately. However, provided the guarantor has been properly referenced and meets the usual criteria for being a guarantor (UK homeowner in full time employment) this is unlikely to occur.