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On 4 May 2021 the Government launched the Breathing Space Moratorium and Mental Health Crisis Moratorium (England and Wales) Regulations 2020, a new scheme designed to help individuals manage spiralling debts.

What is a Breathing Space Moratorium?

A Breathing Space Moratorium is a temporary legal protection measure aimed at supporting individuals in debt by freezing charges, fees and certain interest rates, as well as pausing enforcement action for up to 60 days.

Anyone with problem debt can apply for breathing space, however it is important to bear in mind that this moratorium is not a payment holiday; payment of ongoing liabilities must continue during a period of breathing space.

Who Can Apply for a Breathing Space Moratorium?

Only individuals residing in England and Wales can apply for a Breathing Space Moratorium. Applicants must owe a qualifying debt to a creditor (rent or mortgage arrears, personal loans, utility bill arrears and credit card debts are a few examples of qualifying debts) and they cannot currently be utilising another formal debt solution.

Individuals can only apply for a moratorium once every twelve months and those who currently have a debt relief order, an individual voluntary arrangement, an interim order, or who are an undischarged bankrupt are also ineligible for the scheme.

A debtor wishing to apply for a Breathing Space Moratorium must do so via a debt advice provider authorised by the Financial Conduct Authority. The debt advisor can initiate the process with The Insolvency Service, who will notify creditors of their obligations.

Responsibilities for Creditors under a Breathing Space Moratorium

Once an application for Breathing Space is lodged creditors must halt all interest and charges for relevant debts during the Breathing Space period, as well as any enforcement or recovery action by the creditor or an appointed agent.

If proceedings relating to a moratorium debt have already been commenced, a creditor must notify the Court or tribunal in writing as soon possible that the debt is now in breathing space.

What is a Mental Health Crisis Moratorium?

The Mental Health Crisis Breathing Space Scheme is only available to someone who is receiving mental health crisis treatment. Legal protections from creditor action will last as long as the individual’s mental health crisis treatment continues plus 30 days. Individuals can apply for this type of breathing space more than once a year and can apply for Breathing Space after their mental health treatment ends, if necessary.

With the government expecting over 700,000 people to take advantage of Breathing Space this financial year, the scheme looks to be a game-changer for indebted individuals’ finances as well as their mental wellbeing.

At the same time, having a constructive 60-day period for debtors to organise their finances will likely mean that creditors will have a better chance of recouping their arrears sooner, and may remove the need for escalating costly recovery measures in the majority of cases. At the outset, this new scheme appears to be promising and advantageous for all parties involved in debt recovery.