Breathing Space Scheme Regulations laid for England and Wales
A look at the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (‘the Regulations’), which were laid in draft on 15 July 2020 with a view to implementing the government’s new statutory Breathing Space scheme in England and Wales.
When will the Regulations come into force and what is their extent?
The Regulations are currently laid in draft awaiting approval of Parliament. Aside from some minor exceptions, it is expected that the Regulations will come into force on 4 May 2021. They extend to England and Wales only in respect of individuals domiciled or ordinarily resident there.
Background and intention of the Regulations
The implementation of a breathing space scheme in England and Wales was a 2017 government manifesto commitment and was subject to a consultation which ran from October 2018 until January 2019.
Breathing space aims to give individuals in problem debt the right to legal protections from creditor action while they receive debt advice in order to enter an appropriate debt solution.
Breathing Space moratorium
Breathing space is a period of time during which an individual in problem debt is given respite from creditor action. This time is designed to give an individual the space to fully engage with debt advice and seek a sustainable solution to their debts.
An individual is excluded from accessing breathing space if that individual has entered a breathing space in the previous 12 months.
Debt Advice provider
To enter breathing space, an individual will first have to access advice from a debt advice provider, as defined in regulation 3 of the Regulations.
This means an FCA-regulated debt adviser, or an adviser from another organisation that qualifies for an exemption from FCA authorisation, such as a local authority.
The Regulations are drafted in such a way that the ‘insolvency exclusion’ under the Financial Services and Markets Act 2000 (FSMA), which removes debt counselling as a regulated activity when undertaken by an insolvency practitioner as an office holder or in reasonable contemplation of an appointment, will not apply.
Further, the permissions given under Part XX of FMSA (the DPB scheme) will not apply.
Insolvency Practitioners will consequently only be able to offer access to breathing space if they have appropriate FCA permissions to offer debt advice.
Debt advice provider assessment
The debt advice provider must assess whether
- the individual has sufficient funds or income to discharge or liquidate their debt as it falls due,
- it would benefit the individual to enter into a debt solution (such as bankruptcy, an IVA or a voluntary debt management plan),
- the individual may be eligible to enter into a debt solution during a moratorium or as soon as reasonably practicable after the moratorium ends, and
- the moratorium period is necessary in order for the debt advice provider to assess which debt solution would be appropriate for the individual, to advise the individual on which debt solution would be appropriate or for a debt solution to be put in place.
Creditor notification and rights
Once an individual enters (or exits) breathing space, creditors will be informed through an Insolvency Service-run central portal which will be populated with information supplied by the debt advice provider.
There will be a private register of individuals in the scheme and individual creditors will have access to a register of those individuals who owe them debts who are in breathing space and have been included in the portal. Creditors will not be able to access details of other individuals in breathing space through this register.
Creditors can request that the debt advice provider reviews the moratorium to determine whether it should continue or be cancelled on the grounds of unfair prejudice or material irregularity. If the moratorium is not cancelled the creditor has an onward right to apply to court for its cancellation.
Timescales and protections
The protections provided by breathing space will last for a period of sixty days.
The debt advice provider will have to complete a midway review to ensure the individual is continuing to comply with ongoing eligibility requirements. This is required to be undertaken no earlier than 25 days and no later than 35 days after the commencement of the moratorium,
Breathing space will stop the accrual of contractual and default interest, fees and charges, and enforcement action. Creditors will also be barred from the retrospective application of interest and charges should an individual leave breathing space without entering a debt solution. The bar on creditor recovery and enforcement will extend to any contact with the individual, by the creditor or their agent, relating to the repayment of debts covered by breathing space, except in a small number of specific circumstances.
Breathing Space will include almost all personal debts, with broadly the same set of exclusions as apply in bankruptcy and will cover the business debts of sole traders who have a turnover under the VAT threshold (currently set at £85,000).
However, if an individual falls into arrears on an ongoing liability whilst they are in breathing space, they will not be protected from enforcement action, or the charging of additional interest, fees and charges on these missed bill payments. Ongoing liabilities include items such as mortgage payments, rent, insurance premiums, taxes, water and sewerage charges and utility supplies.
Debt advice providers will have discretion to remove a person from breathing space if they do not pay their ongoing liabilities, but are not required to do so. The expectation is that an individual will only be removed if the person clearly has the means to pay their ongoing liabilities but has not.
Mental Health Crisis Moratorium
Individuals receiving treatment for a mental health crisis will benefit from an alternative access
mechanism to breathing space. For cases involving such individuals a debt advice provider will not be required to carry out the full initial assessment of the individual’s finances but instead would give access to breathing space on the basis of evidence that the individual was receiving mental health crisis care.
Approved Mental Health Professionals (AMHPs) will be the professional group able to produce an assessment that an individual is receiving mental health crisis care. AMHPs are social workers, nurses, occupational therapists or clinical psychologists who have specific training in mental health and mental capacity law, are experienced in supporting people in crisis and are usually based in community, crisis or home treatment teams and approved by local authorities.
An individual who enters breathing space via this route will have all the protections of the main scheme but with some differences in terms of application to recognise the sensitivity of the situation of someone who is experiencing a mental health crisis.
The protections for individuals who access breathing space in this way will not be fixed at 60 days but will continue for however long the individual’s crisis care lasts.
How do the Regulations compare with Scottish provisions?
A further article will follow looking at how the new measures to be introduced in England and Wales stack up against the moratorium available to assist individuals in problem debt in Scotland.
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