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The Debt Respite Scheme

Published: 17/03/2021 By TFP

PROPERTY MATTERS  SPRING 2021

The Debt Respite Scheme

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) Regulations were made on 17th November 2020 to some into force May 2021.

What is the Debt Respite Scheme and how does it affect a landlord?

The pandemic has had a huge impact on the country, with companies being forces to close (some permanently_ with staff being furloughed or receiving reduced income. Naturally this has had a knock-on effect with people having to prioritise and budget their finances.
The Government have taken this into consideration and from the 4 May 2021 they have introduced what is called a “breathing space.” This will help assist people that have fallen behind on their payments, this may be with their credit cards, phone bills or even rent.
The debtor can contact a debt advise provider that is authorised by the Financial Conduct Authority (FCA) or a local authority.
A debt advisor must be satisfied that the debtor meets the requirements and they are unlikely or unable to repay part or all of the debt. The debt advisor would then be able to advise them of their best options which could be a breathing space option or apply for an IVA depending what is more appropriate for their needs.

Breathing space moratorium

If the debtor (in this case a tenant in arrears) is granted the breathing space option, they cannot be contacted by their creditors (landlord or landlord’s agent) in relation to the moratorium debt for a period of 60 days. Also, no interest can be charged for the arrears during this time.
This will give the tenant an opportunity to put in place a debt solution. The tenant could contact their creditors or they could use a debt management company who will contact the creditors on their behalf to arrange for the appropriate payment plan.
Just to confirm, the breathing space granted will be for missed payments or arrears up to the approval date and not for any payments that may be due in the future, Indeed in order to qualify for the breathing space the debtor must be able to afford to make the ongoing payments due during the breathing space. What this means for a landlord is rent will be due in full as well what is agreed in a payment plan. The loss will be any entitlement to interest during the 60 days.

Mental health crisis moratorium

This is for a debtor that is receiving mental health crisis treatment. They may be detained in hospital for either an assessment or treatment or have been removed to a place of safety by the police. A mental health professional must agree that the breathing space is the best option, as well as the debt advisor.
Unlike the standard breathing space, where it is a condition that the debtor can afford to make payments during the breathing space, with the mental health breathing space, payments due during the breathing space do not have to be made, Whilst this is much more serious, these breathing spaces have a high threshold to be awarded. So will not be very common.
If they qualify for this breathing space the protection will be in place as long as the person is receiving  mental health crisis treatment, plus a further 30 days.

Next steps

If your tenant has applied for breathing space, a debt advisor must send conformation to the Secretary of Satet, who will notify the creditor or their agent.
They will confirm which type of breathing space your tenant has been approved for and the time period that has been set.
During the specified time frame you should not contact your tenant to discuss the arrears, serve a section 8 notice for rent arrears, apply for a bailiff to enforce a possession order.
The debt advisor will be in contact with the debtor (tenant) for a midway review. The debt advisor can cancel the breathing space period if they are not satisfied the debtor is using the time to arrange payment plans with their creditors or a debt management plan to consolidate their debts into an affordable monthly payment.
Tenants  are required to keep up rent payments during the breathing space and failure to do so may jeopardise their right to stay on the scheme. Therefore, if payments due are not made, notify the debt advisor.

This newsletter is produced and distributed  on a limited basis by the TFP.