The Debt Respite Regulations have been introduced to support individuals grappling with debt by encouraging them to seek professional debt advice and find suitable solutions. A key feature of this initiative is the provision of a 60-day breathing space, or moratorium, for eligible debtors who seek professional assistance. This support can be accessed through in-person consultations, phone calls, or online services.
It is something that may arise if your debtor is an individual but does not arise if the debtor is a company or limited liability partnership.
What is a Breathing Space Moratorium?
A breathing space moratorium under the debt respite scheme offers significant relief by freezing charges, fees, and certain interest rates, and pausing any enforcement actions as outlined in Regulation 7 of the Debt Respite Regulations. This period allows debtors to fully engage with professional advice without the pressure of escalating debt and imminent enforcement actions. However, debtors must continue to pay their ongoing liabilities during this time.
Privacy and the Moratorium Register
Debtors benefiting from the breathing space moratorium are recorded in a private register of moratoria. This register includes details such as their name, date of birth, and usual residential address. Only creditors who have been notified about a specific moratorium debt can access information about the debtor and their specific debt on this register.
Guidance for Navigating the Regulations
To assist creditors and money advisers, the Insolvency Service has published comprehensive guidance on the gov.uk website here.
Eligibility for a Breathing Space Moratorium
A debt advice provider must assess any application for a breathing space moratorium submitted by a debtor, as outlined in Regulation 24(1) of the Debt Respite Regulations. Before initiating the moratorium, the provider must confirm the debtor’s eligibility and ensure all conditions are met. The debtor must:
– Be an individual.
– Owe a qualifying debt to a creditor.
– Live or usually reside in England or Wales.
– Not be subject to a debt relief order, an individual voluntary arrangement, an interim order, and not be an undischarged bankrupt.
– Not currently benefit from a moratorium nor have had such a benefit in the previous 12 months.
Additionally, the debt advice provider must be satisfied that:
– The debtor cannot, or is unlikely to be able to, repay all or some of their debt.
– A breathing space moratorium is appropriate for the debtor.
Please note that an individual’s business debts are not eligible (so do not qualify) if the debtor’s business is registered for VAT or if they are in partnership with anyone else and the debt they have accrued relates solely to the business.
Appropriateness of a Moratorium
The debt advice provider must determine that the debtor is unable to pay some of their debt as it becomes due and that a breathing space moratorium is suitable. A moratorium is deemed appropriate when the debtor cannot meet their debt obligations as they fall due, would benefit from a debt solution, and needs time to evaluate potential debt solutions.
Effect on Creditors
Once a moratorium takes effect, creditors are prohibited from requiring the debtor to pay interest, fees, penalties, or charges that accrue on a moratorium debt during the moratorium period. Also, creditors cannot initiate enforcement actions regarding a moratorium debt, including steps to collect the debt, commence legal proceedings, or enforce a judgment or security, unless permitted by court or as specified otherwise in the Debt Respite Regulations.
Summary of Breathing Space
The Debt Respite Scheme represents a significant step towards aiding individuals in managing their debts more effectively. By providing a 60-day breathing space, the scheme alleviates immediate financial pressures, allowing individuals to seek professional advice and work towards a sustainable financial solution.
The ongoing administration and guidance provided by the Insolvency Service, aims to ensure that the scheme operates smoothly and effectively for all parties involved, while also safeguarding the rights and responsibilities of creditors within the framework of the Regulations.
It might mean a delay in being able to pursue individuals in the courts to recover outstanding debts, should the individual obtain the Breathing Space.
