The Debt Respite Scheme (Breathing Space) – rules from 4 May 2021

By Citizens Advice Bureau

The Debt Respite Scheme (Breathing Space), which comes into force on 4 May 2021, will give someone in problem debt the right to legal protections from their creditors.

There are two types of breathing space: a standard breathing space and a mental health crisis breathing space.

A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors and freezing most interest and charges on their debts.

A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 can be found HERE

You can find an explanatory note HERE

When do the rules come into force?

These come into force on 4 May 2021 and all local authorities need to have plans to implement the new rules. All overpayment staff in particular need to be aware of the new legislation and assessment staff briefed etc to watch out for applications.   

These rules allow all of a person’s debts to be frozen for a period of 60 days if requested via an authorised adviser (who cannot charge for this). This will include debts owed to local authorities (including Housing Benefit overpayments).  Organisations such as Citizens Advice are likely to have staff authorised to apply for this. Such advice can be offered online as well as face to face. 

Some specific public sector debts are excluded by regulation 5(4), mirroring the position in bankruptcy (e.g. debts incurred as a result of fraudulent actions; fines imposed by a court, including criminal fines; confiscation orders; child maintenance payments and debts that arise after an order made in family proceedings; social fund loans; student loans and personal injury liabilities). 

Remember that fraudulent debt in HB must be proven (found guilty in a Court or admittance under Pace rules or accepting a penalty in lieu of prosecution. The rules differ across the UK).  So if a claimant has a number of debts caused by different reasons, only that caused by proven fraud is excluded. A Fraud Investigators opinion that an overpayment is or was fraud is not enough.    

Universal Credit third party debts are also included (when the IT is in place). In other words, recovery of Housing Benefit overpayments and Council Tax overpayments will be suspended for the 60 days when an application is received by DWP for a “breathing space”. We anticipate that a new request to DWP to start recovery again may be needed.    

What about weekly overpayment deductions? This area looks rather murky. Strictly speaking, recovery in this way is reducing future entitlement to benefit. Then there are issues about recovering an overpayment from a landlord who then debits the tenant account (including in Council cases). The intention of “breathing space” is clear  

“The policy objective is to incentivise more people in problem debt to access professional debt advice, to do so sooner, and to enable them to enter the debt solution that is most appropriate in view of their individual circumstances”. 

Applicants still need to continue to pay debts such as their rent and bills as they fall due. However, we would expect the Local Government Ombudsman to take a dim view of any attempt to “water down” the impact of a breathing space application. So whatever the vagueness of the legislation, the policy intention to allow debtors time out to sort out their debts should be kept very much in mind. Similarly, it would be good practice for a Housing Benefit office to inform Council Tax in particular (and vice versa) of an application.    

Do not forget to stop automatic reminders and other correspondence about old HB debt going out within the 60 days where a “breathing space” application is in place (this may also affect instances where a third party has been instructed to collect a non fraudulent debt).   

Note that the 60 days is fixed and cannot be extended (although also note the additional specific rules in the legislation for those with mental health issues). Application can be made for a “breathing space” once per year. 

This is the first part of the new plan to assist debtors. The second is a new “Statutory Debt Repayment Plan” (SDRP), a statutory agreement that will enable a person in problem debt to repay their debts within a manageable timetable, with legal protections from creditor action for the duration of their plan. No timetable has yet been published for SDRP’s to be introduced.

Government guidance on Breathing Space can be accessed here

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