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Breathing Space – Debt Respite Scheme – All you need to know

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What is breathing space?

The Debt Respite Scheme, also known as breathing space, is a government scheme designed to give people time to find debt help and support.

Available to people living in England and Wales, breathing space began on May 4, 2021 in a bid to aid those struggling to repay debts owed.

Entering a breathing space will give you a 60-day respite period from enforcement pressure and freezes interest and charges by creditors (the people and companies you owe money to).

The breathing space scheme is free, however, must be set up by a professional debt advice provider and you must seek a long-term suitable debt solution during this time.

It’s also important to be aware that a breathing space isn’t a payment holiday. You are still required to pay debts you owe during the 60 days.

There are two types of breathing space.

1.      A standard breathing space: this prevents creditor action and stops any collection or enforcement action on your debts. Creditors are also required to freeze interest and charges on any debts included in the breathing space.

2.      A mental health crisis breathing space: this provides additional protection for anyone unable to manage their debt whilst receiving mental health crisis treatment. The breathing space lasts as long as the person’s mental health crisis treatment, plus 30 days no matter how long the crisis treatment lasts.

You can apply for a breathing space moratorium once every 12 months permitting you aren’t currently in a solution such as an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO).

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Am I eligible for a standard breathing space?

As with all types of debt help, you must meet certain criteria to be able to access the breathing space scheme. To be eligible for a standard breathing space, you must meet the following criteria:

  • Live in England or Wales
  • Not currently be in a debt arrangement such as a Debt Relief Order (DRO), Individual Voluntary Arrangement (IVA) or an undischarged bankruptcy
  • Are unable to repay your debt payments as they fall due
  • You haven’t had a breathing space in the last 12 months

To enter breathing space, you must seek the advice of a debt advice provider. The adviser will play an important role in assessing your suitability for the scheme and in offering advice about the debt owed.

All applications must be considered; however, the adviser might decide that the breathing space process isn’t the best course of action for you depending on your circumstances.

If you have access to funds, for example, you may be advised to consider budgeting support instead.

A breathing space might not also be deemed suitable for someone who can enter a debt solution more appropriate for their current situation straight away without needing the protections.

Your adviser will review your current situation and determine that you need time to get debt advice and whether you’re likely to enter a debt solution before proceeding with the application.

It’s also important to note that breathing space is designed to help those who have already fallen behind on their payments.

If you are currently up to date with your bills and credit repayments and can cover the cost, the scheme won’t be an option for you.

You should also be cautious about entering the scheme if you regularly rely on your overdraft or other forms of credit, such as a credit card, to get by.

These debts will be included in the breathing space and as such, you may lose access to these lines of credit.

Your adviser will be able to offer the best way to manage your budget when dealing with problem debt during the advice call.

What is the difference between a standard breathing space and mental health crisis breathing space?

A mental health crisis breathing space gives protection from creditors for people unable to manage problem debt who are also receiving mental health crisis treatment.

It provides the same support as a standard breathing space but there are key differences.

Firstly, while a standard breathing space lasts for 60 days, a mental health crisis breathing space will last for the duration of your treatment plus 30 days – regardless of how long your treatment lasts.

And unlike a standard breathing space, you won’t be required to receive advice and find a long-term solution.

If you’re unable to talk to the adviser, you can have someone speak on your behalf and there’s also no limit on the number of times you can enter a mental health crisis breathing space.

Am I eligible for a mental health crisis breathing space?

To be eligible for a mental health crisis breathing space you must meet the same criteria as set out for a standard breathing space.

However, you must also be receiving mental health crisis treatment by an approved mental health professional at the time of application.

Anyone who has had a standard or mental health crisis breathing space in the last 12 months may be eligible for a mental health crisis breathing space and there’s no limit to how many times a person can enter a mental health crisis breathing space.

What debts can be included in a breathing space?

Most debts can be included in a breathing space application, but you should be aware that you’re not able to leave any qualifying debt out of your application.

Qualifying debt can include:

  • Essential bill arrears. E.g rent arrears, mortgage arrears, utility bills, council and business tax, hire purchase and National Insurance
  • mobile phone arrears
  • credit card debt
  • store cards
  • catalogues
  • bank overdrafts
  • bank loans
  • personal loans
  • home-collected credit
  • benefit overpayments
  • family or personal debts

If you miss qualifying debt from your application this can be added at a later date. However, the protections will only last until the end of the original breathing space period.

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What debts can’t be included?

Not all debts owed can be considered as a breathing space debt. Non-qualifying debt includes:

  • student loans
  • budgeting and crisis loans
  • Universal Credit advances
  • Court fines
  • Child maintenance payments and arrears
  • Fraudulent debts
  • Criminal confiscation order payments

You will need to continue to make payments towards these debts. You will also be required to make ongoing payments to secured debts such as mortgage and hire purchase agreements, however, you can include any arrears you may have.

Business debts are also not eligible to be included in the breathing space in certain circumstances. If your business is registered for VAT or are in partnership with another person and the debt relates solely to the business, it can’t be included.

How can I apply for a breathing space?

A debt advice provider must apply for a breathing space on your behalf.

Debt experts are well versed not only on the process of the new scheme but can also advise on a range of solutions that may be of benefit to you.

To apply for breathing space, you will need to provide the following:

  • Name
  • Date of birth
  • Address
  • Details of who you owe money to
  • Trading name and address of business (for self-employed applicants)

If you are self-employed, we will also need the trading name of your business and the address of your business, if there is one.

You’ll also need to give information about the debt you owe, including:

  • Addresses of creditors
  • Account and reference numbers
  • Collection or enforcement agency details (if applicable)

What happens when you apply for breathing space?

Once your application has been submitted all creditors included will receive notice of the scheme and should stop collection or enforcement activity.

The standard breathing space is a temporary measure that will halt action for 60 days. After this period ends enforcement and collection activity can start again.

A breathing space isn’t a payment break so you should continue to make your contributions as normal.

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It’s also important to remember is that during the breathing space you will be required to find a long-term solution to deal with your debts.

You should speak with your professional debt adviser about the best solution for you and have a firm plan in place for when the breathing space comes to an end.

While most debts can be included in a breathing space, creditors can ask for your agreement to be reviewed by your adviser.

There are several reasons this could happen:

  • If they believe you don’t meet the eligibility criteria
  • The debt isn’t eligible for breathing space
  • You have enough money to repay the debt

The debt adviser can cancel your breathing space if they agree there are sufficient grounds and your creditor can apply to the court to have the breathing space cancelled or their debt removed if they don’t agree with the outcome.

Your name and address will also be placed on the breathing space register. Not everyone is able to view this and only creditors who have a debt included in your breathing space will be able to access the register. Even then, they will only be able to view their debt and your details.

If you’re worried about your name being on the register and are worried about a risk of violence against you, you can speak with your adviser about your option to have your residential address hidden from the register.

Can I apply for breathing space if I have joint debts?

You can’t make a joint breathing space application.

However, if your breathing space includes a joint debt, both people will be protected from enforcement action.

While the second person on the debt included in your breathing space will enjoy protections, they won’t appear on the breathing space register.

You should remember that if you fall behind on payments for a joint debt both credit ratings will be affected. If you’re struggling to cover the cost of a joint debt you should speak to the other person involved as soon as possible.

What do I do in a breathing space?

A breathing space might offer temporary relief from enforcement action but you will still need to carry out specific tasks during the 60-day period.

If you’re unable to meet the requirements, your debt adviser may cancel your breathing space which would allow creditors to begin typical debt collection again.

Continue payments: The first, and most important, requirement of the breathing space is that you need to continue to make the agreed payments towards the debt owed.

You must make payments to ‘ongoing liabilities despite not needing to cover arrears.

You will be required to continue to pay tax, duties and National Insurance contributions too – these will be taken directly from your wages as normal. You’ll also need to continue to pay for insurance policies you have in place, such as contents or life insurance.

Stay in touch: It’s also your responsibility to keep your debt adviser up to date with any changes in your circumstances, such as a change in income or redundancy.

You are required to keep in touch with your debt adviser during the breathing space to take steps to resolve your debt situation. You may keep in touch via email or over the phone as you plan a longer-term debt solution.

Avoid credit: You will not be able to take out more than £500 of credit when you are in a breathing space so it’s important to consider how heavily you rely on credit to get by daily before applying.

How can Creditfix help?

As one of the UK’s largest debt help companies, we are pleased to offer guidance around the debt respite scheme as we encourage more people to seek help with their debts.

Falling behind on debt payments and not taking action can have serious consequences and so it’s important to access debt counselling as soon as possible.

If you’re seeking debt advice and are interested in finding out more about the Debt Respite Scheme (Breathing Space) or applying, our experienced debt advisers can offer guidance and support.

We can also offer debt advice to help you a long-term solution to help you better manage and pay debts you owe without the threat of legal proceedings, rising interest and charges and creditor action that forces you to pay what you can’t afford.