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Breathing Space and Possession Orders – rent arrears classed as problem debt
The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, which comes in to force on 4 May 2021, is part of the Government’s coronavirus measures.
The purpose of the scheme is to give debtors with problem debt some “breathing space” from legal action and some protection against their creditors. Significantly, rent arrears are included under the definition of problem debt.
There are two types of breathing space, a standard version and a mental health crisis version. Whilst both give the same protection to debtors, they are slightly different in the length of time for which they can continue.
The scheme is open to individuals who are required to make an application through a debt advice provider authorised by the Financial Conduct Authority to offer debt counselling, or a local authority if they provide debt advice to residents. The debt advice provider is responsible for the administration of a breathing space and is the point of contact for the debtor, their creditors, and the Insolvency Service. The Insolvency Service will maintain the electronic service that debt advisors must use to start the breathing space process, and they will send notifications to creditors during that period.
It is the responsibly of the debt advisor to assess whether the debtor is eligible for a mental health crisis breathing space, but anyone who cannot access one, or is unlikely to be able to repay their debt, can apply for a standard breathing space. A debt advisor may decide that a breathing space is not appropriate if a debtor:
- can access funds or income, or
- can pay their debts with some budgeting help, or
- has assets that can be easily sold to clear the debt, or
- can enter a more suitable debt solution immediately.
The debtor must prove their debt and they cannot have entered into a breathing space in the last 12 months.
If a debtor is applying for a mental health crisis breathing space, they must also be receiving mental health crisis treatment at the time that an application is made. A debtor 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. There is no limit to how many times a debtor can enter a mental health breathing space.
A breathing space will start on the day after the debtor’s details are added to the breathing space register and, as a creditor, you will receive a notification telling you the start date and details of your debt. When you get the notification, check your records to make sure that the arrears have been recorded correctly by the debt advisor and if there are any errors you should contact the advisor immediately.
During the breathing space you are not able to contact the debtor to discuss the arrears and you cannot serve a notice of seeking possession based on rent arrears.
If you have already issued possession proceedings, the claim will continue but you will not be able to enforce any order that is made by applying for a bailiff warrant, and any application for a warrant that you may have made prior to the commencement of the breathing space will be stayed.
Contractual rent will be payable throughout the period of the breathing space. This is not a payment holiday but if you are receiving direct payments from a tenant’s universal credit payments, you will need to contact the DWP as it is likely that the direct payments will stop because the regulations state that you cannot receive third party payments. You can contact the tenant during the breathing space but not about the arrears.
There is nothing to stop you sending your rent statements to tenants or the annual rent review notices as usual, but you should review your standard correspondence to make sure that you are not referring to the rent arrears in the correspondence. If you are thinking of serving notice of seeking possession then you must, of course, still follow the pre action protocol. However, during the breathing space, you should amend your correspondence so that you are not asking for the outstanding arrears.
The breathing space does not go on indefinitely. A standard breathing space lasts for 60 days and the debt advisor must carry out a review at the mid-way point to check that the debtor is complying with their obligations under the breathing space. If they are not, they will run the risk of the arrangement being cancelled.
A mental health crisis breathing space lasts for the same length of time as the treatment plus a further 30 days. Any ongoing treatment must be confirmed every 20 to 30 days by a mental health professional.