What is it?
The purpose of the legislation is to allow those in debt, including tenants, to have their debts frozen.
The debts can be frozen for up to 60 days so that a long-term solution can be found.
The aim of the legislation is to allow those who are encountering financial difficulties to have their debts frozen for up to 60 days, to allow for a more permanent solution to be established.
Debts such as rent are considered ‘ongoing liabilities’ during a standard breathing space and will need to continue to be paid where possible.
What is the eligibility criteria?
Tenants or debtors who seek breathing space must not already have debt relief order, an Individual voluntary arrangement, or be an undischarged bankrupt at the time of their application.
The Debt Respite Order applies to all debts, regardless of when they were incurred.
The purpose of the regulations is to allow the debtor a breathing space to enable them to enter into some form of arrangement to pay off the debt.
The regulations allow those in debt to have their debts, and any enforcement action based on them, frozen for up to 60 days.
The debt breathing space can only be provided by a regulated debt adviser.
What are the effects of a debt breathing space?
Once a debt breathing space has been entered into, recovery action cannot be taken concerning that debt which forms part of the breathing space.
Section 8 eviction notices cannot be served on a tenant whilst a debt breathing space has been entered into. Landlords will not be permitted to commence or continue possession proceedings based on those rent arrears.
Further debts such as interest and charges cannot accrue on debts which are subject to a breathing space, furthermore, it is not permitted to communicate with a debtor about their debts or any interest or charges resulting from them.
Debtors must, as a condition of a breathing space, continue to pay debts that arise during that breathing space as they become due, such as rental commitments. Whilst a breathing space is in place, a debt solution or arrangement must have been entered into by the end of the breathing space.
Due to the substantial increase of indebtedness which was instrumentally exacerbated further following the global Covid-19 pandemic, it was inevitable that something would be done to allow people some breathing space to unwind their positions without cancelling their debts or having an avalanche or bankruptcies or other debt recovery action follow.
Considering most tenant rent arrears are never collected because tenants do not have the means to pay, are evicted and cannot be located, keeping tenants in their homes and giving them the opportunity refocus and rearrange their finances, it is possible that landlords in the long run may be better off in recovering rent which they may not have otherwise recovered.
When does it come into effect?
The new debt respite and breathing space regulations come into effect on 04 May 2021.
Key elements of the Debt Respite Scheme
For a tenant to be eligible, the following conditions must be fulfilled:
- The tenant must be an individual who owes a qualifying debt, such as rent.
- The tenant must live or usually reside in England or Wales.
- The tenant must not have a debt relief order (DRO), an individual voluntary arrangement (IVA) an interim order, or be an undischarged bankrupt at the time they apply.
- The tenant must not already have a breathing space or have a standard breathing space in the 12 months preceding the application.
Further detailed guidance is available at https://www.gov.uk/government/publications/debt-respite-scheme-breathing-space-guidance/debt-respite-scheme-breathing-space-guidance-for-money-advisers.