Give your debt a breathing space

Two new types of debt procedures come into effect today (4 May 2021). Breathing Space scheme is intended to give vulnerable people with problem debt the right to legal protection from their creditors. What protection does it offer, and how can it be implemented?

Standard Breathing Space

A standard breathing space is available to anyone with problem debt who receives professional debt advice. It offers legal protection from creditor action for up to 60 days. This procedure grants a guaranteed freeze on interest and charges, and enforcement action paused. Most importantly, it allows the debtor to seek professional advice early and find the appropriate solution to resolve their financial situation.

Mental Health Crisis Breathing Space

A mental health crisis breathing space comes with more robust protections. It is designed to protect debtors who are receiving mental health crisis treatment. It lasts as long as the person’s mental health crisis treatment, plus 30 days (no matter how long the crisis treatment lasts).

What debts are covered?

Most debts will be qualifying debts, and these include personal loans, mortgage/rent arrears, overdrafts, payday loans, utility bills arrears and credit card.

Joint debts can also be included in a breathing space, even if only one person applies for a breathing space. The same protection applies to some business debts, if the debt relates to the debtor personally, when the debtor is not VAT registered and is not a partner in a business. The debtor must be unlikely to be able to repay some or all of their debt as it falls due.

How is a breathing space initiated?

A standard breathing space can only be started by a debt advisor authorised by the Financial Conduct Authority or a local authority that provides debt advice to residents. The new procedure is subject to various criteria, and it may not be appropriate in all cases.

A mental health crisis breathing space is started by an approved mental health professional who can certify that a client is receiving mental health crisis treatment.

The new tools will offer protection to those vulnerable debtors who can prove their case to an advisor. However, a breathing space does not stop the debt being due. Thus it’s crucial to set up a workable plan that will help the debtor’s financial situation once the breathing space has concluded.

More details can be found here.

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