Breathing space from your debts: everything you need to know

The Debt Respite Scheme – or Breathing Space – launches today in England and Wales. (In Scotland there’s already a similar scheme called a moratorium.) What is it, and could you benefit from it? Here’s everything you need to know.

What is breathing space?

A breathing space is a period of time in which your creditors (the people you owe money to) have to leave you alone while you sort out your finances.

There are two types:

1. standard breathing space, which lasts for up to 60 days
2. mental health crisis breathing space, which lasts for as long as an individual is having mental health crisis treatment, plus an additional 30 days.

Am I eligible for standard breathing space?

You are likely to be eligible if you:

• seek debt advice
• are not currently insolvent (ie you’re not currently subject to a bankruptcy, an IVA or a Debt Relief Order)
• have at least one debt that can be included in a breathing space.

Which debts can be included in breathing space?

Most personal debts can be included (see the exceptions below). That includes things like overdrafts, credit cards and loans. But it also includes some types of debt that often can’t be included in other debt solutions. For example, council tax arrears and rent arrears can both be included.

This only applies to your arrears, though. Breathing space is not a payment holiday from your council tax or your rent.

What can’t be included in breathing space?

The debts that don’t qualify are:

• secured debts, if you’re not in arrears. So you can’t apply for a breathing space just because you have a mortgage, or a car on hire purchase. But any arrears on those debts can be included.
• council tax that has not yet fallen due. Council tax only qualifies if you’re in arrears.
• debts incurred because of fraud
• court fines and confiscation orders
• arrears on child support payments
• repayments of social fund loans
• student loans
• damages awarded to someone else because of death or personal injury
• Universal Credit advance payments

What happens when you apply?

Applications for standard breathing space are free but must be made by a debt adviser. The adviser will submit your details to a central register, and then your creditors will be notified. Your creditors will then have to respect the protections detailed below.

Protections during breathing space

If you take a breathing space, your creditors will have to pause enforcement action for the breathing space period. That means they can’t contact you, send bailiffs to your door, or take court action. And they will also have to freeze any interest, fees and charges while the breathing space lasts.

The advantages of breathing space

Sometimes, when you’re dealing with problem debt, it’s because you’re not sure what the immediate future holds. For example, you might have been made redundant from your job. While you’re looking for work, you’re not sure how long that will take, or what your new income will be.

In these sorts of situations, you might not be able to make repayments on your debts – or begin a debt solution – until your finances stabilise. So breathing space acts as a pause while you get specialist advice and decide on your next steps.

What you must do during standard breathing space

• Keep paying your bills. Enforcement action will be paused on any arrears you have. But you must keep up payments on your ongoing bills, like your council tax and your mortgage or rent.
• Stay in touch with your debt adviser. They’ll carry out a review about halfway through your breathing space, to make sure it’s still suitable for you.
• Think about your next steps. When your financial situation is resolved, will you be able to deal with your debts?

How to apply for standard breathing space

If you think you might benefit from breathing space, your first step is to seek advice. You can find organisations that offer free debt advice via the Money Advice Service website.

A specialist adviser will discuss your circumstances with you to help you find a suitable way for you to begin sorting out your finances. They can apply for breathing space on your behalf if it’s right for you. But depending on your circumstances they might recommend a different approach, such as:

• a debt solution, like a debt management plan, a Debt Relief Order or an IVA;
• negotiating directly with your creditors;
• making some changes to your budget.

What is a mental health crisis breathing space?

A mental health crisis breathing space is available if you’re receiving crisis treatment for mental health problems, so that your debts don’t get worse while you’re getting better. An approved mental health professional can arrange an application for you.

 

If you’re struggling with debt, don’t put off asking for help. The sooner you pick up the phone, the sooner you’ll be able to breathe more easily. You can find free sources of in-person, telephone and online debt advice via the Money Advice Service website.