New breathing space scheme for problem debts

People with debt problems will be supported through a new debt respite scheme that launched on 4 May 2021.

Breathing Space is a new scheme managed by the Insolvency Service that aims to give those facing financial difficulties the space to obtain professional debt advice, or mental health crisis treatment, without pressure from creditors or mounting debts.

The scheme gives people 60 days of legal protection from creditors, with most interest and penalty charges frozen, and enforcement action stopped, to help them get their finances back on track.

These protections are also available for people in mental health crisis treatment – for the full duration of their crisis treatment plus another 30 days.

Up to 700,000 people are expected to benefit from the scheme in its first year, according to the Government.

Accessing Breathing Space

The scheme can be accessed by contacting a professional debt advisor.

For someone receiving mental health crisis treatment, an approved mental health professional can certify they are receiving treatment and then a debt advice provider can consider whether they are eligible for the scheme.

The scheme is also expected to benefit creditors, with over £400 million in extra debt repayments expected in the first year of the scheme - according to the Government - as people are supported to get their payments back on track.

Types of debt that qualify for the scheme

Most debts will qualify for the scheme, including credit and store cards; personal and payday loans; overdrafts; utility bills, rent and mortgages arrears; and government debts like tax and benefits.

The Government says that Universal Credit overpayments will also be included in the Breathing Space scheme from day one and Universal Credit advances and third-party deductions will be included on a phased basis as early as possible after the policy starts.

Although interest and fees are frozen, a Breathing Space is not a payment holiday, so people will need to keep paying for any debts and ongoing liabilities they have (such as a mortgage, rent and bills) whilst they work with a debt advisor to find a solution.

Where a person in the scheme fails to comply with these obligations, a debt adviser has the discretion to cancel their Breathing Space.

Further information

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, known as Breathing Space, came into effect on 4 May.

The Government has issued guidance for creditors and money advisers about Breathing Space.

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