New Insolvency Protections for Debtors – Time to Breathe

Two new types of insolvency procedure will come into effect on 4 May 2021, both intended to give a breathing space, or short period of respite, for people in problem debt.

A standard breathing space is available to eligible people in problem debt who receive professional debt advice. They will access a period of up to 60 days in which interest, fees and charges are frozen and enforcement action paused, known as the moratorium period. The intention is to give time for the debtor to receive professional advice at an early stage and potentially enter an appropriate scheme to resolve their debt.

A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and lasts as long as the person’s mental health crisis treatment, plus 30 days.

There is no maximum amount of debt that can be protected and any debt which is not specifically within the definition of excluded debts is covered, so it will include credit card debts, personal loans and mortgage or rent arrears. Some business debts qualify for the breathing space, but not if the debt only relates to the business and the debtor is VAT registered, or the debtor is a partner in a business with someone else. The debtor must be unlikely to be able to repay some or all of their debt as it falls due.

A breathing space can only be started by a debt advice provider who is authorised by the Financial Conduct Authority or a local authority where they provide debt advice to residents. The Insolvency Service will maintain the electronic service that details the people whose debts are in a breathing space, the date when a breathing space ended or was cancelled in the last 15 months. The Insolvency Service will also issue notifications to creditors, so it is important for creditors to have appropriate systems in place to ensure that when a notification is received steps are taken to ensure compliance with the regulations, for example by ensuring that no enforcement action is taken.

If you need help with any of the legal aspects mentioned then Ramsdens has solicitors to assist at every stage. Contact our civil dispute specialists today by calling 01484 821 500, or fill out our online enquiry form and we will be in touch at a time that is suitable for you.