Breathing Space

In May 2021 new legislation was brought into place to allow approved debt advisers to give clients (who qualify) legal protection from their creditors. The Breathing Space scheme provides individuals who are struggling, or about to struggle to repay their debts, time to seek professional debt advice and find an appropriate long term solution without creditors being able to take enforcement or legal action whilst they do this.

What is breathing space?

There are two types of breathing space that an individual may qualify for.

What are the different types of Breathing Spaces?

  • Standard Breathing Space
  • Mental Health Crisis Breathing Space

Standard Breathing Space

Standard Breathing space lasts for up to 60 days. Once effective, a creditor must stop all action relating to that debt and apply the protections. If a creditor has commenced legal proceedings, either in-house or instructed solicitors, these must be put on hold including enforcement action.

How do you qualify for Standard Breathing Space:

You must be:

  • An individual living in England or Wales (includes sole traders)
  • Owe a qualifying debt to a creditor
  • Not have a debt relief order or an individual voluntary arrangement, or be an undischarged bankrupt
  • Not already had a breathing space in the previous 12 months

Does Breathing Space affect your Credit Rating?

There is no official notice placed on your credit file, however if you do not maintain payments to each of your creditors throughout the breathing space period, although they cannot chase you, enforce the debt or add interest and charges during that time, it may still be treated as a breach of your repayment plan meaning any missed instalments can be noted on your credit file. The equivalent of 3 or more missed payments can mean that creditors can issue you with a default notice. Click here for more information on default notices 

Will the details of your Breathing Space be entered onto a searchable register?

Breathing Space is not held on a public searchable register. There is an electronic system through the Insolvency Service where your Breathing Space will registered, however only those authorised to do so, have access to it. The register is used to input your details so your creditors can be notified and for authorised debt advisers to carry out searches for any previous Breathing Spaces to ensure you haven’t had one in the previous 12 months (not applicable for the Mental Health Crisis Breathing Space).

How to Apply for Breathing Space

You can apply to a debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling or a local authority that provides debt advice to its residents. .

The advisor would then do an assessment of your financial situation and decide whether or not a Standard Breathing Space is appropriate. As well as the qualifying factors above the adviser will also consider if:

  • their client cannot, or is unlikely to be able to, repay all or some of their debt
  • a breathing space is appropriate for their client

Mental Health Crisis Breathing Space

Mental health crisis breathing space, lasts as long as the treatment continues, plus 30 days. An approved mental health professional (AMHP) must certify that a person is receiving mental health crisis treatment, this can then be used by an approved debt advice provider to start a mental health crisis breathing space. The individual must still meet the same criteria as for the standard breathing moratorium, although there is no limit on how many mental health breathing spaces you can have in any length of time.

How to Apply for Mental Health Crisis Breathing Space

The same as the Standard Breathing space, your application must go through a Debt Advice provider (authorised by the FCA to give debt counselling) or a local authority that provides debt advice to its residents.

Unlike the standard Breathing Space the application does not need to be made by the individual and can be done on their behalf by their carer, social worker, mental health nurse and others.

What are the Qualifying Debts?

Debts included in a breathing space must be qualifying debts. Most debts are likely to be qualifying debts. These will include:

  • credit cards
  • store cards
  • personal loans
  • pay day loans
  • overdrafts
  • utility bill arrears
  • mortgage or rent arrears

Government debts like tax and benefit debts are all likely to qualify, unless they are included in the list of excluded debts.

Joint debts can be included in a breathing space, even if only one person applies for a breathing space. Both individuals who are liable for the debt are protected by the breathing space.

While guarantor loans can be included in a breathing space, the protections do not extend to the guarantor. The guarantor can apply for their own breathing space, if they’re eligible.

Qualifying debts can include any that the individual had before the Breathing Space legislation came into force on 4 May 2021.

New debts incurred during a breathing space are not qualifying debts. Neither are new arrears on a secured debt that arises during a breathing space.

Excluded Debts

All personal debts and liabilities are qualifying debts, except for:

  • secured debts (like mortgages, hire purchase or conditional sale agreements). You can only include arrears on these debts that exist at the date of an application for a breathing space.
  • debts incurred from fraud or fraudulent breach of trust.
  • liabilities to pay fines imposed by a court for an offence. This includes any interest on the fine and any penalties connected to it. This does not include penalty charge notices, like a parking ticket
  • obligations from a confiscation order
  • child maintenance or obligations under an order made in family court proceedings
  • a crisis or budgeting loan from the social fund
  • student loans
  • damages to pay for death or personal injury caused to someone else
  • advance payments of Universal Credit
  • council tax liabilities have not yet fallen due. If all instalments for that financial year have fallen due and have not been paid, these are considered to be a qualifying debt. If a debtor has been served with a ‘reminder notice’ to pay a council tax bill, the remaining liability for the financial year is a qualifying debt

While some business debts also qualify for the breathing space, they do not qualify if the debt only relates to the business (not the individual personally) and the applicant is VAT registered, or a partner in a business with someone else.

An eligible non-domestic rates debt (or business rates) is a qualifying debt if all instalments for that financial year have fallen due and have not been paid. If the individual has been served with a ‘further notice’, the remaining liability for that financial year is a qualifying debt.

Your responsibility throughout the Standard Breathing Space

  • You must, to the best of your abilities maintain all ongoing liabilities. These include mortgage/rent, council tax (if not included as a liability in the Breathing Space), utilities such as water, gas and electricity. Any liabilities that have been included in the Breathing Space, that fall due are not ongoing liabilities that must be paid. Failure to keep up with ongoing liabilities, if you have the resources to do so, may result in your breathing space being cancelled.
  • You must be in regular contact with the adviser. It is a requirement of the Standard Breathing Space moratorium that you remain in contact with the adviser and complete a midway review between day 25-35 of the breathing space
  • Breathing space is not a payment holiday. Although creditors cannot take any action to enforce the debt you are still legally liable for the debts throughout the breathing space. Although it is not a requirement of the breathing space if you can maintain payments towards the debts included in the breathing space you still can. Interest and charges cannot be added to the debt during the breathing space or backdated after the breathing space ends, however any unpaid instalments may be treated as a breach of the repayment plan.

Where can I go for help with Standard or Mental Health Crisis Breathing Space?  

A breathing space can only be started by:

  • a debt advice provider who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling
  • a local authority (where they provide debt advice to residents)

Debt advice providers are responsible for the administration of a breathing space. They are the point of contact for the debtor, their creditors (and appointed agents), and the Insolvency Service.

The Debt Advisor and Breathing Space

The Debt Advisor team have undergone thorough training and are in a position to advise and offer a Standard Breathing Space or Mental Health Crisis Breathing Space for those that qualify.