New Guidance for Arrears (Debt Respite Scheme)

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  • New Guidance for Arrears (Debt Respite Scheme)

The government have decided to add another layer of problems for landlords in respect of a new scheme to help debt. Unfortunately, they have now included within the scheme rent arrears. The scheme won’t come into force until the 4th May 2021 but after that date it will make a huge number of problems when it comes to chasing arrears.

The scheme is to give respite where they have got a problem with their debt. There are two types of breathing space, the standard breathing space and a mental crisis breathing space. There will be a difference between the two. But landlords will need to consider both sides.

A stand breathing space.

This is available to anyone with a debt problem. It gives them legal protection for creditors actions for up to 60 days. This protection includes pausing most enforcement action and contact from creditors and freezing interest and charges on their debt.

A mental health crisis breathing space.

This is only available to someone who is receiving mental health crisis treatment and it has stronger protection. It lasts if the persons mental health crisis treatment plus 30 days. This includes no matter how long it lasts. The legalisation is supposed to be for guidance only but of course, it will create problems.

What does it mean for your responsibility?

It will mean that if you are owed a debt that is in breathing space you must stop all action relating to that debt and apply the protection. These protections must stay in place until the breathing space ends.

The electronics service whilst sending you notifications about each debt owed to you in a breathing space they will also inform of when the process started. You would need to make sure you applied for protections of these debts from the dates set out in notifications.

If you are a creditor it is also possible your debt might be added to a breathing space later.

Will there be debt advice provided?

A breathing space can only be started by a debt advice provided who is authorised by the financial conduct authority commonly known as FCA to offer debt counselling or a local authority.

Debt advice providers are responsible for administration of a breathing space. There are points of contact for the debtors. There will also be a point of contact for the creditors and the insolvency service.

What is the insolvency service?

This is when a person is thinking of becoming insolvent ie their debts are so much more than what they have that they decide to pass it over to a third party. They will maintain a private register of details of people who are in debts in breathing space and that the date of a breathing space was cancelled in 15 months.

What will start a breathing space?

Debtors can only access a breathing space when seeking debt advice from a debt advisor. Anyone who cannot or is unlikely to repay their debts can apply to a debt advisor for a standard breathing space. Although all applications must be considered, the debt advisor might decide a breathing space is not appropriate for the debtor. This would be for example where the person could pay their debts with some form of budgeting help or they already have assets that could easily be sold to clear the debt. Therefore, a breathing space would not be the right solution. A breathing space might also not be appropriate for someone who can enter a more suitable debt solution straight away without needing protection.

When will a mental health crisis breathing space be applied? How do they apply for it?

The government have committed themselves to the alternative route to access protection for people receiving mental health crisis treatment. If and approved mental health professional certified that a person receiving mental health crisis treatment, then this evidence can be used by a debt advisor to start a medical health crisis breathing space.

In additional to the debtor, the following people can apply for a debt advisor on behalf of a debtor for a mental health breathing space;

  • Any debtor receiving mental crisis treatment.
  • The debtor’s carer.
  • Approved mental health professionals.
  • Care co-ordinators appointed for the debtor.
  • Mental health nurses.
  • Social workers.
  • Independent mental health adequate or mental compacity adequate supportive of the debtor.
  • A debtor’s representative.

What is a debtor’s eligibility for a standard breathing space?

Even before a debtor advisor can start breathing space, they must confirm their client is eligible and meet all the conditions.

The conditions are;

  • Be an individual.
  • Owe a qualifying debt to a creditor.
  • Live or usually reside in England or Wales.
  • Not have a debt relief order or an individual voluntary arrangement
  • Undischarged bankrupt.
  • Not already have a breathing space or have started a breathing space in the last 12 months.

The debt advisor must also be satisfied that their clients meets needs of both of the following conditions.

The client cannot, or is unlikely to be able to, repay all or some of their debt.

A breathing space is appropriate for their client.

What is the eligibility for a mental health crisis breathing space?

The debtor must still meet the same criteria and conditions for a standard breathing space but they must also be receiving some form of mental health crisis treatment.

What information will the debt advisor need to start this?

They will need as follows;

  • Full name.
  • Date of birth.
  • Residential address.
  • Details of the debts they owe.
  • Name and a contact of the creditors.

If the debtor is a sole trader and has business debts, they must also include their trading name and any business address.

What are the qualifying debts?

This is the most important information for landlords. It is surprising that the government have included rent arrears. But they have.

They include as follows;

  • Credit cards.
  • Store cards.
  • Personal loans.
  • Pay day loans.
  • Utility bill arrears.
  • Mortgage or rent arrears.

Joint debts can also be included in breathing space, but it may not deal with both.

Guarantor loans can be included in breathing space, but the protections do not extend to a guarantor. The guarantor can only apply for their own breathing space if they are eligible. Therefore, it is important as we have discussed before that you have a guarantor for your tenants. If you have a guarantor then you are entitled to tackle the guarantor for the debt that has incurred.

What action do I need to take when I have received a notification?

When you receive a notification, you must search your own records to identify the debt that is owed by the debtor. Obviously, if it is only a property it will be quite simple.

You must make sure that you stop doing the following;

  • The debtor having to pay interest fees, penalties, and charges for that debt/arrears during breathing space.
  • Any enforcement or recovery action to recover that debtor by you or any agent you have appointed.
  • Contacting the debtor to request for payment of that debt unless you have got permission from the court.

Whilst interest can still be charged on the principle of the secured debt but not always on the arrears. You will therefore note that anything above could cause you a problem. Therefore, taking guarantors is so important.

What happens when debts are identified after a breathing space starts?

When you receive a notification, you must search your records of details of the debt you have been notified about. You must also search for the additional debts owed by the debtor.

If you find an additional debt or it is not clear what the debt notification is about you must tell the debt advisor about it as soon as possible.

The additional debt does not always become part of the breathing space, but it can do so.

What happens about stopping enforcement actions?

This may not stop enforcement in relation to a possession order. However, as this is so new nobody yet knows.

At this moment in time these are the items that the enforcement action would stop.

  • Collect or enforcing a breathing space debt including this done by any agent you have appointed.
  • Try to enforce a judgement without the court’s permission.
  • Enforce your security over breathing space debt.
  • Obtain a warrant or a writ.
  • Get or seek a liability order.
  • Sell or take control of the debtors’ properties or goods by way of a bailiff.
  • Start any action or legal proceedings against the debtor.
  • Make an application or default judgement for a claim of money against the debtor.
  • Take steps to install a pre-payment meter.
  • Take steps to disconnect a debtor’s premises on supply of gas or electricity.
  • Serve a notice to take possession of property to the debtor on the grounds of rent arrears due up to the start of breathing space or take possession of a property let to debtor having served such a notice to start of breathing space.

This section above is the most problematical. At this moment in time there is nothing within the outline by the government of exactly how to therefore enforce a possession order. This is going to be a major problem for landlords. If you are about to serve a notice to take possession of a property on the grounds of rent arrears and they then start a breathing space, you may be stopped.

Considering the law that is recently due to come in the renter’s reform bill, this is going to cause landlords no ends of problems. You can read our latest article on this here.

Unfortunately, the government has not yet outlined exactly how to resolve this. You are no doubt aware that the government have required landlords now to give a minimum of 6 months’ notice for tenants, but they have also changed so that they do not allow possessions up to mid-February. Is this going to be extended if the lockdown goes on further, we suspect it is.

We are seeking urgent clarification of the reform from our solicitors, but it is something we thought landlords should know about straight away.

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