The Debt Respite Scheme, otherwise known as ‘breathing space’, takes effect on 4 May 2021, with big financial implications for landlords and tenants. Introduced as part of the Chancellor’s Spring Budget, the scheme gives people in problem debt the right to legal protection from their creditors.
During the COVID-19 pandemic, some people have struggled to pay their mortgage, rent, living costs, and other bills. The new scheme gives these people a 60-day breathing space to pay off their debts.
Related article: Government White Paper for Landlords and Renters 2022
- What is a debt respite scheme ‘breathing space’?
- How can you set up a breathing space?
- What happens during a tenant’s breathing space?
- How does the debt respite scheme impact rent arrears?
- How does the debt respite scheme affect evictions?
- How can landlords prepare for the scheme?
Debt Respite Scheme: the two types of breathing space
There are two types of breathing space: standard breathing space and mental health crisis breathing space.
The ‘standard’ breathing space is available to anyone experiencing problem debt. This breathing space gives them legal protections from creditor action for up to 60 days. The protections include pausing most enforcement action and contact from creditors, while freezing most interest and charges on their debts.
The ‘mental health crisis’ breathing space has some stronger protections, and is only available to those receiving mental health crisis treatment. This breathing space lasts throughout the person’s mental health crisis treatment, plus an added 30 days (no matter how long the crisis treatment lasts).
It’s important to note that these breathing spaces are not paid holidays. Although the breathing space debt cannot be enforced during this period and interest cannot be charged on it, a person in debt is still legally required to pay their debts and liabilities. This means that any tenants in debt should continue to pay any debts owed to their landlords.
Read more: 5 Changes Landlords Can Expect from Spring 2021.
How can you set up a breathing space?
Anyone can apply for breathing space if they’re struggling to pay their debts. A specialist debt advice provider, who is authorised by the Financial Conduct Authority (FCA) to offer debt counselling, will then decide whether to grant this breathing space. For mental health crisis applications, an Approved Mental Health Professional (AMHP) will also need to confirm that the applicant is in treatment.
Granting debt relief will typically depend on whether the applicant has an income or owns any assets that could be sold to cover the debt.
If there’s no option for the person to raise the money, the debt advisor will most likely grant breathing space. However, applications will get rejected if the applicant has already organised a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA).
Debt Respite Scheme: what happens during a tenant’s breathing space?
Landlords will automatically receive an electronic or postal notification if one of their tenants has been granted breathing space. This applies to breathing spaces for any debt – not just debts associated with the landlord, such as rent arrears.
This notification confirms when the period of grace officially begins, so landlords know when they are able to re-take action.
The debt advisor will contact the tenant for a midpoint review. At this time, the debt advisor can cancel the breathing space period if they’re not satisfied the debtor is using the time correctly. The breathing space should be used to arrange payment plans to consolidate their debts into an affordable monthly payment.
The debt advisor is the single point of contact for all parties involved throughout the process. If the landlord has any questions, this is who to ask. Landlords cannot contact the tenant during the breathing space period unless it’s regarding a separate matter, like maintenance or safety checks.
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How does the Debt Respite Scheme impact rent arrears?
The Debt Respite Scheme allows tenants in arrears to apply for breathing space to get their finances in order. It gives debtors some legal protections and prevents landlords from obtaining the money.
Landlords, agents and other creditors will be notified about a breathing space, and they must then pause enforcement action and freeze charges, fees and certain interest for the duration of the breathing space.
How does the Debt Respite Scheme affect evictions?
During a breathing space period, landlords and agents are unable to take any enforcement action against tenants in rent arrears. This means they can’t serve Section 8 notices or take possession of the property if notice was served before the start of the breathing space – according to the National Residential Landlords Association (NRLA).
The NRLA also confirms that landlords are unable to apply for a warrant or receive a possession order during the breathing space and cannot contact their tenants to ask for payment of the arrears.
How can landlords prepare for the Debt Respite Scheme?
The Debt Respite Scheme may be daunting for some, but landlords can take steps to avoid ending up with unmanageable levels of rent arrears.
Asking a tenant for a guarantor is one option. Whilst landlords are unable to contact their tenant regarding debt during the breathing space period, they are able to get in touch with guarantors.
Although the regulations state landlords cannot evict tenants with rent arrears during a breathing space, they are able to serve notice for other reasons using the Section 8 eviction process, if applicable. This includes anti-social behaviour or when a landlord wants to live in the property themselves.
Please note: Under COVID-19 rules, most tenants are currently entitled to 6 months’ notice before court action can begin. The government intends to lift the eviction ban on 31 May 2021.
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As a landlord, how do you feel about the Debt Respite Scheme?
What do you think about the upcoming Debt Respite Scheme? How will it affect you? We’d love to hear your thoughts in the comments below.