Rhiannon Philps
On 4 May 2021, the government launched a new “breathing space” scheme in England and Wales to help people struggling with unmanageable problem debt.
The Debt Respite Scheme aims to give people a break from additional interest and charges while they try to get their finances back on track.
Many people with multiple debts face constant pressure as interest charges pile up and creditors contact them for payment. This can take a toll on their mental health and well-being, with some individuals taking on more debt to pay off their existing debts.
The breathing space scheme will help to temporarily relieve some of this strain by allowing people to access professional help without incurring further costs or facing worrying demands from creditors.
What is a breathing space?
There are two types of breathing space: a standard scheme for anyone with problem debt, and a mental health crisis scheme for anyone with problem debt who is also receiving treatment for their mental health.
A standard breathing space is a 60-day period where your qualifying debts won’t incur any interest or penalty charges. This stops the cost of your debts spiralling while you get help. Creditors also won’t be able to make any contact with you or continue with any enforcement action, including letters, debt collection and bailiff activity or any legal proceedings.
A mental health crisis breathing space offers the same protections as the standard breathing space. But, rather than only being for 60 days, it will last for as long as you are receiving mental health crisis treatment, plus an additional 30 days after the treatment ends.
During the breathing space period, you will get access to professional debt advice. Advisors can work with you to find a sustainable solution to your debt worries and create a plan to tackle them.
This Debt Respite Scheme is only available in England and Wales, with Scotland offering similar protections through the Debt Arrangement Scheme.
It is important to note that a breathing space is not a payment holiday, nor does it reduce your debts or write them off. You will need to keep making the repayments on all your debt according to the terms agreed with your lenders. The scheme is simply a way to stop interest charges from spiralling out of control if you are behind in debt repayments or in mortgage arrears, and to get temporary respite from creditors knocking on your door and taking action against you.
The debt advisor is within their right to cancel the breathing space if you don’t keep up with your payments as agreed. However, the advisor will take into account your personal circumstances and your financial situation before deciding whether to end the breathing space.
Who is eligible for a breathing space?
Anyone in England and Wales who is struggling to pay at least one qualifying debt (see below) may be eligible for a breathing space. Ultimately, a debt advisor will determine if a breathing space is the most appropriate solution for you, or if an alternative form of help would be more suitable.
You can’t have a debt relief order (DRO), an individual voluntary arrangement (IVA), an interim order or be going through bankruptcy when you apply for a breathing space.
You can only apply for one breathing space in a 12-month period.
Who is eligible for a mental health crisis breathing space?
Any individual in England and Wales with at least one problem debt, who is also getting medical treatment for their mental health may be eligible for this breathing space. Again, a debt advisor will review your case and decide if a breathing space is right for you.
You can get a mental health crisis breathing space at any time, regardless of whether you have had one in the previous 12 months.
When you are no longer receiving mental health treatment, your breathing space will end 30 days later. However, you may then be able to apply for a standard breathing space if a debt advisor thinks it’s a suitable route to take.
What debts qualify for a breathing space?
Most kinds of debts qualify for a breathing space, including:
- Credit cards
- Store cards
- Overdrafts
- Personal loans
- Payday loans
- Government debts including tax and benefits
- Arrears on mortgages/rent, car finance and bills
Any new arrears on a secured debt that you get into during a breathing space won’t qualify. For example, any mortgage arrears that you incurred before applying for a breathing space will be eligible, but if you miss any payments while you are in the scheme, these won’t be.
Guarantor loans can be included, but the guarantor won’t qualify for the protections.
If you have a joint debt, this is also eligible, even if the other person doesn’t apply for a breathing space. In this situation, there would be no enforcement action on either person, but the other person not in a breathing space may still be liable for interest and fees.
How can I apply for a breathing space?
You will need to contact a professional debt advisor to get help under the Debt Respite Scheme.
Only an FCA-authorised debt advisor, debt charity or a local authority that provides debt advice can start a breathing space for an individual.
It’s up to the advisor whether a breathing space is the most suitable course of action.
» MORE: How can debt charities help?
How can I apply for a mental health crisis breathing space?
If someone is receiving mental health crisis treatment, they don’t need to directly seek help from a debt advisor. Someone can apply to a debt advisor for a mental health crisis breathing space on behalf of the individual, such as a carer, a social worker, a mental health nurse, or an approved mental health professional (AMHP).
To start this breathing space, a debt advisor will need evidence from an AMHP to confirm the person in question is receiving treatment. The debt advisor will then assess whether the scheme would be appropriate for them.
The application will need to contain details of a nominated point of contact who will be in contact with the debt advisor while you are receiving treatment. This point of contact should be an AMHP, a care coordinator or a mental health nurse.
How does the Debt Respite Scheme work?
If a debt advisor decides that a breathing space would be helpful for you to tackle your debts, they will submit an application online.
They will put your details onto the breathing space register and the breathing space will start for you the day after.
During the breathing space, you will be protected from any further interest or charges and any enforcement action while you work out a debt solution with an advisor. However, you’ll need to continue making payments where you can.
The advisor will act as a point of contact for you and your creditors; you won’t need to contact the companies to say you are in a breathing space.
If you didn’t include a debt in your original breathing space application, you can add it later as long as the debt wasn’t incurred during the breathing space. The debt needs to have existed before you applied for the scheme. Bear in mind that the protections for any debts added later will end whenever your breathing space ends.
You won’t be able to apply for any further credit worth more than £500 while you are in a breathing space.
In a standard breathing space, the debt advisor will conduct a midway review to make sure you have been meeting the necessary requirements, such as continuing to meet your financial obligations.
If everything is proceeding as planned, then the scheme will continue for the full 60 days. If there are any issues, the debt advisor may reconsider your breathing space.
There won’t be a review during a mental health crisis breathing space, but the advisor should confirm that the individual is still receiving treatment every 20-30 days.
Will a breathing space affect your credit score?
A breathing space won’t have a direct impact on your credit history. However, companies can still report whether you make repayments, so if you miss any payments during the breathing space these will show up on your credit file as normal.
When you apply for a breathing space, a debt advisor may carry out a credit check with your permission.
Debt advisors will need to carry out a credit check if you apply for a mental health crisis breathing space predominantly to ensure they have all the information they need.
However, these checks will be soft searches so won’t affect your credit score.
What happens when a breathing space ends?
At the end of a breathing space, creditors can start charging interest and other fees on your previously missed debt payments again. However, they won’t be able to charge any interest or penalties from the period you were in the breathing space.
They will also be able to continue with any enforcement action and legal proceedings unless the debtor has gone into a debt solution such as a debt relief order, bankruptcy or an IVA.
During the breathing space, a debt advisor will have worked with you to figure out the best course of action to help you cope better with creditors’ demands. You should have a plan to manage your debts, but remember that you can continue to get debt help even after your breathing space is complete.
» MORE: What is a debt management plan?
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