UK: Respiratory Space Program Regulations | Orrick – Finances 20/20
[author: Benjamin Stafford]
A 2020 Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) draft regulation (England and Wales) (the “”Regulations”) Was released on July 15, with a view to implementing the scheme in England and Wales. It is expected that the Regulations will come into force on May 4, 2021.
The Regulation proposes to offer a debtor (specified as a natural person in one of the eligibility criteria) the possibility of obtaining a moratorium which offers a “breathing space”, during which the action of the creditors is prohibited, to allow debtors to engage with a debt counselor in order to seek a lasting solution to their debt problems with their creditors.
How can anyone get a moratorium on breathing space?
To enter a respite moratorium, a debtor will first need to access advice from a “debt advice provider”, that is, an FCA-regulated debt adviser or debt adviser. ” another organization that may benefit from an exemption from FCA authorization (such as a local authority).
It should be noted that for the purposes of the Regulations, the “insolvency exclusion” usually available under the FSMA 2000 will not apply to a provider of debt advice, thus preventing the application of the An exception that removes debt counseling as a regulated activity when undertaken by an insolvency practitioner as an office holder or with a reasonable view to appointment.
In addition, a debtor is excluded from access to a moratorium on respite if it has entered into a moratorium on respite within the last 12 months.
When considering whether a respite moratorium should apply, the debt advice provider should assess whether:
- the debtor has sufficient funds or income to discharge or liquidate its debts as they fall due;
- it would be advantageous for the debtor to enter into a debt solution (such as bankruptcy, an individual voluntary arrangement or a voluntary debt management plan);
- the debtor may be eligible for a debt solution during a moratorium or as soon as reasonably possible after the end of the moratorium; and
- the moratorium period is necessary for the debt advice provider to (i) assess which debt solution would be appropriate for the debtor, (ii) to advise the debtor on which debt solution would be appropriate, or (iii) for which ‘A debt solution either be put in place.
What are the protections of a moratorium on breathing space?
During the respite moratorium, the accumulation of contractual and moratorium interests is stopped, as well as the encouragement of costs and charges. Creditors are also prevented from taking enforcement action against the debtor. The debt collection and execution moratorium extends to any contact between the debtor, the creditor or his agent relating to the repayment of debts subject to a respite moratorium. A respite moratorium will include almost all personal debt with roughly the same set of exclusions that apply in bankruptcy and will cover the business debts of independent traders with turnover of less than £ 85,000 .
Additionally, creditors are excluded from the retrospective application of interest and charges if a debtor leaves the respite moratorium without entering into a debt solution.
However, if a debtor is in arrears on an outstanding debt (such as mortgage payments, rent, insurance premiums, taxes, and utility bills) then it must be paid during the moratorium on the debt. breathing space, it will not be protected against enforcement actions or the charging of additional interest, fees and charges on those missed bill payments.
Notifications to creditors
It is proposed that the inflows and outflows of debtors to and from a respite moratorium be recorded through a central portal managed by the insolvency service which will be fed by information provided by the debt advice provider. Creditors would be informed by this service of all entries and exits.
In addition, it is proposed that there be a private register of debtors in the scheme, and individual creditors will have access to a register of people who owe them debts that are in a respite moratorium and that have been included in the plan. portal. However, creditors will not be able to access the contact details of other debtors in this register.
Moratorium on mental health
In addition, an alternative mechanism to a respite moratorium will be available for debtors receiving treatment for a mental health crisis. In such cases, a debt advice provider would not perform a financial assessment, but rather provide access to a respite moratorium based on evidence demonstrating that the debtor is receiving mental health crisis care.
Evidence of such a mental health crisis will be available from social workers, nurses, occupational therapists or clinical psychologists who have specific training in mental health law and mental capacity, are experienced in supporting people. in crisis and are generally based in community, crisis or home care teams and licensed by local authorities.
The moratorium on mental health benefits from the same protections as the moratorium on breathing space, although it is not set at 60 days and instead continues for as long as the crisis management lasts. the individual.
The protections offered by a breathing space moratorium last for a period of 60 days, and as noted above, debtors cannot access a breathing space moratorium if they have entered into a moratorium on breathing space. breathing space over the past 12 months.
No earlier than 25 days and no later than 35 days after the start of the moratorium, the debt advice provider will need to perform a “mid-term review” to ensure that the debtor continues to comply with the debtor’s requirements. eligibility pending.
The Settlement will provide welcome relief to debtors. While it is not known what the “state of play” will be when the Regulations take effect in May 2021, the ongoing Covid-19 pandemic has resulted in and will likely continue to result in a greater number of defaults . While many creditors have been accustomed to granting informal moratoriums to debtors to help them seek appropriate debt advice, the Settlement introduces more formality into the process. It is likely that without the introduction of the Regulations, during a period of uncertain economic prospects, many creditors would have been more reluctant to grant informal moratoria.
Notwithstanding the above, the Regulations will be particularly relevant when it comes to payday loans and credit cards, where high interest rates can be very heavy. With the suspension of interest and default interest under the Regulations, individuals will be offered some relief from these debts.
Finally, in a world where mental health is becoming an increasingly discussed subject, it is a positive step that the Regulation introduces mechanisms to protect vulnerable people in society.