New (Breathing Space Moratorium) Regulations Effective 4 May 2021

April 2021

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 come into effect on 4 May 2021.

These new Regulations are designed to protect certain consumer or sole trader debtors with problem debt. Where they apply, the Regulations create a debt moratorium by placing a constraint on a creditor exercising their legal right to take certain steps towards achieving debt recovery or to take legal action to recover debts for a period of time (a “breathing space”).

Even prior to the pandemic many creditors were providing a breathing space to customers to support them.

In essence, the aim of the scheme established by the Regulations is for any individual with problem debt to receive professional debt advice and to have a breathing space with a view to finding a long-term solution to their financial difficulties. Free access to advice will be available to relevant debtors. (The scheme also makes special provision for a breathing space for a debtor who is receiving mental health crisis treatment.)

The Insolvency Service will be responsible for notifying you as a creditor when a breathing space has commenced which affects a debt owed to you.

You now need to start thinking about, and then in good time putting in place, systems to ensure that neither you, as a creditor, nor your agents take any prohibited action against individuals who have the benefit of a breathing space under the Regulations.

Creditors should be comforted that the new scheme will bring greater formality and early involvement of debt professionals.

It is very important that you familiarise yourself in detail with the Regulations, to see not only how they operate but also their potential impact on you as a creditor.

The Guidance Notes: Debt Recovery and Legal Action have recently been updated to include a brief outline of the purpose and effect on creditors of these new Regulations. The Guidance Note: Trade Credit and Credit Control has also been updated to take account of the Regulations.

We recommend that you read both of these recently updated Guidance Notes, in particular the information about the impact of the Regulations.

The second part of HM Government’s debtor protection scheme will be a statutory debt repayment plan, a statutory agreement that will enable someone in problem debt to repay their debts to a manageable timetable, with legal protections from creditor action for the duration of their agreement period. HM Government will in due course implement this part of the debtor protection scheme, but it has not yet set an implementation date for it.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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