Debt Respite Scheme aimed at helping individuals in debt

A new Government scheme which aims to help people experiencing difficulties with debt is due to come into force in May 2021.

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) gives individuals who are experiencing difficulties with debt, and who actively seek advice from a professional debt advisor, access to a 60-day breathing space from the effect of the debts they have incurred.

On eligible debt, under the regulations, creditors will be prevented from applying fees, penalties, charges and interest on arrears. Creditors will also be required to suspend action to recover the arrears for the 60-day period. The regulations also provide the same protection to individuals who are receiving mental health crisis treatment.

Debt recovery expert and partner at national law firm Clarke Willmott LLP, Philip Roberts, says the new regulations are a positive move.

“These are very important changes and are another positive step towards encouraging individuals who are experiencing difficulty with debt to seek help from the debt advice sector,” said Philip.

“Save for some limited exceptions, the scheme will apply to debts owed by individuals, unless they have been incurred in connection with a VAT registered business or a partnership.”

This moratorium on taking action, and fees, penalties and interest, can come at any stage of a recovery action. Where proceedings have been started (unless there has been an admission from the debtor before or during the moratorium) default judgment cannot be requested. Bankruptcy proceedings will be stayed and, save for a charging order or attachment of earnings order made prior to the moratorium, enforcement actions will also be stayed.

Philip continued: “The onus is on the creditor to advise the court or tribunal of the moratorium and the court or tribunal must take the appropriate measures to ensure the claim does not progress thereafter.

“There is much to think about for creditors affected by the regulations. There will be a lot to prepare so that measures are implemented to ensure compliance. The impact on creditors will depend on the nature of their business and their ability to absorb delays in receiving payment.

“It is worth noting that, in appropriate circumstances, which include a creditor being unfairly prejudiced by the moratorium, the creditor can request a review from the debt advisor or, if necessary, from the court. The initial request for a review must be made within 20 days and should be supported by evidence.

“We are looking forward to working with creditors over the coming months to put in place procedures to effectively comply with the regulations and to maximise prospects of making fair and ethical recoveries.”

Clarke Willmott has an industry leading team of debt recovery lawyers. Operating for over 25 years, the team acts for organisations of all sizes.

It is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton.

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