Guide: The ‘breathing space’ scheme for people in debt

04 May 2021

What is the breathing space scheme?

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 - or the 'breathing space' scheme, for simplicity - is a Government initiative that gives people who are unable to afford their debt repayments a temporary period where most creditor enforcement action will be paused, so that they can seek advice from a debt advisor.

It came into effect on 4 May 2021, and is a way of ensuring that people with debt worries are able to take stock of their situation, and decide on a way forward that is best suited to their circumstances - rather than feeling pressured into entering a type of debt solution purely because it is the first one they come across. 

Under the breathing space scheme, people in England and Wales in problem debt have a time period (of 60 days initially) to consult a professional debt advisor and decide how to address their situation. Penalties and interest on all debts covered by the scheme will be frozen during this period. There is a parallel initiative for people experiencing a mental health crisis, which is not limited to 60 days (see below).

How will the breathing space scheme work?

To access the moratorium provided by the breathing space scheme, the indebted individual will need to be referred by a regulated debt advisor. This can be done either via an online process, over the phone, or through face-to-face debt counselling sessions.

During the 60-day period when the breathing space is in force, all creditor action relating to debts covered by the scheme has to stop. This means no communications are to be sent to individuals in a breathing space, and interest and charges will not accrue during this period.

The individual using the breathing space scheme must access free debt advice from a professional, regulated source during the scheme's duration, in order to decide how to resolve/address their financial situation. Committing to accessing advice is one of the requirements for entry into the scheme.

A register of individuals in a breathing space will be maintained by the Insolvency Service, with lenders and finance providers able to search the database to check for their customers.

Individuals in a breathing space will have to pay debts as they fall due during the period of the breathing space, but cannot be pursued for any money that was owed before the breathing space started.

Most debts will be included, but some types will be excluded, such as child support payments, non-eligible business debts, and student loans.

Individuals can make use of the scheme once in every 12-month period.

It is the Government's intention for the breathing space to give individuals the time they need to seek debt advice from a reputable source, weigh up their options, and go for the solution that is the most appropriate for their specific circumstances, rather than feeling pressured into accepting the first offer of help they find.

How does the scheme work for people with mental health issues?

The scheme works slightly differently for individuals who are experiencing a mental health crisis, and who are receiving medical treatment. They are automatically granted a breathing space if they are in debt, which will last as long as they are being treated for their crisis period, and then an additional 30 days.

There is no limit on the number of times someone in mental health crisis can access the breathing space scheme.

What is the background to the breathing space scheme?

The idea for a breathing space scheme had been discussed for some years, and R3 has long supported a scheme's introduction, in order to help people in debt take stock of their options, with the help of a qualified and regulated advisor, and choose a solution which is best suited to their situation.

The breathing space scheme consultation was launched in October 2018, with the response published in 2019.

During the scheme's gestation, the potential duration was hotly debated. The duration which has been agreed on, of 60 days in most cases, should allow long enough for people in debt to access advice, while not imposing an undue burden on creditors and potentially opening up the scheme to misuse. In the end, we are pleased that the Government took the view that the scheme should be a step on the way to a solution of some kind - not a form of debt solution in itself.

The scheme is expected to reach many people in debt: the Government's impact assessment of the scheme estimates that over 700,000 individuals could be helped in the scheme's first year alone.