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Debt recovery respite

Beware The New Debt Respite Regulations13th Apr 2021

by Eric Holt on 13th Apr 2021

Contact Eric Holt

Dealing With New Debt Breathing Space Rules

Prevention is always better than cure when it comes to debt recovery – and never more so now with the advent of yet more restrictions for creditors.

Think very hard how much credit you give your customers. From May 4 2021 it may take you longer to recover debts because of new moratorium rules coming into force.

Contact Our Debt Recovery Lawyers

What Are The New Debt Respite Regulations? How Will They Affect Me?

The new rules are the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020.

They will allow an individual to instruct a financial adviser to obtain a 60-day moratorium preventing any actions on qualifying debts. These include any amount a debtor must pay under:

  • an order or warrant for possession of the debtor’s place of residence or business
  • a court judgment or controlled goods agreement.

They also include any debts owed to the Crown. During the moratorium, you cannot: 

  • hold a hearing
  • make or serve an order or warrant, writ of control, writ of execution or judgment summons
  • instruct an enforcement agent to serve an order, warrant, writ of control, writ of execution or judgment summons.

But the moratorium does not prevent a court or tribunal from sending notices or correspondence to a debtor in relation to actions or proceedings.

Mental Health Crisis Breathing Space Rules

Qualifying debtors receiving treatment for a mental health condition can apply for an even longer moratorium. It can last the length of their treatment plus 30 days. Ongoing treatment must be confirmed every 20 to 30 days.

For this breathing space protection to be eligible, the qualifying debtor must be certified by an Approved Mental Health Professional (AMHP) as receiving treatment for a mental health crisis.

What Can I Do About The New Rules?

You don’t need me to tell you that 60 days is a very long time when you’re urgently awaiting payment from one or more debtors. And the longer a debt continues, the less likely you are to get paid.

A lot can happen in those 60 days, especially in troubled times such as these. Your cash flow could be severely jeopardised by others’ failure to pay. So unless you want to be another falling domino in the chain of debt, it pays to get expert legal advice as soon as possible.

Remember, there is hope: not every debtor qualifies for protection under the new rules, and not every debt is a qualifying debt. Also, debtors using the 60-day moratorium will still be subject to a midway review to be held between days 25 and 35.

Furthermore, the debtor must engage with you and provide information: a moratorium is not an excuse to give you the silent treatment; they must tell you if there is any change in their circumstances. Or their nominated adviser must engage with you if the debtor is claiming a mental health crisis breathing space.

The debtor must pay their ongoing liabilities: a breathing space is not a payment holiday. And you must not give them any additional credit that exceeds £500.00 (not that it would be wise to do so anyway).

Importantly, the moratorium is not a free pass that debtors can play every time their cash flow situation becomes difficult – it is a once-per-year protection. (Though there is no limit on the number of times a debtor can apply for a mental health crisis breathing space.)

Find Out More About The New Regulations

For more information about the new debt respite regulations, contact Coles Miller Debt Recovery Manager Eric Holt.

This document is not intended to constitute and should not be used as a substitute for legal advice on any specific matter. No liability for the accuracy of the content of this document, or the consequences of relying on it, is assumed by the author. If you seek further information, please contact Managing Partner Neil Andrews at Coles Miller Solicitors LLP.