Breathing Space – are you using it responsibly?

The Debt Respite Scheme (Breathing Space) was introduced to give people in problem debt the right to legal protections for debtors in limited circumstances and in limited ways; reason being, the pandemic, and its consequences extending longer than we had all anticipated.

According to the guidance, there are two types of breathing space – a standard breathing space and a mental health crisis breathing space.

Breathing spaces are available to individuals, can be used once only, where a client can’t or is unlikely to repay some or all debt and when the measure is “appropriate”.

A standard breathing space is available to anyone with problem debt. It gives them legal protections from creditor action for up to 60 days, including pausing most enforcement action and contact from creditors, and freezing some interest on their debts within the period of the space.

A mental health crisis breathing space is only available to someone who is receiving mental health crisis treatment and it has some stronger protections. It lasts as long as the person's mental health crisis treatment, plus 30 days – no matter how long the crisis treatment lasts.

Secure debt is a qualifying debt but only so far as arrears at the date of breathing space, not as regards ongoing debt – e.g continuing mortgage commitments. So, in truth, anyone qualifying must meet ongoing payments as regards first and second mortgages,

These both seem like sensible measures given the nature of the environment through which we have all lived through.

However, anecdotally, it’s becoming apparent that applications which must come via authorised debt advisers are not always being used for the purposes intended by the legislators.

Notably, advisers, many of whom are aligned to, or associated with credit arrangers are using debt respite as a tool for the following:

• To block enforcement when all court applications have been exhausted,
• To buy time, not for the debtor, but for themselves to explore refinance arrangements,
• To obtain space and time in cases where there is simply no realistic hope of achieving settlement of debts.

Misuse, sometimes abuse, by debt advisers has consequences.

To the lender, a further layer of delay, over and above the recovery delays which resulted from the enforcement moratorium.

To the borrower, kicking a can down the road and giving cause for misplaced optimism that a solution that may not in fact be there can be found – which seems to me to be contrary to all of the thinking behind Mental Health Debt Respite in particular.

To the intermediary world, where debt advisers and credit arrangers often work closely together, a breakdown of trust in a harmonious relationship, where more than ever before, the stakeholders need to work together.

Debt Respite is new, barely weeks old, and we are still finding out how it will pan out.

The rationale and intention is laudable – mental health, and wellbeing is a basic human requirement we are all now tuned into, and to be supported and promoted.

But, appropriateness is very much the key word.

Advisers, you have a responsibility to your clients, but also a duty of care to your stakeholder partners, and to yourselves. That applications are permissible via authorised persons roughly translates to your licences and permissions being on the line, if misuse and abuse turns from a trickle to a modus operandi.

So please consider how access may or may not benefit the debtor – not just short term where the advantage is obvious – but longer term. The delayed day of reckoning may leave the debtor with unavoidable enforcement, greater debt and increased stress.

So, when it comes to Breathing Space, ask yourself – are you using it responsibly?