Appendix 1: Draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020
Additional information provided by HM Treasury
Q1: Subject to Parliamentary approval, most of the proposals will come into force on 4 May 2021. The EM refers to an implementation date in ‘early 2021’ at para 6.2. When does HMT plan to launch the new moratorium?
A1: 4 May 2021 – apologies, para 6.2 should also include this date.
Q2: The EM says that the instrument represents the first part of a debt respite scheme—what is the second part and when does HMT plan to implement it?
A2: The second part is the Statutory Debt Repayment Plan, a statutory agreement that will enable a person in problem debt to repay their debts to a manageable timetable, with legal protections from creditor action for the duration of their plan. As set out in last June’s consultation response the Government intends to implement the SDRP over a longer timeframe, but has not set a specific implementation date for this part of the scheme.
Q3: Which types of debt qualify for the moratorium – only financial debt (e.g. bank or consumer loans, gambling) or are other liabilities such as from utilities or in relation to personal or council tax or benefit repayments also covered? Are there any minimum debt thresholds and maximum debt limits below/above which the moratorium cannot be used?
A3: All of an individual’s debts can be included in a breathing space, unless it is a non-eligible debt under regulation 5(4). There are no maximum/minimum limits.
Q4: Are there types of debts which are exempt from the moratorium, if so, what types are excluded?
A4: See answer above – non-eligible debts are set out in regulation 5(4).
Q5: Do debts of a small business also qualify for the moratorium and, if so, are there any thresholds and limits?
A5: As set out in regulation 5(6)(d) an individual’s business debts are not eligible if the debtor’s business is registered for VAT, or if they are in partnership with anyone else and the debt they have accrued relates solely to the business.
Q6: What happens with ongoing liabilities, such as utility bills – are they also frozen during the moratorium?
A6: Breathing space is not a payment holiday. The person should keep paying their ongoing liabilities (defined in regulation 2, including mortgage, rent, insurance, taxes and utility bills) as they fall due. If they do not, and the debt adviser considers they have the means to do so, the debt adviser must decide to cancel their moratorium at the midway review unless the debtor’s personal circumstances would make it unfair or unreasonable.
Q7: Is there any difference in the types of debt that qualify for a regular moratorium as opposed to the mental health crisis moratorium?
A7: No.
Q8: How is professional debt advice defined that needs to be in place for the moratorium – can this only be provided by certain accredited organisations and how easily can debtors access it? Is there a process how the moratorium is then accessed via the professional debt advice?
A8: As set out in regulation 3, a moratorium may only be initiated by an authorised person who has Part 4A permission to carry on any regulated activity of the kind specified in article 39E (debt-counselling) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, or by exempt persons in relation to that activity (such as a local authority). The moratorium would be an option that any debt adviser meeting this description could offer, via online, telephone or face-to-face advice, provided the debtor met the eligibility criteria. The debt adviser would not be able to charge a fee.
Q9: What is the rationale for the 60–day period—how was this period identified as the best option? Can it be extended, e.g. where a repayment plan is still in the process of being set up or in special hardship cases?
A9: Campaigners originally proposed a six-week breathing space, which the Government proposed to extend to 60 days in its 2018 consultation. As set out in the 2019 consultation response, almost all consultation respondents welcomed the extension of the length of breathing space to sixty days, suggesting that this was a realistic length to enable an individual to seek debt advice and enter a sustainable debt solution. Breathing space cannot be extended, as the fixed period provides certainty to creditors. The only exception to this is in the mental health crisis moratorium, where the protections last for as long as the individual’s crisis treatment lasts, plus a further 30 days.
Q10: What is the process for people for accessing the mental health crises moratorium—how are people made aware of it?
A10: As set out in the 2019 consultation response, Approved Mental Health Professionals (AMHPs) will be the professional group able to produce an assessment that an individual is receiving mental health crisis care to enter a mental health crisis moratorium. AMHPs may do this themselves, or because they are requested to do so, by the debtor or someone else involved in their care. This assessment will be the evidence that debt advisers then use to determine an individual’s eligibility for a mental health crisis moratorium and enter them into the protections of the scheme. The government will publish guidance for AMHPs later this year and work to make this a straightforward and low burden process for AMHPs, including by developing a standard form to use for assessments as part of professional guidance on the scheme.
Q11: Para 11.1 of the EM refers to guidance and other forms of publicity. Is there more specific information about how the Government will raise awareness of the new moratorium?
A11: The Government intends to publish non-statutory guidance for creditors, debt advice providers and (in the case of the mental health crisis moratorium) for AMHPs later this year. The Government will work with the Money and Pensions Service, other Government departments, creditors and debt advice providers to raise awareness of the scheme.
20 July 2020
Q12: Could you confirm whether the moratorium covers arrears owed to central and local government, including council tax arrears, personal tax debts and benefit overpayments?
A12: Yes, these debts are included. For the avoidance of doubt:
Some specific public sector debts are excluded by regulation 5(4), mirroring the position in bankruptcy (e.g. debts incurred as a result of fraudulent behaviour; fines imposed by a court, including criminal fines; confiscation orders; child maintenance payments and debts that arise after an order made in family proceedings; social fund loans; student loans and personal injury liabilities)
If an individual enters breathing space in arrears on monthly council tax payments before the full outstanding annual bill has been requested, only outstanding monthly arrears owed on the debt will be included in the protections. The individual would continue to face enforcement action if they did not pay their ongoing monthly bill for council tax, given that council tax is an ‘ongoing liability’. However, if the individual had been served with a notice requiring payment of the full remaining bill by the time they enter breathing space, the whole of the amount contained in that notice will be included in the protections of breathing space.
Universal Credit advances and UC third party deductions are currently excluded, but will be included in the protections on a phased basis as early as possible following the start of the policy in early 2021, to ensure that IT changes required align with other requirements of the wider Universal Credit programme.
Q13: Para 7.7 suggests with regard to the mental health crisis moratorium that the protections will apply for the duration of the crisis treatment and then for a further 30 days. It then says that “If eligible, debtors will then have access to the 60–day Breathing Space moratorium.” Does that mean that in total the moratorium for those in a mental health crisis could be the period of the crisis treatment + 30 days + (potentially) 60 days?
A13: Yes, although this would only be the case if the debtor were to receive debt advice and be considered to be eligible for a breathing space moratorium once their mental health crisis moratorium ended.
Q14: Does the instrument propose a private register along the lines set out in the consultation response? And does proactive notification mean that an individual’s creditor will be alerted when that individual enters a moratorium? Who will manage the register?
A14: Part 4 sets out how the electronic system (including the register) will work.
It will be a private register as set out in the 2019 consultation response (regulation 35(4) sets out entitlements to information held by the register, and regulation 35(5) limits the information a creditor may access.
Creditors identified by the debt adviser will receive a notification when an individual enters breathing space (regulation 35(2)).
The duties/powers re: the electronic system and register lie with the Secretary of State; in practice this will be BEIS, acting through the Insolvency Service.
22 July 2020