Debt Respite Scheme two years on – Where are we now?

Two years ago, on 4 May 2021 the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (the Regulations) came into force, providing individuals with the opportunity to obtain legal protection from creditors in the form of either a breathing space moratorium or a mental health crisis moratorium.

Debt respite scheme regulations

For those who haven’t yet come across the Debt Respite Scheme, both moratoria prevent creditors from taking action against a debtor to recover qualifying debts for a specified period of time. This can include all types of creditors including landlords of residential or commercial property.  A breathing space moratorium can be granted for up to 60 days, if the debtor cannot or is unlikely to be able to repay all or some of their qualifying debt. A mental health crisis moratorium can be granted for the length of a person’s mental health treatment plus 30 days in circumstances where the debtor cannot or is unlikely to be able to repay all or some of their qualifying debt and they are receiving mental health treatment.

Since its inception in May 2021 there have been over 130,000 moratoria put in place with uptake continuing to increase.

Given the considerable uptake of the Debt Respite Scheme it is perhaps unsurprising that the High Court has already handed down Judgments on the Regulations, one of the most recent being in the case of Kaye v Lees (2023) EWHC 152 (KB). In that particular case, the Judge held that Ms Lees did not satisfy the criteria for a mental health crisis moratorium and therefore cancelled the moratorium that had been granted. The background to this case was that there had been a series of moratoria which had been made between June 2021 and November 2022.  The Judge decided that on the basis of limited medical evidence there had been a material irregularity because the medical evidence did not justify the making of a mental health crisis moratorium in these circumstances. Although this case is no doubt an example of exceptional circumstances, it is worthwhile creditors bearing in mind that the Regulations do provide a mechanism for challenging moratoria where there are appropriate grounds to do so.

Another High Court Judgment concerning the same parties provided useful guidance on the fact that a moratorium is initiated when a debt advisor provides the Secretary of State with the information specified in Regulation 31(1) (i.e. details of the debtor and the date on which the moratorium started). These details are entered into the electronic register and once done, in the Court's view, there is no basis for going behind the register or for assuming that the correct procedure and process leading to the registration had not been followed. In that case - Lees v. Kaye and Dixon [2022] EWHC 1151 - the fact that the owner of the debt was specified as the Creditor's Solicitors rather than Kaye in their own name did not invalidate the moratorium.

Therefore, practically speaking, creditors would be wise to approach a debtor’s confirmation that they have the benefit of a moratorium with caution.

In addition, creditors will need to be aware, that the enforcement action they can take to recover a qualifying debt, whilst a moratorium is in place are severely limited.

General caution is also advised as the action which can be taken by creditors during a moratoria under these Regulations is severely restricted. For example:

1. Interest and fees do not accrue on the debt;
2. No enforcement action can be taken by the creditor or any agent;
3. Landlords of residential tenants cannot serve a Section 8 Notice during the moratorium period upon Grounds 8, 10 or 11 in Schedule 2 of the Housing Act 1988 to terminate an Assured Shorthold Tenancy, where there are arrears of rent.  However, a landlord may serve a Section 21 Notice to terminate an Assured Shorthold Tenancy giving at least 2 months’ notice; and
4. Bankruptcy proceedings will be stayed by the Court until the end of the moratorium.

Not only are creditors restricted in the actions they can take during the moratorium period, creditors also face positive obligations including:

1. Notifying any agent appointed in relation to the moratorium debt of the moratorium and its effect;
2. Searching their records for debts, and notifying the debt advice provider of any such information; and
3. Notifying any Court or Tribunal dealing with proceedings regarding a moratorium debt of the existence of the moratorium.

Since its introduction two years ago, it is clear that the Debt Respite Scheme has been utilised and debtors will continue to rely on the protections afforded by the Regulations.  All creditors and in particular landlords will need to continue to understand the effect of the Regulations on their ability to seek to recover debts from individuals of any type of property.