The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, which will come into force on May 4, 2021, will provide individuals with the opportunity to obtain legal protection against creditors in the form of a moratorium on breathing space or a moratorium on mental health crises. Given the economic impact of the Covid-19 pandemic, there may be a significant number of people seeking a moratorium to suspend measures against them to collect their debts.
Both moratoriums prevent creditors from bringing an action against a debtor to collect eligible debts. A respite moratorium can be granted for up to 60 days, if the debtor cannot or is unlikely to be able to repay all or part of its eligible debt. A mental health crisis moratorium may be granted for the duration of a person’s mental health treatment over 30 days in circumstances where the debtor is unable or unlikely to be able to repay all or part of their eligible debt. and receive mental health treatment. Moratoriums can only be put in place by a debt advice provider approved by the Financial Conduct Authority or the local authority.
- Eligible debts are broadly defined and will include:
- arrears of rent payable by an individual;
- arrears of service charges; and
- Any amount payable under an order or warrant for possession of the debtor’s home or business, a court judgment or a controlled goods agreement.
A creditor will receive notification of the relevant moratorium and the qualifying debt will become a moratorium debt. From the start of the moratorium period, the action that can be taken by a creditor is severely restricted. For example:
- Interest and fees do not accrue on the debt;
- No enforcement action may be taken by the creditor or any agent; and
- The bankruptcy proceedings will be suspended by the court until the end of the moratorium.
The creditors’ point of view
Not only are creditors limited in the actions they can take during the moratorium period, but creditors also face positive obligations, including:
- Notify any agent appointed in relation to the moratorium debt of the moratorium and its effects;
- Search their records for debts and assignees relating to the debtor, and inform the debt counseling provider of this information; and
- Inform any Court or Tribunal seized of proceedings concerning a default debt of the existence of the moratorium.
If a creditor wishes to oppose the moratorium, the Regulations provide a mechanism by which a creditor can request a review of the moratorium on specific grounds, which, if satisfied, will result in the cancellation of the moratorium. Alternatively, a creditor can apply directly to a court or tribunal for authorization to take action otherwise prohibited by the moratorium.
It may be helpful to know that creditors can discuss debt settlement at the request of the debtor. However, such discussions can only be initiated by the debtor, so creditors would be wise to proceed with extreme caution.
The Regulations contain both restrictions and positive obligations with which creditors must comply. Therefore, creditors would be well advised to seek legal advice at an early stage in these circumstances.
Owners and tenants
In the specific landlord and tenant context, while some tenants may get help from the Settlement during tough times, landlords and their advisors will need to make sure they fully understand the impact of the Settlement in order to minimize the burden. risk of ineffective and potentially costly non-compliance.
In particular, landlords should note that the regulations limit the ability to serve a Section 8 notice during the moratorium period on grounds 8, 10 or 11 of Schedule 2 of the Housing Act 1988 to terminate a short-term rental insured in the event of rent arrears. However, it remains possible for an owner to serve a notice under section 21 to terminate an insured short-term rental, giving the relevant notice period, and to serve a notice under section 8 on the basis of on other grounds of possession. There is a new prescribed form Article 8 Notice of 4 May 2021 which contains references to the Regulation.
Homeowners should pay attention to the following points, among others:
- Any act contrary to the moratorium may be rendered null and void;
- Any legal proceedings resulting from an owner’s violation of the Rules may result in an unfavorable injunction for payment of legal costs; and
- Any creditor who fails to inform attorneys (including appointed attorneys regarding qualifying debt) of the default debt as they are required to do will be liable for all losses resulting from their non-compliance.
What will be the impact of the Regulation?
It remains to be seen whether there will be a significant adoption of these procedures in practice and what the impact will be on debtors and creditors. The impact of the Covid-19 pandemic could lead to a significant increase in the number of debtors seeking to take advantage of the protections offered by the Regulation. It is therefore important for creditors and, in particular landlords, to understand the effect of the Regulations on their ability to seek to collect debts from individuals of any type of property or possession of residential properties leased on insured leases and short term insured.