Breathing Space – a sustainable solution, or delaying the inevitable?

Breathing Space aims to give people time to find appropriate professional debt advice, without the worry of spiralling debt and creditor enforcement. However, ongoing liabilities must still be paid during this period. The Regulations protect from their creditors to individuals with problem debt via a Breathing Space moratorium.

There are two types:

• A standard moratorium lasts for up to 60 days to enable appropriate debt advice to be sought, while most interest, fees, and penalties are frozen.
• A "mental health crisis" moratorium is available for those receiving mental health treatment. The moratorium lasts for the duration of the treatment, plus 30 days.

Individuals will remain liable for the debts during and after the moratorium period. The moratorium is not a payment holiday, and creditors can continue to accept payments during this time. A review will take place midway through the moratorium period to ensure that the individual is complying with their obligations. If found not to be, the Breathing Space application will be cancelled.

This process is becoming increasingly popular. In the first year of introduction, 63,862 Breathing Space registrations were made. This increased to 70,772 registrations in 2022 and is expected to reach 90,000 in 2023. 

The North East has the highest rate of registrations. In contrast, London has the lowest, which reflects the rate of individuals entering formal insolvency procedures in the same regions in the 5 years to 2021.

Breathing Space registrations were highest among those aged 35–44, followed by 25-34 year-olds, and lowest for those aged 65 and over.

How has this process gone

Unfortunately, there are no official figures yet on the failure rate of such moratoriums, or post-registration outcomes, and with such a limited period to manage an individual’s indebtedness, it would be interesting to understand how many participants managed to exit the scheme with a robust arrangement with their creditors in place, and how many managed to avoid a formal insolvency procedure following their moratorium.

Of course, some individuals may have received appropriate advice to enter such a formal procedure, but it would be interesting to understand how this process is working when compared to the era before the introduction of the scheme. Those best placed to comment would be Step Change and the CAB, but there appears to be little official commentary on this.

During the 60 days, unless the individual seeks advice, then no advice is automatically forthcoming. As the scheme stops creditors from contacting the individual, support options made available by those creditors are not being discussed, nor are the debtor’s circumstances being explained to the creditor.

Whilst a proactive individual may be able to use this time to seek advice, pursue a settlement, or raise funds, some individuals appear to be simply delaying the inevitable via the scheme.

It is too early to say whether the Breathing Space scheme can be considered a sustainable success. This will be judged on the percentage of individuals who can deal with their financial affairs during the 60 days and avoid further measures.

Ed Thomas, Director - National Bankruptcy Centre, stated: “It is important for people to seek advice as early as possible. Being aware of the options available is the first step to finding an appropriate solution. The world of insolvency procedures may appear daunting but with proper guidance, it is possible to find solutions that suit the individual’s circumstances. Breathing Space brings a welcome shield if things appear to be overwhelming. However, unless proper, regulated advice is sought early in the 60 days, matters can quickly become difficult once more.”

You can view the full report here.