David Smith has published an article on LinkedIn about the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 has raised concerns, particularly regarding property-related debt and secured lending. The scheme allows individuals to pause enforcement action and halt interest accumulation for 60 days in standard cases, or for an unlimited period in cases involving serious mental health issues.

It can be seen here, and in summary:

Key Issues and Recent Developments

1. Mental Health Moratorium Concerns

   • Unlike the standard 60-day breathing space, mental health moratoria have no fixed end date, creating uncertainty for creditors.
   • There is concern over how debt advisers handle these cases, with some evidence suggesting they may readily accept medical letters without rigorous scrutiny.
   • Some individuals cycle in and out of mental health breathing spaces, preventing enforcement while their financial situation remains unresolved.

2. Court Challenges and High Court Rulings

   • Challenging Debt Inclusion: Creditors have a 20-day window to object to a debt’s inclusion in a moratorium and 50 days to challenge it in court. A lower court had ruled that missing these deadlines made a debt permanently qualify for protection. The High Court overturned this, ruling that a debt that does not legally qualify cannot become protected simply due to procedural deadlines.
   • Secured Debt Exemptions: The regulations exclude secured debts unless they are arrears. The High Court clarified that:
     • The original loan amount (capital) remains recoverable even during a moratorium.
     • Interest and fees fall within the moratorium unless they were already capitalised into the debt before it began.
   • This distinction ensures that secured lenders can still recover their principal loan but prevents aggressive enforcement of extra charges.

Implications and Future Outlook

• Current Position: Lenders can enforce repayment of the principal loan once a fixed-term mortgage ends, but arrears and fees may still be blocked.
• Appeal in May: The Court of Appeal will review these rulings, particularly in Interbay v Forbes, potentially reshaping how the Breathing Space Regulations apply to secured debt.
• Potential Reforms: Given the High Court’s acknowledgment of poor drafting in the regulations, further clarifications or amendments may follow.

These developments provide greater clarity for creditors and borrowers, but uncertainty remains until the Court of Appeal’s decision later this year.