Overview of the debt respite scheme
At the heart of the Debt Respite Scheme is the concept of a “qualifying debt.” Regulation 5 sets an inclusive starting point: a debt qualifies unless it falls into specific non-eligible categories under Regulation 5(4), which include:
Principal capital of secured lending (as distinct from arrears)
Certain business debts incurred by VAT-registered sole traders or partnerships
Fines, confiscation orders, and court-ordered financial undertakings
Liabilities from fraud or fraudulent breach of trust
Death or personal injury damages
If a debt qualifies, it is treated as a moratorium debt during the breathing space, yet debts that arise after the moratorium starts are not included.
This timing cannot go overlooked; it is important for creditors when reviewing their position.
Something to note...
During a moratorium, creditors cannot charge interest, fees, or other costs on the moratorium debt; they also cannot take enforcement action themselves or through agents.
In fact, courts have confirmed that any action which puts pressure on the debtor may be treated as enforcement, even if it is not listed in the Regulations.
"What's the mental health moratorium?"
The Scheme also includes a mental health moratorium, and this starts with a letter from a recognised professional, not a formal application.
In short, it essentially gives extra support to debtors whose mental health affects their ability to deal with debt.
For creditors, the main effect is the same in terms of enforcement thus action is paused during this period.
Proceedings during a moratorium: Regulation 10
The Regulations treat ongoing and new proceedings differently, as new actions usually cannot be started, but most existing cases can continue to judgment.
Bankruptcy and enforcement proceedings must be paused, even if a case continues; some steps may still count as enforcement if they put pressure on the debtor.
Forbes v Interbay Funding Ltd: How its applied to secured creditors
Forbes v Interbay is the first Court of Appeal case to look into how the Scheme applies to secured loans.
Due to this, the main question was whether the principal sum of a secured loan, once demanded in full, is covered as a moratorium debt.
The Court decided in favour of the creditor, and the principal capital of a secured loan is not a moratorium debt, even if the loan has been called in before the moratorium starts.
The Court made a clear distinction between:
Principal sum (capital): Remains non-eligible under Regulation 5(4) and is not protected by the moratorium.
Arrears (unpaid instalments): May be moratorium debts and benefit from protection.
The moratorium stops enforcement of arrears, but the total debt is still owed.
Creditors cannot demand the full principal straight away, but they keep the right to recover it when payments start again.
In short, this essentially means debtors cannot use the Scheme to avoid repaying the principal, but they do get temporary protection for arrears.
Where limits lie in the Debt Respite Scheme
The Debt Respite Scheme is now a regular part of debt cases. As more people use breathing space protections, creditors should expect to see it raised more often.
It is important to know what the Regulations cover and where their limits lie.
Forbes gives clear guidance on how the Scheme works for secured debt. It confirms that moratorium protection has limits. Creditors can be confident in their rights, but should still take a careful and informed approach.
As more cases are decided, it is clear that the Debt Respite Scheme is important, but it does not remove creditors’ rights.
Understanding the boundaries, and how cases like Forbes set them, is essential as the Scheme becomes more common.
What creditors need to know...
Expect the Scheme to be used more often. Creditors should treat breathing space protections as a regular risk, not a rare one.
Not all debts are protected. Only qualifying debts become moratorium debts. Secured principal sums are not covered.
Forbes gives clarity, calling in a loan does not turn the principal into arrears; the moratorium only protects unpaid instalments.
Mixed debts need careful handling. If part of a debt is protected and part is not, proceedings and enforcement should be planned with care.
Proceedings may continue, but enforcement is restricted. Bankruptcy and enforcement actions must be paused. Procedural steps should be checked to see if they count as enforcement.
Courts look at the real effect of any action, not just its label. Even routine steps can be treated as enforcement if they put pressure on the debtor during a moratorium.
Early advice is important. Knowing how the Regulations work, and how cases like Forbes set their limits, helps creditors respond effectively when a moratorium is used.
The Debt Respite Scheme is a complex and changing area, especially for secured debt and ongoing cases.
Understanding the limits of moratorium protection, as shown in cases like Forbes v Interbay Funding Ltd, is essential for creditors and their advisers who want to manage risk well.
If you need advice on how the Scheme could affect your cases or debt recovery plans, our litigation team at Orwins can help. We regularly advise on these issues and can offer practical, tailored support.
If you want to read the full text of the Debt Respite Scheme, the Regulations are available on the UK legislation website.
Reading the Regulations can help creditors and advisers understand the scope and limits of the moratorium protections.
