Breathing space and disputed debts

I have a client who is disputing their electricity debt as they believe it is for the café downstairs.

They don't want me to include this in their breathing space moratorium.

Should I include the disputed debt?

References to legislation below are to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium)(England and Wales) Regulations 2020.

What is a disputed debt?

A client might dispute a debt because they don't believe they owe it.

For example, they might have a:

• debt they believe they paid off in full

• loan taken out in their name without their knowledge

• parking penalty charge when they no longer own the vehicle

Which debts qualify for a breathing space?

An application for a standard breathing space moratorium must include details of the debts the client is subject to at the date of the application.

Under regulation 5(1), a qualifying debt is any debt or liability other than non-eligible debt.

'Debt' is not defined in the regulations. The High Court held that a debt is a liquidated sum that is due and owing. Read our case summary of Axnoller Events Ltd v Brake and another.

Should disputed debts be included?

It is not clear whether a disputed debt must be included in a moratorium but including the debt gives your client protection from enforcement action, and freezes interest and fees.

All non-eligible debts are listed in regulation 5(4) of the legislation and para 4.11 of the Debt Respite Scheme (Breathing Space) guidance for money advisers. Disputed debts are not listed.

Paragraph 7.9 of the guidance states:

This suggests a dispute about a debt could be resolved before you include it in a moratorium. It is a judgment call for the debt advice provider.

If you and your client disagree on a disputed debt

Your client might say they don't owe the debt and don't want you to include it.

Check your organisational policy to see whether it views disputed debts as qualifying debts. You could consider the guidance and ask the creditor to provide proof of the debt before including the debt in the moratorium.

Under regulation 24(4)(b), consider the best interests of your client and whether a moratorium is appropriate. For example, where a client is adamant that a debt should not be included you should consider whether a moratorium could be an effective way of stopping other imminent enforcement action.

Does including the debt mean your client admits liability?

The regulations or guidance don't suggest that including a disputed debt amounts to admitting liability. If there's doubt a moratorium might not be appropriate until liability has been resolved.

Benefits of including a disputed debt

Including the debt gives your client protection from enforcement during the moratorium, during which time their appeal or dispute might be successful.

Under regulation 7(6) the creditor is not allowed to add interest, fees or charges to a debt included in a moratorium. Where a disputed debt is not included, interest and charges continue to apply.

When a disputed debt is not included

The regulations and guidance don't contain specific sanctions for leaving a qualifying debt out of a moratorium. You should check your organisational policy for the implications of omitting a disputed debt.

You must be prepared to justify why a disputed debt has been omitted.

Further resources

Read more about breathing space and mental health crisis moratoriums on Shelter Legal.