Moratoriums and creditor forbearance

What are the different types of debt moratoriums?

1. Moratorium (Scotland): A legal arrangement in Scotland that protects you from creditor action for six months. You can apply for a moratorium when considering certain debt solutions. Find out more about moratoriums in Scotland
2. Creditor forbearance: You can ask your creditors to stop contacting you while you deal with your debts. It is an informal arrangement, so your creditors can choose if they agree to it or not. Find out more about creditor forbearance
3. Breathing Space: Also known as the Debt Respite Scheme. People living in England or Wales can apply for Breathing Space under certain conditions. It can give you up to 60 days to deal with your debt. Find out more about Breathing Space
4. Moratorium (DRO): A 12-month period that starts after your debt relief order (DRO) is approved. A DRO is only available to people living in England and Wales. You don’t make payments to your debts during this time. After the moratorium ends, your debts are written off. Find out more about the DRO moratorium period

What is a moratorium in Scotland?

In Scotland, the law allows people to apply for the legal protection of a moratorium. You can apply when you are considering certain debt solutions such as:

• Sequestration (also known as full administration bankruptcy)
• Minimal asset process bankruptcy (MAP)
• A debt payment programme (DPP) through the Debt Arrangement Scheme (DAS)
• A trust deed

The moratorium period usually lasts six months. In this time your creditors must give you space to deal with your debt. They cannot contact you to ask for payments or start or continue court action against you.

You can request a moratorium if:

• You live in Scotland
• You are applying for one of the debt solutions listed above
• You are expecting court action while you are applying for one of the debt solutions listed above

Find out how to apply for a moratorium.

What is creditor forbearance?

Some creditors will provide forbearance if you ask for it. This means they will stop phone calls, emails and letters asking for payments for an agreed amount of time.

Creditors tend to be more open to forbearance if you let them know you are struggling with money and plan to get debt advice from a trusted debt advice provider, like StepChange.

Even if a creditor agrees to forbearance, keep in mind that this is an informal arrangement between the two of you. There are no legal protections in place if the creditor decides to end the arrangement. It is best to get any agreement to forbearance in writing.

Why do creditors provide forbearance?

Most creditors will provide forbearance when you let them know:

• You have had debt advice, or
• You are planning to get debt advice

This is because when you get debt advice, it benefits both you and them. Through debt advice, you get support to help you pay back your debt at a rate you can afford, and your creditor gets back the money they loaned you.

Most major UK lenders and debt collection companies are covered by industry codes of practice that require them to offer forbearance. These include:

• Credit Services Association code of practice
• Finance & Leasing Association lending code
• Lending Standard Board lending code (PDF)

Any members of these organisations should give forbearance if you tell them you are getting debt advice.

Other codes of practice may include similar rules to offer forbearance.

How do I ask for time to deal with my debts?

1. Contact all the people you owe and let them know you have had debt advice

You can do this by letter, email, over the phone, or in person.

2. Show them proof you are trying to sort out your debts

If you are getting debt advice from StepChange:

• Tell them the date you spoke to us
• Share your StepChange reference number
• Give them a copy of your budget

If you are dealing with your debts on your own, explain:

• What you have done
• What you plan to do next

3. You can make a complaint if they do not offer forbearance and you feel this is unfair

Common questions we are asked about moratoriums and creditor forbearance

Do all creditors offer forbearance?

No. Most large companies are covered by codes of practice, but smaller lenders may not be.

Forbearance requirements mainly apply to consumer credit debt, such as:

• Bank accounts
• Credit and store cards
• Personal loans
• Catalogues
• Car finance

Forbearance is not an option with other types of debt, like priority debts such as:

• Fines
• Court judgments or decrees
• Rent arrears
• Council tax arrears
• Child maintenance (CSA) arrears

How long does forbearance last?

Forbearance lasts for 30 days but can be made longer if the people you owe think you need more time to deal with your debts.

The 30-day period is meant to give you time to work out:

• How to deal with your debts
• How much you can pay to your debts each month
• Whether a debt solution, like a debt management plan, would help you

They might give you an extra 30 days if you let them know you need more time.

Find out more about your rights when dealing with debt problems.

Is forbearance the same as a payment holiday?

No. A payment holiday is when your creditor agrees to let you miss payments for a short time, usually one to six months.

Payment holidays are usually granted to help you manage short-term problems. Such as unexpected large costs, like replacing a broken boiler.

Forbearance is given in the short-term with the expectation you are getting help to deal with debt in the long-term.

Does a moratorium or forbearance affect my credit file?

Moratorium:

A moratorium is not recorded on credit file. But, the people you owe may still report missed payments, which will affect your credit file.

A moratorium is recorded on the public Register of Insolvencies (RoI). If you are worried that this could be a risk to your safety, you can ask for your address to be withheld. This means it will not show on the register.

Forbearance:

Any payment you miss during forbearance is recorded on your credit file. This could make it harder to get credit in the future.

But remember, you can always rebuild your credit file and credit score with time after you have dealt with your debt.

Can I ask for forbearance if I am struggling with my mental health?

You can, but you will have to complete a debt and mental health evidence form (DMHEF). You must ask a mental health practitioner or general practitioner (GP) to help you, as StepChange is not approved to do this. They must sign the form for it to be recognised when it is submitted to creditors.

A debt and mental health evidence form is mostly used to tell the people you owe that you are experiencing mental health issues. It can help with arranging agreements with forbearance.

Or, you may also be able to apply for mental health crisis beathing space (MHCBS). To apply, you will need help from an approved mental health practitioner and must be in mental health crisis care for it to be approved. You do not have to complete a debt and mental health evidence form for this.