Breathing space has limits: Court allows creditor to continue debt recovery

The Debt Respite Scheme, often called “Breathing Space”, gives people in debt temporary protection while they seek advice and consider how to manage what they owe. For creditors, this can mean recovery and enforcement action must pause for a time.

The scheme is intended to give debtors a moratorium – a temporary suspension to allow them time to get advice and work towards a solution, while protecting them from further interest, charges and enforcement action. In practice, however, some moratoriums have ended without the debtor taking meaningful steps to address the debt or speak to creditors.

In this guest article, William Watkins, a Partner in the Commercial Litigation team at Harding Evans looks at a recent court decision that makes clear that these protections should be used to create a realistic repayment plan and resolve debts, not simply to delay enforcement.

Background

In Woodrow & Anor v Smith & Anor [2026] EWCC 43, the court cancelled a mental health crisis moratorium obtained under the scheme. It found that the moratorium unfairly harmed the creditor and that the debtor did not meet the qualifying conditions when the application was made. The court also identified a pattern of repeated moratoriums being used to stop enforcement of a substantial debt, rather than to develop a realistic repayment plan.

The debtor owed £128,741.79, and a final order required payment of £120,560.51 in legal costs. Earlier attempts to challenge the statutory demand and change the judgment had failed, leading to further costs. Bankruptcy proceedings followed, but repeated breathing space and mental health crisis moratoriums interrupted the creditor’s attempts to recover the money.

What did the court have to decide?

The court had to decide whether it should:

1. Cancel Mrs Smith’s sixth mental health crisis moratorium;
2. Allow the creditor to continue the bankruptcy proceedings; and
3. Stop the debtors from applying for another mental health crisis moratorium without the court’s permission

Under Regulation 17, a creditor can ask for a moratorium to be reviewed and challenged for either of two reasons: it unfairly harms the creditor’s interests, or there was a serious problem with the application—for example, because the debtor did not qualify for the protection.

The creditor relied on both grounds.

It argued that the debtor repeatedly entered a new moratorium shortly before enforcement action or bankruptcy hearings. Several of those moratoriums were later cancelled, often because the debtor did not cooperate.

The creditor also said the debtor had already had plenty of time to obtain advice, but had made no meaningful attempt to repay or resolve the debt. Meanwhile, the creditor remained unable to take enforcement action.

The creditor further argued that the debtor did not qualify for the mental health crisis moratorium when the sixth application was made.

This type of moratorium is available only when a debtor is receiving qualifying mental health crisis treatment, such as certain hospital treatment or detention under the Mental Health Act 1983. The court noted that the fifth moratorium had already been cancelled because there was no evidence that the debtor was still receiving treatment that met the rules.

The court’s decision

The court cancelled the sixth moratorium because it unfairly harmed the creditor. The debt had been outstanding for a long time, no payments had been made, and the timing of the repeated applications suggested that they were being used to block enforcement rather than deal with the debt.

The court also found a serious problem with the application because it was not satisfied that the debtor was receiving qualifying mental health crisis treatment at the time.

It therefore cancelled the moratorium, allowed the bankruptcy proceedings to continue and ordered that the debtors could not apply for another mental health crisis moratorium without the court’s permission.

What this means for creditors

The decision confirms that the scheme cannot be used to delay enforcement indefinitely. A debtor seeking protection should use the time to obtain advice, engage with creditors and work towards a genuine solution. Where repeated applications appear to be aimed only at blocking lawful recovery action, creditors can ask the court to step in.