ESA and deprivation of capital

My client has a joint claim for ESA with her partner. She had a heart attack earlier on in the year and as she had Critical Illness Insurance she has received a lump sum payment of £19,000. As this is over £16,000 her ESA has been stopped along with her council tax reduction.

She had a loan with MBNA and in 2010 they got a CCJ and then successfully obtained a charging order against her property. My client has been paying £1/month towards MBNA and no further action has been taken since the charging order was obtained in 2010, other than the debt being sold on.

Can my client pay off this debt in full with the money she has received or will it be classed as deprivation of capital? I suspect that it is likely to be classed as deprivation of capital as the creditor is not demanding immediate payment, but I would like a second opinion.

I think you’re right as things stand.

But also as things stand, the creditor is unaware of the capital. What would happen if they were? Could they/would they demand immediate repayment? Debt and charging orders not my field (it’s years since I’ve done that kind of work*) but I suspect the creditor might struggle to demand immediate repayment whilst they have the agreement in place…..

.....that said, if the creditor were aware that the debtor (your client) now had the means to pay, could they not threaten to apply to sell her home if she did not discharge the debt? And if the your client did discharge the debt in such circumstances would she not have been under an immediate obligation to repay?

Think maybe specialist debt advice might be more appropriate here to see if there’s a way of making the debt immediately repayable…

(* - at the time I was doing debt work, most creditors where we’d negoitaited an arrangement wanted to review a client’s circumstances every 6 months and would expect to be made aware if they had suddenly come in to £19k)

The terms of the charging order could have a bearing on this.  Quite often (at least, if the debtor is properly advised) the Court will impose a term on the order to the effect that if the monthly payments specified in the order are made without fail & on time then the creditor cannot go for an order for sale.  If there is such a term in the client’s order the creditor, as things stand, cannot take any action.

However, it is still possible for the creditor to ask the Court for a review of the terms and I think they would undoubtedly do so if they knew of the lump sum.  If that happened, I suspect the debtor would find it extremely difficult to persuade the Court to leave the order unchanged because the circumstances are totally different from what they were in 2010.

I agree that if your client paid the debt now it could well be treated as deprivation.  Client definitely needs debt advice which I suspect should be to the effect that the creditor ought to be notified of the changed circumstances (even if the creditor has not asked for a review they could well do so at any time and - as past caring says - would not expect to be left in ignorance of such a major change).  If the creditor then took Court action payment of the debt would not really be deprivation, but I can envisage a jobsworth in DWP attempting an argument about when exactly in the process the debt became payable so careful advice may be needed on the timing.

Thank you Derek and past caring - that’s pretty much what we thought but just wanted to see if others had the same thoughts.