My client declared herself bankrupt in 2003 and the interest in her home was assigned to the Official Receiver. She continued to work and pay her existing mortgage, and then when her bankruptcy was discharged negotiated a further mortgage for £25,000 so she could buy back the interest in the property from the O.R. She did this and all went well for several months until she became long term sick in Oct 2006 and has been on IB with an IS top up ever since. The DWP is paying the mortgage interest on her original mortgage, but the DM has declined to pay mortgage interest on the £25,000 further mortgage saying "no award (for mortgage interest payments) was made in respect of the £25,000 paid to Price Waterhouse Coopers (the Insolvency Practitioners assigned by the O.R.) to discharge her debt to creditors as we would not view this as eligible housing costs albeit it may have been paid to redeem the house from the offical receiver."

I've had good look round in the regs but can't find anything to help me. I think this should be challengeable. Any ideas will be very welcome please.

The closest I can find is R(is)6/94 which deals with a mortgage raised to purchase a partners share of the property that had vested in the bankruptcy trutee. Link to the commissioners site:http://www.osscsc.gov.uk/aspx/view.aspx?id=529.

However I can see that your client's situation may be different. I'm afraid I really don't have a definitive answer at the moment. On one hand, when the interest was purchased she was simply buying an interest in her home. On the other hand, that interest had only vested in the trustee in order to pay the creditors, so if she was eligable to housing costs on the loan it's a pretty neat loophole!

I'll try and give this some more thought..

The DMG is also suitably non comittal although it does state that a loan used aquiring an interest from the trustee in bankruptcy is a qualifying loan and does not seem to make any exception if the bankrupty debts were the claimants own and not a partners. The example it gives however is for a loan aquired by the partner of a bankrupt. I think you have good case to argue at appeal in anycase.

From the DMG:

23578 Acquiring an interest in the dwelling occupied as the home may include

....

3. the purchase of either the whole or part of the interest in the dwelling occupied as the home from a trustee in bankruptcy(R(IS) 4/95)

...

Example 1
Anne-Marie has claimed JSA. She is a declared bankrupt. She asks if the interest on a loan raised by her partner to acquire an interest in the dwelling occupied as their home from a trustee in bankruptcy can be treated as an eligible housing cost. The interest in the dwelling acquired from the trustee was previously owned by Anne-
Marie. The interest is allowed as an eligible housing cost.
Note: A declared bankrupt’s possessions become the property of the trustee in bankruptcy. The trustee is a person chosen by the bankrupt’s creditors to obtain as much of the money owed to the creditors as possible.

Sorry, ignore the ref to r(is)4/95...got a bit mixed up in editing the DMG quote, the actual ref is to r(is)6/94 as I already referred to above

Thank you for this which may be very helpful. Please let me know if you have any other pearls of wisdom on this.

I have lodged a late appeal, which may not be allowed because it is well out of time, but I have a couple of arguments which may get it allowed. I'll let you know how it works out. Thanks once again.

By a curious coincidence I have just had an enquiry about an almost identical case but for Pension Credit rather than IS. In my case the the claim hasn't yet been made as the prospective claimant wants to know whether he will get any interest paid before he enters into any mortgage agreement (he's not on PC yet). I was interested to read the Commissioners view in R(IS)6/94 that the bankrupts share of any property is transferred to the Trustee as this would seem to fit in with Sch2 Para 11(a)SPC regs that say that any loan taken out to "aquire an interest in the dwelling...." and as the SPC rules are so similar to the IS rules I agree that it seems worth a challenge (and I would be very interested to hear the result). Has anyone any idea if the rules might be different if the claimant is a discharged bankrupt, bankruptcy isn't an area I know enough about to be confident I am advising correctly.