Deductions from benefit for rent arrears, post DRO

A debt issue, but I’d like to know how the benefit rules might be applied. If rent arrears have been scheduled in a DRO, and so are unenforcible as money debts, might they still be allowed to be taken by direct deduction from ongoing benefit?

CAB advice says deductions may be made by a DM:
“in the interests of the client or her/his family if:-
•there is a threat of eviction [...]; and
•there is no other suitable method of dealing with the debt.”

I would argue that once listed in a DRO, then a “suitable method” of dealing with the debt is in place. The landlord is still able to attempt possession proceedings, and in the case of arrears below ground 8 level I suppose it’s arguable how realistic is the consequent “threat of eviction”. But, is this double requirement in the CAB guidance backed up by caselaw (or regulation)? The actual wording of the reg that I can see seems to be just if “in the opinion of the SoS it is in the overriding interests of the family that payments shall be made”
(para 5(1)(c)(ii) of Schedule 9 to the C+P reg 1987)

For background, the current legal position, which seems fairly settled, is that rent arrears scheduled in a DRO are no longer money debts - however, the arrears on the rent account can still be used as grounds for possession, the logic being that restoring the landlord’s property back to him is not a “remedy in respect of the debt”.

As DRO applicants may have between £0 and £50 per month surplus income, it might be that some can afford to opt for continuing to pay off arrears on their rent account post-DRO, in order to stave off possession proceedings. Some will not be able to afford this. Current advice seems to be that any unaffordable suspended possession orders are requested to be varied to nil payments, but I don’t know if any courts are agreeing to this.

I don’t know about the Regs. (hopefully someone else can comment) but it seems to me that if the CAB advice is correct & DMs follow that there is no reason why deductions cannot be made during the period of the DRO; similarly if what you quote is the full extent of the Reg.

The Insolvency Service has made it clear that there is no reason why someone in a DRO cannot use part of the £50 surplus to pay towards the rent arrears, & having it deducted at source is, to my mind, simply a means of guaranteeing that this happens.

Perhaps there could be a query if the DRO application shows a nil surplus, but I think it is for the Intermediary dealing with the application to sort that out when preparing the I & E part of it.

Having now looked at the DMG, it seems that the “no other suitable method of dealing with the debt” condition is generically given in the guidance for deductions for mortgage and utility arrears as well as rent, but without any reference to regulation or caselaw that I could see (Ch 46, 46271, 46196, etc).

Derek: as it happens, the scenario I’m thinking of involves no surplus income in the DRO. I don’t know if that would affect a DM’s decision or not. I should spell out, what I’m looking for here is some insight into how DMs are supposed to decide what is in the “family’s interest” when deciding on deductions. Do they go as far as evaluating the chances of a court granting possession (eg, if I outlined why grounds 10 and 11 are unlikely to lead to outright possession, when would I make that case and would it make any difference?). Would the DM really go as far as having regard to the surplus income figures as they are input on a DRO application?

A related question is: does a social landlord requesting deductions - or putting pressure on their tenant to request deductions - amount to seeking a remedy in respect of the debt. But I’m not looking for that to be answered in this forum.

Derek, is there any reason you say deductions might be made “during the period of the DRO” specifically? I can’t see why anything changes at the end of the DRO when debts are discharged. In fact, all enforcement should be frozen during the 12-month moratorium, even for debts which will be enforceable after the period of the DRO eg fraud debts.

1.  The law on this is, in my view, a mess & was made worse by the 2011 Court decision.

2.  The impression I have is that the DRO Unit (bankrupcties are different) has done its best to get round the problem.  They had to stipulate that payments towards rent arrears could not be scheduled in the DRO as essential expenditure, but they have said they can be paid out of the surplus (or a third party can pay them).  (Hence the issue about such payments being a remedy in respect of the debt becomes irrelevant.)  This is mentioned briefly in the DRO Newsletter Sept. 2011, & there is a long article in Adviser 148.

3.  I’m afraid I’ve no idea what evidence a DM would want, but I think it extremely unlikely they would look at a DRO application’s I & E - they probably wouldn’t know it existed unless their attention was drawn to it.  Perhaps the best approach is just to put the facts to DWP & see what decison they come to.  Is there even any reason for them to be informed of the existence of the DRO because I assume the difficulty in paying the arrears would exist just the same if the DRO had not been made?

4.  I said there could be a problem if the DRO showed no surplus because in that case once the deductions at source started there would be less income than expenditure, which implies either that other essential expenditure will be foregone or that the I & E is incorrect in the first place.  In practice this is unlikely to come to the attention of the DRO Unit but that can’t be 100% ruled out, & if the deductions totalled more than £50 per month they could then lead to a problem.

5.  In practice, rent arrears are treated differently from other qualifying debts in that the DRO Unit accepts that payments (of less than £50 per month, but I don’t think this is spelt out) towards them can be made during the DRO - & implicitly after the moratorium ends.  This, I surmise, is because they realise it is the only way (given the Court decision) to prevent the landlord’s property being restored to him - i.e. eviction.

Thanks for your thoughts on this Derek, it’s helpful. The specific case I have involves no surplus income, going for a DRO, rent arrears below ground 8 level, and a social landlord who would prefer to have payments by direct deduction (not in place at the moment, maybe due to past problems with the benefit claim), and who won’t definitively rule out possession. In our experience, most social landlords in this situation would write the debt off once in a DRO or bankruptcy. It would be much easier to agree to what the landlord wants, and your comments make me think that’s the most likely outcome, but it doesn’t sit right somehow. Some further comments, as I think this through:

They had to stipulate that payments towards rent arrears could not be scheduled in the DRO as essential expenditure, but they have said they can be paid out of the surplus (or a third party can pay them).  (Hence the issue about such payments being a remedy in respect of the debt becomes irrelevant.)

The scenario perhaps envisaged by the DRO Unit is a landlord accepting payments that are voluntarily offered in lieu of pursuing possession. A landlord applying to the DWP for direct deductions from benefit might be viewed differently? After all, a court could not order such payments to be made, after the DRO. But as I said, I’ll take this question up elsewhere.

Is there even any reason for them to be informed of the existence of the DRO because I assume the difficulty in paying the arrears would exist just the same if the DRO had not been made?

In some cases the difficulty might be much reduced because other debts have been removed from the picture by the DRO, and rent may be the only arrears which have to be budgeted for. But really what I’m more concerned about is the need for the arrears to be paid at all, at least by this method, in a case where there is not enough surplus income to do so.

In practice, rent arrears are treated differently from other qualifying debts in that the DRO Unit accepts that payments (of less than £50 per month, but I don’t think this is spelt out) towards them can be made during the DRO - & implicitly after the moratorium ends.  This, I surmise, is because they realise it is the only way (given the Court decision) to prevent the landlord’s property being restored to him - i.e. eviction.

Other ways to prevent eviction (apart from defending the court action) include offering a lower payment than direct deductions allow for, eg one that is affordable from the surplus income; or maybe to argue that a social landlord’s debt/hardship policies mean that possession action should not be started in the first place as a means to bring about payment of an unenforcible debt.

Which I suppose brings me back to my question: how does a DM decide when is it in the “interests of the family” to allow direct deductions? I can see that it will be hard to argue it is anything other than in their interests, even when the debt as such no longer exists.

All the time, this comes back to the Court decision that a landlord issuing a NOSP & going to Court to claim possession is not pursuing a remedy in respect of the debt.  It follows that, whatever one feels about the rights & wrongs of it, if the only way to prevent eviction is to pay the arrears that is what has to be done.

Some years ago I took up a similar issue with our main social landlord in relation to bankruptcy.  Their policy was that, regardless of bankruptcy law, they would not write off rent arrears included in the bankruptcy although they did not always enforce payment of them.  We were unable to get this changed & it is still their policy so far as I know, & would also apply to DROs.  I suspect social landlords have different approaches to this - if you have some who just write the debt off then you may be fortunate!

Have you asked SSU for their advice on your concern that the DRO unit may query a deduction at source initiated by the landlord?  I’m not sure they would ever find out - we have never had any audit of DROs by them, & the head of our local ORs office said at a meeting that DRO Unit are not doing audits!  However, I realise it could just occur that they found out so best to be cautious.

Incidentally, I’m sure you realise the debt doesn’t cease to exist when the DRO is approved - it still exists until the moratorium period ends & is written off then.

Well it could work the other way - what if the client themselves protested to the DRO Unit that the landlord was seeking a remedy in respect of the debt? Then if it turned out direct deductions weren’t allowed, might the landlord take a £5pcm manual payment, instead of the ca £15pcm they would get from deductions? I do think that’s too risky a strategy to advise on though, if the landlord is being vague on what action they might be prepared to take.

But also: if it turns out that deductions aren’t allowable for whatever reason, I’d quite like to know and get a suitable alternative payment method in place, if that is going to be required.

(Re audits, I have heard of one criteria that has been retrospectively checked in some DRO cases, in response to certain omissions that some intermediaries were apparently making. But I expect the DRO Unit will not want to be too public about what they do and don’t do.)