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HB/ IS overpayment and bankruptcy
I’m wondering if anyone can help with a query as I’m wary about advising on debt issues (mainly because I’m not a debt adviser):
I have a client who was prosecuted for fraudulently claiming HB/IS (about £28,000) a few years ago and served a prison sentence back last year. I have an ongoing DLA appeal due to be heard this week - if we lose she’ll have a £9000 overpayment (dating from 2008-2010). I saw her this week and she says that she went bankrupt last week and that she is just waiting for the confirmation paperwork. Forgive my very basic understanding of bankruptcy…
I can’t find a reg that tells me what happens to overpayments in bankruptcy but my understanding is…that recovery of the HB/IS overpayment cannot be taken whilst she is in bankruptcy but once she is discharged recovery of overpayment can recommence because it is was an overpayment caused by fraud. Is that correct?
With the DLA overpayment, although the decision was made before bankruptcy the appeals process is not complete - does that mean it cannot be included in the bankruptcy order? Or if it can and no fraud case is taken, this overpayment will be written off on discharge?
I’d appreciate your thoughts and any links (I’ve looked at HB/CTB u1/2012 and Payne and Cooper).
Cheers
As far as I understand it, by and large, there is no route out for any debt due to fraud, recovery will and can be sought.
As far as the DLA where overpayments are made before the bankruptcy order, but a decision is made to recover them after the bankruptcy order, then the debt remains after bankruptcy discharge.
In the case where the overpayment is made and recovery sought before the bankruptcy order then debt is included in the bankruptcy. The exception to this is overpayment due to fraud, in which case recovery can by enforced despite bankruptcy, whenever the overpayments were made.
With the appeal still outstanding, unless you win, it doesn’t change anything. Sorry!
As far as the DLA where overpayments are made before the bankruptcy order, but a decision is made to recover them after the bankruptcy order, then the debt remains after bankruptcy discharge.
The CAB info sources agree that the date of the decision on recoverability is the deciding factor. However, the OR website does not, they say all that matters is when the overpayment accrued. See http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch37-48/chapter40/part6/part6.htm
In the case of R. (on the application of Steele) v Birmingham City Council [Note 12] which was subject to an appeal by the Secretary of State [Note 13] it was concluded that certain overpayments, are not contingent liabilities for the purposes of the Insolvency Act and Mr Steele was under no obligation or liability to repay the overpaid benefit until the Secretary of State had made his/her determination to recover the overpayment.
This decision has however been overruled by the Supreme Court and such debts are now considered to be provable debts (see paragraph 40.102).
The Department for Work and Pensions (DWP) have no rights to recover monies in respect of a provable debt. Bankrupts who have repaid, or are repaying, a debt which would now be provable as a result of the over-ruling of the Steele case may have a claim against the DWP for the recovery of those monies. This is a matter between the bankrupt and the DWP. The official receiver has no claim on any monies repaid to the debtor.
In any case, I don’t see how a subsequent tribunal appeal would prevent an overpayment going in a bankruptcy, the effective date of decision remains the same.
I have heard no change to the general position that the recovery of overpayments incurred through fraud should cease, until the bankruptcy is discharged.
edit: the OR’s position in their technical manual is now taken up by DWP guidance, i.e. an overpayment which occured before the date of bankruptcy is provable, regardless of when the DM’s decision (and by implication, a tribunal decision ..) is made. See http://www.rightsnet.org.uk/pdfs/G10_2013.doc