Unsecured loan treated as capital?

Hi, I hope someone is able to help.

A client has credit card debts amounting to approx £10,000 on a high interest rate.  They have been offered a personal loan of £10,000 on a much more preferential rate and so want to take out the loan and immediately pay back the credit cards.  They would still have the same level of debt and monthly repayments but there would actually be an end in sight as opposed to the never ending minimum payments they are currently making.

My worry is that the money from the loan would be treated as capital and payment to clear the credit cards would deemed to be deprivation of this capital.  Does anyone know how this loan would be treated?

Thanks,

Alley

Based on the info given, I would be reasonably confident of successfully arguing (at least if it went to Tribunal) that it is ludicrous to suggest, in these specific circumstances, that capital had been disposed of with there being a “significant operative purpose” to obtain / increase HB/CTB.

Although in a completely different context, Judge Mark took a view that relying on expensive credit was the height of irresponsibility - CH/2340/2008.  I think elements of this reasoning can be imported into arguing the action of replacing one expensive debt with a cheaper debt has nothing to do with obtaining benefit and everything to do with a wholly responsible approach to personal financial management.

also, transactions won’t increase her benefit at all, and she must be aware of this, so can’t be said to have made arrangements for that purpose.

Thank you all for your replies.  I am glad that it could be argued that using the loan to repay the credit cards would not be deprivation of capital.  My client is quite sure that they want to take the loan and do not want to enter an IVA/freeze interest etc as they are able to make the monthly repayments with no significant hardship and don’t really don’t want to adversely affect their credit rating.

I will advise the client that whilst the loan could be seen as capital and repayment of the credit cards as deprivation of this capital by an assessor, there is certainly a strong argument at appeal or tribunal to the contrary and they are not seeking to deprive themselves of capital in order to be eligible for benefits.

I really appreciate your help with this.

How threatening is the current lender being? If they’re using debt collectors, threatening court proceedings and bailiffs etc, it would help your client’s case that he did it to escape harassment from a creditor.