DRO effect on advance loan

This is being asked by my colleagues in the debt advice team,
a client has an advance loan of UC , not an initial advance on a new claim, debt team are getting a DRO which will write of the UC loan,
will the client be able to apply for a new advance loan within the next year form UC or will the one that has been written off bar her from a new loan ?????
we have asked most of the usual suspects but no one knows the answer

It’s not black and white:

Recovery condition
14.  The recovery condition is satisfied where—

(a)no amount in respect of any budgeting advance previously paid to B or, if B is a member of a couple, B or their partner, remains to be recovered by the Secretary of State; and
(b)taking into account all debts and other liabilities of B or, if B is a member of a couple, of B and their partner, the Secretary of State is satisfied that the budgeting advance can reasonably be expected to be recovered.

https://www.legislation.gov.uk/uksi/2013/383/regulation/14

I’d ask the debt advisers whether the DRO would just affect recovery by the courts; like overpayments, these might not fall within the DROs ambit as they can be recovered through benefit. DWP say they’ll write of an overpayment if a DRO, IVA or bankruptcy commences, but I’m not sure there’s any law to say they must

debt team say DRO will write off UC debt , they seem to have doen this often so not an uissue, its jut whetehr a new laon can be appplied for durignthe term of teh DRP period I think

Dan Manville - 12 June 2024 02:35 PM

I’d ask the debt advisers whether the DRO would just affect recovery by the courts; like overpayments, these might not fall within the DROs ambit as they can be recovered through benefit. DWP say they’ll write of an overpayment if a DRO, IVA or bankruptcy commences, but I’m not sure there’s any law to say they must

Not sure where DWP’s discretion comes into it, as I understand it the current position is that UC advances are qualifying debts for a DRO? I think at one time DWP disagreed, but they were wrong to do so. Not sure on the current position with benefit overpayments that accrued prior to the DRO but not yet any decision to recover had been issued. If there’s been an overpayment decision though, that should qualify.

“Write off” in this context I think just means DWP “agree they won’t recover”, whether that’s because they’ve made a discretionary decision, or because they’re compelled by the Insolvency Act. The account isn’t expunged, note that the BORG says that even where a debt is “written off” post-insolvency (para 6.7), then DWP may still accept payment towards the debt if the debtor “insists” on paying (6.5).

The DRO stipulates that the creditor can have “no remedy” in respect of the debt. Years ago when I did debt advice I did ask JCP liaison if the “no remedy” DRO consequence satisfied the ‘payment on account’ condition that “no amount remains to be recovered by the SoS”. I don’t think they fully understood the question, but the answer seemed to be “probably yes”.

I’d suggest that if the SoS is withholding all possible future loans contingent on an otherwise unenforceable debt being paid first, then that is - at least arguably - the SoS exercising a remedy in respect of that debt. This isn’t just like credit-scoring, where the penalty (bad credit score = perhaps no future credit is extended) isn’t lifted solely because a debt is eventually paid. Anyway, that’s probably all a matter for the DRO Intermediary to take up, rather than a benefits issue.

Surely the debt still exists during the moratorium year - it’s just that the creditor can’t enforce it? So I can’t see any reason why the DWP would treat the debt as already written off until the end of the DRO - and it follows that it would count towards the limit on advances.

Hm sorry, I overlooked that the question was specifically just about the moratorium period. The creditor has no remedy during that period, but the debt isn’t actually discharged until the end of it. Not sure why the debt advisors would be saying the debt is “written off” right at the start, though in practice some commercial creditors at least might be doing that.

As said above, the regs say a further loan can be made when no previous amount “remains to be recovered”. That probably equates to the end of the moratorium period, but it’s perhaps not absolutely clear.