We have been advised that one of our tenants has an overpayment which is to be recovered from ongoing benefit. He was made bankrupt last October and part of the overpayment is for a period prior to that date. Can they recover that part of the overpayment? Also does it seem reasonable to recover at £26.15 per week?

The position on this is complex. My understanding (which others may correct) is:-

1. Any debt which pre-dates the bankruptcy is included in the bankruptcy. For benefits, this means a debt which has been settled and confirmed in writing to the debtor before the bankruptcy date and not appealed, or - if appealed - the appeal process has ended and the decision made that the debt is due.

2. Under bankruptcy law any such debt is wiped out on discharge from bankruptcy. I believe (this may be questionable) that deductions for it can be made from ongoing benefits during the bankruptcy, but should stop on discharge. However, I have read that DWP are, in some cases, refusing to stop deductions on discharge and that the Insolvency Service has not challenged this.

3. Any debt to which 1 above does not apply (i.e. a debt confirmed after bankruptcy) is not included in it and has to be paid in the normal way. You say part of the overpayment was for a period prior to bankruptcy, but if the determination for the whole amount was not made until after bankruptcy, then none of the debt is included.

4. I thought the amount of deduction from ongoing benefit was limited. From memory I recollect about £8.70 per week, or a slightly higher sum if fraud was involved. £26.15 seems questionable.

Bankruptcy and benefit overpayments are a bit weird at the moment. You need to read the judgments of the High Court and Court of Appeal in a case called Steele.

There is a link to some of this here:

http://www.rightsnet.org.uk/dc/dcboard.php?az=show_mesg&forum=108&topic_id=983&mesg_id=983&listing_type=search

The important things to note are:

1. As far as facts go:

The debt must have existed (in the sense the client was invoiced for it) prior to being declared bankrupt.

The client must now have been discharged from bankruptcy.

2. As far as law goes (and as far as I can remember):

Although the Court of Appeal allowed the appeal for the LA and Sec of State they explicitly did not consider the following points:

a) Whether the first instance judge would have been correct in his decision that a social security debt does not survive discharge from bankruptcy had the claimant been invoiced prior to being declared bankrupt.

b) Whether the debt could in any event be recovered under the statutory scheme for deductions.

I did some written stuff on this a while ago and cannot now find- if you post a fax number may be able to send that to you.

The Insolvency Service's website (www.insolvency.gov.uk) has some information on it about what debts are not included in the bankruptcy and certainly assumes that benefit overpayments are among them, though the guide admittedly only refers to the DWP not local authorities. The same information is on the CAB intranet "advisernet".

Thanks for the help. My fax no is 01260 281959

Recovery from ongoing entitlement has two rates currently £8.70m for normal overpayments and £11.20 for Fraud.

If there is any earned income disregards though the Local Authority can add on 50% of the disregarded income to the recovery rate. This is recommended as good practice by the Dwp in their overpayments guide, but if this is causing financial hardship then the claimant can request that this amount be reduced.

I am under the impression that where there is ongoing entitlement then even if the claimant is bankrupt all of the debt can still be recovered.

If however there is no entitlement, but the overpayment is a sundry debtor,then any of the debt that pre-dates the bankruptcy is not recoverable.

In this case the difference between 8.70 and 26.15 is 17.45. That looks like half the value of a £20 earnings disregard plus the £14.90 "16 hours" additional disregard. Does that sound possible?

Agree that this is the maximium they could take and should consider reducing it if it is causing hardship.

We have a JR case awaiting hearing in the High Court where we are arguing that discharge from bankruptcy means that an overpayment is wiped out. The overpayment decision was prior to the bankruptcy.

As Martin says the High Court in Steele held that discharge ended liability to repay the overpayment. The CofA overturned the judgement, but on the grounds that the overpayment decision in that case occurred after the bankruptcy. CofA explicitly did not consider whether overpayments could be bankruptcy debts, and so discharged, where the decision was before the bankruptcy.

The DWP's position is naturally that discharge from bankruptcy has no impact on an overpayment.

Whilst a claimant is bankrupt it is clear that recovery from benefits can continue - House of Lords in the case of Mulvey v Secreatry of State <1997> UKHL 10, available on BAILII.

1. I think the Advisernet info on this is too brief and doesn't really cover the complexity of the issue.

2. Insolvency Service Technical Manual does not include DWP benefits as ones non-provable in bankruptcy - see http://www.insolvency.gov.uk/freedomofinformation/technical/techmanvol1/Ch37-48/chapter40/part1/part1.htm

3. But it does specifically cover tax credit overpayments, & confirms that (if the debt has crystallised before the bankruptcy) it is written off on discharge. HMRC manual confirms this. See

http://www.insolvency.gov.uk/freedomofinformation/technical/techmanvol1/Ch73-84/Chapter77/part7/Part7.htm

and http://www.hmrc.gov.uk/manuals/ntcmanual/payment_opayments/ntc0780054.htm (paras. 15 & 17).

4. I can't find on the Insolvency Service site the ref. Ariadne mentions to DWP benefits. Could you please give a detailed link.

5. If DWP are continuing recovery after discharge (where the debt has been formally determined under S.71 SSAA 1992 before the bankruptcy) then it rather looks as if HMRC are being more reasonable than DWP. Wonders never cease! (or is it that they have a more accurate appreciation of the law?)

6. Keith - I think it would be very helpful if you could post the outcome of your JR in due course.

Overpayments that are recovered via ongoing entitlement are not covered by bankruptcy as the reduction is seen as 'reduced entitlement'

A O'Sullivan:

1. That is not what the high court held in Steele (and that bit of its decision was not explicitly over ruled by the Court of Appeal).

2. Whilst is might be that LBI sees recovery from benefit as "reduced entitlement" at one level, it certainly does not seem possible to see it in this way from a legal point of view- for example Reg 102 of HB Regs (on recovery) refers to a power to:

"recover a recoverable overpayment from any person referred to in regulation 101.... by deduction from any housing benefit to which that person is entitled"

Martin

I have seen reference to a DWP view that any benefit does not belong to the claimant until it is actually paid, and that therefore they can make deductions from it if they so decide.

If that is their view, it would be useful to know the regulatory basis for it.

My view was always that once benefit has been awarded then it belonged to the claimant. That is why there was an option to sue them for payment in the county court if they refused to pay up, unless there had been a valid revision or supersession removing entitlement.

Th right to make deductions (and I'm talking in general and not about this particular case) should be a separate matter as this right is laid down in statute.

Also see Reg 20 C&P regs- benefit SHALL be paid in accordance with an award etc.

Just a small point: the C&P Regs do not apply to HB/CTB. However, I haven't had time to check the HB regs for similarity, or otherwise of wording.

Regards

Reg 91 of HB 2006 regs- uses the mandatory SHALL as well.