Hi there

I have a client who was declared bankrupt in Feb 2005. However Manchester Benenfits Unit have continued to deduct £8.55 a week from my tenant's entitlement for a large overpayment. They have been informed and were included in the bankruptcy order, but when contacted state that it is "within their rules" to be able to continue with the deductions. How is this possible?! I have no idea whether this is true or not and if we can argue against it?

AS I understand it, the current position, as at April 2005, has been established by R (Steele) v Birmingham City Council and Secretary of State for Work and Pensions - where it was ruled that where a local authority or the DWP is recovering certain overpayments by deductions from ongoing entitlement, it loses the right to do so when the claimant is discharged from bankruptcy.

The judge in the case identified four categories of overpayment:

1. Benefit which was awarded and paid to the claimant prior to the date of the bankruptcy order and in respect of which a decision that it was recoverable was issued prior to that date.

2. Benefit which was awarded and paid to the claimant prior to the date of the bankruptcy order and in respect of which a decision that it was recoverable was issued after that date.

3. Benefit which was awarded prior to the date of the bankruptcy order but which were paid, and in respect of which a decision that it was recoverable was issued after that date.

4. Benefit which was awarded and paid after the date of the bankruptcy order, and in respect of which a decision that it was recoverable was issued after that date.


The case concerned overpayments in categories 2 and 3. The effect of the judge’s ruling is:

a) Overpayments in category 1 cannot be recovered by deduction from ongoing entitlement (or, by implication, by other means) once a claimant is discharged from bankruptcy.

b) Overpayments in category 2 cannot be recovered by deduction from ongoing entitlement (or, by implication, by other means) once a claimant is discharged from bankruptcy.

c) Overpayments in category 3 can be recovered by deduction from ongoing entitlement.

d) Overpayments in category 3 can be recovered - by any method. Discharge from bankruptcy does not affect these overpayments.


It remains the case that recovery can continue between the date of the bankruptcy order and the date of discharge. However, discharge effectively wipes out any outstanding overpayment.


However, the defendants (the local authority and the DWP) were given leave to appeal to the Court of Appeal.

thank you so much - very helpful indeed!