If you have been insolvent – bankrupt, had an IVA or a Debt Relief Order (DRO) – then you need to know how this affects a claim for a refund for a financial product.
This applies to PPI mis-selling claims – where the deadline for starting a new claim has passed, but there are a lot of claims in progress – and affordability complaints such as those about payday loans and guarantor loans.
Sometimes you are never going to get any compensation, so there isn’t any point in bothering making the claim. Worse still, if you fet a large refund before your DRO has ended it could be cancelled. And if you use a claims company you can end up owing the claims company money even though you never received the refund.
This approach in this article is also likely to apply to other types of compensation for financial products such as unaffordable lending or mis-selling of packaged bank accounts.
In this post I’m only looking at refunds of money you paid before you went insolvent.
If you became bankrupt or started an IVA a long while ago and afterwards took out a loan, your old insolvency doesn’t matter and any refunds will come to you.
Refunds & bankruptcy
When you go bankrupt, all your assets belong to the Official Receiver, except for things such as clothes, normal domestic items etc. Refunds are classified as an asset, even if you haven’t yet started a claim. As a result, if you do make a claim, all the money will go to the Official Receiver not to you.
This also applies after you are discharged and after any Income Payment Agreement is ended. It also applies if the debt was repaid before you went bankrupt so it wasn’t included in your bankruptcy. So if you have been bankrupt, don’t bother making any claims about any loans that were taken out before your bankruptcy.
Refunds & Debt Relief Orders
In a Debt Relief Order your assets do not become the property of the Official Receiver. You can therefore theoretically try to make claims for refunds at any point.
While you are in your DRO
It is important however that you do not make a claim whilst you are in the 12 month ‘moratorium period’ as if it is successful your DRO may be revoked. This may not happen with a small refund, but it’s not worth the risk – just don’t make a claim until your DRO has ended.
If you are in the 12 month moratorium period and a bank contacts you and says you can have compensation, you can’t refuse this. Read I have been sent PPI and my DRO is being ended for what is likely to happen and what your options are.
After your DRO has ended
After your DRO has completed, most advisers think it is safe to apply for a refund. I have never heard of anyone having had a problem who has done this.
BUT if the refund relates to a debt which was included in the DRO the creditor may choose to offset the refund against the debt – even though you think your debt has been written off at the end of the DRO.
I know some debt advises don’t think there should be a “set off” in this situation, but you won’t win a case if you complain to the Financial Ombudsman about this.
Refunds & IVAs
The right to make an claim for a refund is an asset which became part of the IVA at the start. It doesn’t make any difference if the debt you want a refund for was repaid before your IVA started – the right to make the claim is still an asset which you owned when you started your IVA.
The majority of IVA firms try to reclaim any mis-sold PPI compensation before completion and you are usually obliged by the terms of your IVA to help with this process, for example by completing the necessary forms. If you don’t understand why your IVA firm is entitled to do this, ask them to explain, showing you which clauses in your IVA are relevant. They are probably right, but you have a right to know why.
After your IVA completes, the Court of Appeal decision in Green v Wright, published in March 2017, determined that a PPI reclaim after an IVA completion certificate issued should be paid to the IVA firm to go to the creditors, not to the debtor. See PPI Claims after your IVA ends for more details.
As a general rule of thumb, it is probably pointless to make a PPI or any other refund claim during or after an IVA has completed as any refund will not be paid to you.
Claims companies – don’t use them!
It is really important that if you have been insolvent when you make a mis-selling claim, you do it yourself and don’t employ a claims firm to help. If the end result of your claim is that compensation is paid to the Official Receiver or to your IVA firm, or it is ‘set-off’ against an old account, you will not receive a cheque. But you will still owe the claims company their percentage of the compensation as their fee – so your situation would be worse as you would then have a new debt!