If you have been insolvent – bankrupt, had an IVA or a Debt Relief Order (DRO) – then you need to know how this affects a Payment Protection Insurance (PPI) mis-selling claim.
Sometimes you are never going to get any compensation, so there isn’t any point in bothering making the claim. Worse still, if you claim PPI before your DRO has ended it could be cancelled. And if you use a PPI 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 PPI which 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 you can try to reclaim any mis-sold PPI on the later borrowing.
PPI and bankruptcy
When you go bankrupt, all your assets belong to the Official Receiver, except for things such as clothes, normal domestic items etc. The money you could get for PPI compensation is 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 claiming for mis-sold PPI, ever.
PPI and 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 reclaim PPI 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 PPI payout, 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 PPI compensation. I have never heard of anyone having had a problem who has done this.
BUT if the PPI was on a debt which was included in the DRO the creditor may choose to offset the PPI payment 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 the Official Receiver at the Insolvency Service thinks there should.
PPI and IVAs
The right to make an IVA claim is an asset which became part of the IVA at the start. It doesn’t make any difference if the debt you want to reclaim PPI on was repaid before your IVA started – the right to reclaim PPI 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 refund claim during or after an IVA has completed as any refund will not be paid to you.
PPI 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 PPI claims company their percentage of the compensation as their fee – so your situation would be worse as you would then have a new debt!
Making a claim yourself is not as hard as you might think – anyone who can read this article will be able to do it! MoneySavingExpert has a great PPI mis-selling Guide that will help you every step of the way, including a check-list for reasons why PPI may have been mis-sold. There is also a forum where you can ask questions anonymously about what to do next, whether you should accept an offer etc.
“I haven’t yet started an IVA/bankruptcy/DRO”
If you have an impossible amount of debt to repay and are considering one of the insolvency options, then think about delaying the decision until you have tried to reclaim any PPI. The PPI compensation may not seem like enough to clear all your debts, but it may be possible to use it to clear a lot with full and final settlement offers.