It is not unusual for clients in formal debt solutions to find they are still subject to debt recovery action by the Department of Works and Pensions (DWP) for benefit overpayments, when they believed such action should have stopped.
So can the DWP still recover overpaid benefits whilst a claimant is in a formal debt solution?
The answer depends on whether the debt owed is included in the solution or not.
How do you know?
In terms of personal insolvency in Scotland, there are two types of formal solutions: the first is a protected trust deed and the second is sequestration (which includes bankruptcies accessed through the Minimum Asset Procedure).
In terms of both these solutions all debts are included up to specific dates. For sequestration, that date is known as the “date of sequestration”. So any benefits overpaid up to that date are included.
In terms of Protected Trust Deeds, the relevant date is the date when the trust deed was granted.
Date of Sequestration
What date constitutes the date of sequestration depends on the route that was taken to make the debtor bankrupt.
If a creditor makes the debtor bankrupt, then the date of sequestration is the date the petition to sequestrate the debtor was warranted by the court. This is also known as the first order date ; and is always before the date when the court awards the bankruptcy.
Where the debtor has applied for their own bankruptcy, the date of sequestration is the date the bankruptcy is awarded.
Can the DWP recover debts that are included?
In essence, the DWP don’t, although arguably they could during the bankruptcy or protected trust deed if they were to use direct deductions from benefits or a Deduction from Earnings order.
The Department of Works and Pensions recover benefits according to guidance (see here).
This guidance states in relation to personal insolvency, at paragraph 6.3:
Once the insolvency period has commenced, any deductions from benefit
should cease, and any deductions made after the start date of the insolvency should
be refunded to the debtor. This includes any monies recovered for a fraud debt
And at paragraph 6.7 in relation to sequestration, it states:
Where the recoverable overpayment period is entirely before the start date of the bankruptcy order, or where the overpayment period spans the bankruptcy order, recovery should be suspended until after the end date of the order. This is regardless of when the overpayment decision is made, for example a decision could be made after the order date. On discharge the outstanding balance is written off unless it is a fraud overpayment, when normal recovery action should commence.
What, is important, therefore, is the date the overpayment occurred, not the date that it was decided there had been an overpayment.
Protected Trust Deeds
In terms of Protected Trust Deeds, the law is similar, although the important date is not the date of sequestration, but the date the trust deed was granted.
It is also important to note the guidance only applies to trust deeds that are protected and not unprotected trust deeds. Recovery action, therefore, does not cease until the trust deed actually becomes protected.
It also important to note, that the overpayment is only written off when the debtor is discharged. If the debtor is refused a discharge by his Trustee, recovery action can be commenced again.
In terms of whether the debt is included or not, all debts are included providing they arose in a period prior to the trust deed being granted.
The relevant paragraph in the guidance is at 6.9, where it is stated:
The recoverable overpayment(s) must be included in the Protected Trust Deed and any debts not included will not be discharged at the end of the period. Recovery is suspended until discharge at which point any debt included in the Protected Trust Deed is written off unless it has been classed as fraud when normal recovery action can commence, or recommence. Unprotected Trust Deeds are not considered a form of insolvency and recovery will continue as normal.
The Debt Arrangement Scheme
The Debt Arrangement Scheme is different from protected trust deeds and sequestration, in that it is not a form of personal insolvency, albeit it is a formal debt solution.
Debts remain owed until they are paid off in full, although all interest, fees and charges are stopped from the date an application is made to the scheme, providing it is subsequently approved.
In terms of benefit overpayments, this is also covered by the DWP guidance at paragraph 6.15, where it states:
DAS is NOT insolvency, but is a government-run, voluntary debt solution administered by the AiB [Accountant in Bankruptcy], but not involving the courts. It allows the debtor to freeze any interest, fees and charges on their debts whilst repaying their debts in full over a longer period by way of a Debt Payment Programme. The debtor makes agreed regular payments to an approved payments distributor who then makes payment to DWP Debt Management if included in the DAS. If our debt is included in the DAS we would suspend recovery until the period ends, but where it is not included we would continue with deductions throughout the DAS period.
All debts are normally included in debt payment programmes, but unlike with trust deeds and sequestration, where they are included by operation of law, in the Debt Arrangement Scheme the claimant must notify their adviser they have the debt and the adviser must include it.
If the debt payment programme is subsequently revoked, the debt again becomes recoverable .
Please I need your enlightenment on this issue, because this is the second time it is happening to me and I feel it is not right. Though I stand to be corrected.
I have a Direct Earning Attachment from DWP. The only way I found out about it was seeing it on my pay slip. Up to this moment, I have no clue what the debt is about. I never got any communication whatsoever from DWP to this effect.
I called my employer to find out. He didn’t know what it is for either, but he said he has to make the deduction or else he will be fined a thousand pounds.
The money that I was told I owe is less than £200.
I could have easily made an arrangement to make this payment within a short time without them going to my employer.
The truth is I didn’t know about this debt until I got my payslip.
My question is this, is it the right thing for DWP to do the attachment without me even knowing about the debt?
My employer did not even contact me before deducting the percentage.
I found this embarrassing, as I could have easily made this payment directly to DWP without any issue if I was informed about it.
As you will be aware, Direct Earning Attachments are normally for overpaid benefits by the Department of Works and Pensions. However, Local Authorities can also do them for overpaid Housing Benefit.
The way it should work is you should have been notified by the DWP that they think there had been an overpayment of benefits.
They then make a decision to that effect.
If you disagree you can appeal the decision. If you don’t appeal it or you are not successful, the decision stands and they can recover the debt.
In Scotland they have 20 years to do this, so it can be an old debt.
They don’t need to notify you they are going to do a DEA before they do it and your employer is correct, he has no option but to execute it.
What I would suggest is you contact Debt Management at the DWP. They should be able to give you more information about the debt.
You can get there contact details here.
I am being perused by a private landlord for rent arrears of nearly £3k.
I am not working and get benefits, they have a sheriff court decree to recover the money.
Can they take it from my benefits as I cant pay the amount owed?
Not for private landlord rent arrears, even if they have a Court Order.
However, they can charge 8% interest and pursue you for it for up to 20 years (although unlikely).
May be worth speaking to your local Citizen Advice Bureau, as you may have other options, even if you cannot pay just now.