How is PPI compensation dealt with in an IVA?
PPI compensation claims in Individual Voluntary Arrangements (IVAs).
There has been some inconsistency surrounding the treatment of PPI compensation in IVAs. Much of the confusion relates to whether the compensation is classed as an “asset” or a “windfall”.
An asset is something of value which can be used to help pay off your debts, such as a car that you own or equity in your home.
A windfall is something of value that you were not entitled to at the commencement of the IVA, such as a lottery win.
It is important to be clear about assets and windfalls because they are generally treated differently in IVAs.
Whilst the full value of an asset must be included in the IVA, a debtor can generally (not all IVA proposals are the same) keep a windfall if the total value does not exceed £500 (please note that this does not mean that the debtor can keep the first £500 of a windfall).
The charity took legal advice on PPI compensation awards in IVAs to clarify the matter.
These are the key points of the advice we received:
- PPI compensation is not a windfall. It is an asset, all of which must be included in the IVA (this is consistent with the Official Receiver in Bankruptcy’s view).
- Your Insolvency Practitioner has an obligation to maximise returns to creditors, which includes investigating any and all assets.
- This means that you should tell your Insolvency Practitioner if you think you have been mis-sold PPI.
What should I do if I believe I was mis-sold PPI?
If you are in an IVA and believe you were the victim of PPI mis-selling, you should speak to your Insolvency Practitioner.
Do it yourself
You have the right to investigate your own claim if you wish to do so. Doing it yourself means that all of your compensation will go into your IVA for the benefit of your creditors.
The only circumstances in which you will personally benefit from a claim is if the amount of compensation is sufficient to repay 100% of your original debt, in which case your IVA could be concluded sooner and you would be able to keep anything that is left over.
If you do decide to investigate your own claim (see How do I reclaim mis-sold PPI for free?), you must keep your Supervisor informed of your intention and progress.
Use a claims management company
The other option is to ask your Insolvency Practitioner whether they retain the services of a specialist firm that will investigate any claims on your behalf.
The advantages of this option are that the firm will do all the work for you and they are also usually better equipped to deal with technical and legal issues surrounding Right of Set Off (whereby a creditor may attempt to keep the compensation to set off against its debt rather than introduce it into the IVA for the benefit of all your creditors).
The disadvantages are that the claims company will take a percentage (typically 30% to 40% including VAT) of any compensation as fees (commission), which means that less money will go into your IVA for the benefit of your creditors.
Your Insolvency Practitioner should make sure that these fees or commissions are taken out of any compensation that you are awarded so that you are never left worse off.
Do not instruct your own claims management company to investigate mis-sold PPI on your behalf without speaking first to your Insolvency Practitioner.
If you do use your own claims management company and a creditor offsets your award against an existing debt rather than giving you a cash payment, you risk not being able to pay the claims management company’s fees. This would result in a new debt that is not included in your IVA.
Please also be aware that part of any award may include a statutory interest element, on which tax may be payable (whilst some creditors deduct this at source, others do not). If this is the case then you’ll need to make sure that your IP will allow you to cover any tax liability that results from a PPI compensation payment.