How is PPI compensation dealt with in Bankruptcy?
How is PPI compensation treated by the Official Receiver?
The Insolvency Service (the body that regulates bankruptcy in England and Wales) has taken the view that any claim relating to a mis-sold policy that was taken out before the person was declared bankrupt is an asset (ie something of value) and is owned by the Official Receiver, not the claimant.
Even if a person has been discharged from bankruptcy, this does not mean that any assets (such as PPI compensation claims) will automatically be transferred back to the individual.
What should I do if I believe I was mis-sold PPI?
If you are bankrupt and believe you were the victim of PPI mis-selling, you must speak to the Official Receiver or Trustee in Bankruptcy.
This is particularly important if you are considering using a claims management company as any award that is made against a creditor that exercises its Right to Offset1 can result in no cash payment being made from which the claims company’s fees can be paid.
See here for more information.
1 Lenders may attempt to use some or all of the compensation you are awarded to reduce an existing debt, rather than giving you the money. If, for example, you are awarded £1,000 compensation from a lender that mis-sold you PPI (not including statutory interest) and you owed that lender £5,000, it could simply reduce the amount that you owe to £4,000 rather than giving you the £1,000 in cash.
Whilst you’re benefitting from £1,000 in both cases, offsetting the compensation rather than giving you the money could potentially cause you a problem if you’d used a claims management company, particularly if you’re in an IVA, DRO or if you’re an undischarged bankrupt. The company would still expect to be paid for their recovery work even though you may not have received any money directly. This new ‘debt’ would not be included in your IVA, DRO or bankruptcy.