If you’ve been mis-sold Payment Protection Insurance (PPI) with a loan or other form of credit in the past, then you’re entitled to claim it back. However, if you’re currently subject to a form of personal insolvency, things become a little more complicated.
This article from debt advice experts Bankruptcy Clinic gives an overview of the rules around PPI claims if you’ve declared bankruptcy, or have entered into an Individual Voluntary Arrangement (IVA), Trust Deed or Debt Relief Order (DRO). Note that the information provided only relates to PPI policies that were sold to you before you became insolvent.
PPI claims and bankruptcy
When you’ve been made bankrupt, all your assets pass into the control of the Official Receiver (OR) or Trustee who administers your estate during your bankruptcy period. This includes the proceeds of any PPI claims relating to policies sold to you before the date your Bankruptcy Order was made.
So, if you make a successful PPI claim whilst you’re bankrupt, the money will belong to the OR, not to you. The same applies after you’ve been discharged from your bankruptcy, so in most cases, it won’t be worth making a claim. In any case, you should consult the OR before going ahead. And whatever you do, don’t use a PPI claims company as you’ll still have to pay their fees even if the full amount of any compensation you’re awarded goes to the OR.
PPI claims and IVAs (England & Wales) and Trust Deeds (Scotland)
If you’re in an IVA or Trust Deed and find out you can reclaim mis-sold PPI, you’ll generally be required to proceed with the claim and pay the proceeds to your creditors. The same applies to any windfall you might receive during the IVA or Trust Deed, such as a redundancy or inheritance payment.
If you know about the claim before your IVA or Trust Deed is set up, you must tell the IVA firm or Trustee that’s handling the process for you. They’ll list the claim as an asset and try to recover your compensation during the IVA or Trust Deed’s term. You’ll be legally obliged to help with this by providing the necessary information and completing paperwork.
Making PPI claims after your IVA or Trust Deed has completed may be possible, but if the policies relate to debts included within the IVA or Trust Deed, there are likely to be complications. The lenders in question may argue that you’re not entitled to any compensation as your IVA or Trust Deed didn’t cover the full amount of your debts. Or they may want to pay the money to your IVA firm or Trustee, for distribution to your creditors. Even if you do receive a pay-out, your IVA firm or Trustee may try to claim it back from you.
So unless you have a strong case for arguing that you’re entitled to at least a percentage of the compensation, it’s probably not worth making a claim.
PPI claims and DROs
Like bankruptcy, a DRO is overseen by the Official Receiver (OR) but, in this case, they don’t take control of your assets. Nevertheless, you’re legally obliged to keep the OR informed about any changes in your financial circumstances during the DRO’s moratorium period, which usually lasts 12 months. This includes receiving any windfalls such as PPI claims.
If you make a successful claim during the moratorium period, your DRO may be cancelled as the OR may consider that you now have enough money to start repaying your debts. For this reason, it’s best to delay your claim until the DRO has come to an end and the debts listed within it have been written off.
However, if your claim relates to policies linked to debts that were included within the DRO, it’s possible that the lenders will try to withhold your compensation or not pay you the full amount. You can complain to the Financial Ombudsman if this happens and whilst there’s no guarantee of success, there’s nothing to lose by trying to make a valid claim.
Need more information?
The situation with PPI claims and personal insolvency can vary depending on your own personal circumstances, so it’s best to seek expert advice. Bankruptcy Clinic are here to answer your questions and, if you’ve yet to start managing your debts, we’ll help you find the right solution – whether that’s a form of insolvency or a different option.