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Is paying off a credit card 'Intentional Deprivation of Capital'?

RSISolutionsRSISolutions Posts: 83Member Connected
Is paying off a credit card 'Intentional Deprivation of Capital'?
I am talking about someone who has money in the bank account and is claiming ESA income related. 

Replies

  • Blue FrogBlue Frog Posts: 373Member Pioneering
    edited November 2017
    I'm not sure, hopefully one of the benefits advisors will be along on Monday.

    I sold my car and used the cash to make an overpayment on my mortgage - while on Income Support.  I made a declaration and they were absolutely fine about it. 

  • GeoarkGeoark Posts: 1,188Community champion Pioneering
    @RSISolutions unless the claimant can show the credit company was demanding full payment then yes, as there would have been no need to pay the full amount and would be seen as trying to maximise the amount of benefit received.

    What I am not sure is if there are possible mitigating circumstances which could be taken into account. For example buying a large value essential item using your credit card gives extra protection if something goes wrong as the credit company is jointly liable, rather than paying by cash or debit card. 

    While the best advice is to pay off credit cards as soon as possible if you are on one of the main benefits (ESA and JSA for example) and have savings over £6,000 this can cause problems.

    Hopefully one of the benefit advisors will be able to clarify things for you on Monday.

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  • mikehughescqmikehughescq Posts: 3,506Member - under moderation Disability Gamechanger

    Several aspects to this. The absolute key is whether the "significant operative purpose" of the capital disposal was to gain or increase benefit. So, the first question would always be whether the claimant knows what the capital limits are and how they specifically impact their entitlement. DWP always point to the leaflets allegedly sent out with awards but this rarely washes at the tribunal stage.

    If it can be shown on balance that the claimant did not know of the capital limits or their impacts then the deprivation of capital regs. cannot be applied. Not that this ever stops DWP having a go.

    If the claimant did know the capital rules then we're back to significant operative purpose. Getting rid to get more benefit does not have to be the only or main reason for the disposal but, if it was clearly one of the reasons, then DWP would be entitled to look at deprivation.

    A credit card is always going to be a difficult one as there's little they can do to enforce the debt, which is why such companies always shout loudly and harass over the phone etc. If a debt adviser were involved then a credit card debt would usually be treated as non-priority. So, if there's no threat of court action etc. the question would always be why it had to be paid back at all.

    That isn't to say there can't be legitimate answers to that question. For example, for someone with sudden mental ill health the need to clear debt could be critical to some kind of recovery.

    However, in most cases this comes down to whether you know the capital limits and what the intent of the disposal was.


  • BenefitsTrainingCoBenefitsTrainingCo Posts: 2,679Member Pioneering

    Hello RSISolutions

    The capital rules for income related ESA are that savings of above £6,000 reduce benefit entitlement by £1 for every (or part) £250 above £6,000.  If savings are above £16,000, then a person is not entitled to income reacted ESA.

    If savings are below £6,000 then entitlement will not be effected and so the issue of deprivation is not relevant.  However, if savings are reduced now to avoid going over capital limits in the future, the DWP may consider this past expenditure as relevant to the question of the amount of capital and the issue of deprivation.

    Deprivation is case dependent.  That is, it will be relevant to ask or consider in each case, for example:

    - why the debt had to be paid off in one lump sum, if it had to be paid off in one lump sum,

    - the purposes which led the claimant to act as they did,

    - the claimants knowledge of benefit rules,

    -the claimants character or health

    It is also correct that the DWP must find that a person knew of the capital limits. The DWP may point to leaflets issued to the claimant, if a tariff income is already being applied, length of time on benefits as inference of knowledge to capital rules.

    As such, there is no right or wrong answer to your question.  Ultimately it will be up to a tribunal to decide if the claimant acted as they did to ensure they received or retained benefit. 

    Maria Solomon

    The Benefits Training Co:
    Paul Bradley
    Michael Chambers
    Will Hadwen
    Sarah Hayle
    Maria Solomon
    David Stickland
  • BrokenmanBrokenman Posts: 7Member Listener
    The person would not be gaining anything financially or materially within their own households financial situation by paying off a debt. The D.W.P could argue you got rid of money when you didn't need to except they would then become hypocrites for this following reason. The DWP lend people money therefore that becomes a debt of yours. The DWP expect their money back as do the credit company. EXACTLY THE SAME. Now that is a loan which is exactly the same as a credit card bill is A LOAN. So it appears to me that the DWP has set the PRECEDENT here and that there is nothing they can say then surely? 
    This is something that could set a precedent for any bills possibly, if they decide to say this that or the other bill needn't of been paid whenever.
  • mikehughescqmikehughescq Posts: 3,506Member - under moderation Disability Gamechanger

    Clearly they would be potentially gaining something as means-tested ESA is referenced. The type of debt is largely irrelevant. It still comes back to whether they knew the capital rules at the time of disposal and whether getting or keeping benefit was a significant operative purpose.

    However, to deal with the points you raise. There are in fact significant differences between a credit card debt and a debt to DWP. The first is that DWP have stronger means of enforcement. When you sign up for the loan you agree the means of repayment for the full amount. Amounts and time period. If you don't do that then you don't get the loan in the first place. No interest will ordinarily accrue.

    You don't sign anything like that with a credit card. You're encouraged to pay it off in full in theory. In practice they have minimum amounts to pay per month and, if paid, they will often not even pursue until the amounts get very high. Interest does accrue as do penalties for months in which there's no payment.

    If you came off benefit DWP would ask for the balance in full and would ultimately go for attachment of earnings or court action.

    Credit card debts almost never get to court. They are non-priority and the reason creditors shout so loudly is they know they have few tools at their disposal to recover unless they can someone get it changed to a secured debt.

    DWP have set no recent precedent on this at all. Recovery from benefit for loans from the Social Fund goes back to April 1988. Recovery of debts on behalf of third parties goes back even further.

    It would be very different if the creditor had pursued the matter to the extent of having a court order etc. but they have not so you're back to a claimant on benefit voluntarily paying back money and asking the questions about whether they knew the capital limits and whether getting or keeping benefit was a significant operative purpose.

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