Paying off credit cards and loans classed as Deprivation of Capital?

sunnyday123_2

I have just been accepted for voluntary severance/redundancy which means that I will received approx £23k tax free.

However, I owe around £10k in debt, from two credit cards (1 of which is about to come to the end of its interest free period) and one loan that I would like to pay off (1 year remaining). I can prove where this money went by way of bank statements.

I also would like to pay 6 months rent in advance to my landlord to ensure that I have a roof over my head.

I also owe my parents £3000 which would be paid into their bank account.

This will bring my capital down to around £10k minus the 6 months rent that I want to pay in advance.

Will this be classed as deprivation of capital and would I still be able to claim housing benefit and council tax benefit?

From what I understand I will be able to claim contribution based JSA despite my savings.

Thanks in anticipation for your help.

RazWaz

You can only pay off debts that have to be repaid, so you can't really do things like pay off a credit card because minimum repayments would be ok.

No idea how the paying rent upfront works with claiming housing benefit, I paid 3 months upfront when I first moved into a flat and claimed HB then, but not sure how it works mid tenancy.

You will be able to get Contribution based JSA if you have been employed for 2 years and your savings will not affect this but it will only last for 26 weeks.

bunny999

If you are voluntarily giving up work your JSA claim is likely to be sanctioned for up to 26 weeks. If you get rid of money in order to claim benefits you will be treated as if you still have the money.

sunnyday123_2

I have read that voluntary redundancy is now classed as redundancy whether voluntary or not. I am not just leaving my job. The threat of compulsory redundancy was why I took voluntary.

http://www.redundancyexpert.co.uk/how-your-redundancy-package-can-affect-your-benefits.html

Jowo_2

Get advice from the council or DWP as this is a complex area. Get it in writing to prevent future disputes.

Certainly, the paying of loans where there is no legal requirement to pay them back is discouraged. I can't see why you think you may be able to pay rent in advance to try and reduce your capital sum and then recoup it back via LHA! A decision maker may ignore the money you have spent on items that you did not need to (such as rent in advance if you contract stipulates monthly payment) and treat it as if it still exists (notional capital).

Here is a link to DWP guidance on the topic.

http://www.dwp.gov.uk/docs/hbgm-bw1-assessment-of-capital.pdf

Here's some helpful excerps but have a good read through - there will be other guidance manuals on the internet designed to help DWP staff that could also answer your queries


"The following are further examples of when a person

may have deprived themselves of capital

• a lump sum payment has been made to someone else, for example as a gift, or to repay a

debt, but see Reason for disposing of capital asset later in this chapter
• substantial expenditure has been incurred on a non-essential item, for example on an expensive holiday

...

To decide whether securing entitlement to benefit was a significant purpose, you must establish whether the claimant has exercised choice when disposing of the resource. If claimants do no more than satisfy their need for one of the necessities of life, they have not exercised a real
choice in the transaction.

W1.732 When capital has been used to repay a debt give careful consideration as to whether the debt needed to be repaid at that time. If there was no legal obligation to do so then it may be that part of the claimant’s purpose was to obtain or increase the amount of benefit."

GlasweJen

You can't pay back non-essential debt so unless you're at the stage with the loan and credit cards that you're being dragged to court you should just keep making your normal payments to these.

The £3000 loan from your parents, do you have a loan agreement with them and have you been paying towards it from before you were facing redundancy? If not then the council/dwp will want to know why it's suddenly so urgent that you're paying it off in a lump now that you're jobless.

You may be able to pay 6 months rent in advance but you will not be able to recoup this through local housing allowance as your capital will not be under £16,000 (notional capital if you repay your parents and the loan/credit card). Any credit you have with your landlord will also be seen as capital until it is used up so if you pay 6 months in advance now you will still be regarded as having 5 months worth of rent money lying around to be spent.

I've worked on a case similar to this before (citizens advice) so if you want any pointers feel free to ask. I prefer to answer on thread though as I worked on housing benefit and not the newer local housing allowance.

ETA the 5 months rent would be ignored for notional capital if there is a condition in your tenancy saying that you need to pay 6 months upfront in case of unemployment etc but this must be on the tenancy agreement from the outset - it is usually used by landlords who are wary at taking on "DSS" tenants. Your capital will still need to be below £16,000 though.

sunnyday123_2

Thanks for all your advice. Jowo - the reason behind paying my rent in advance is not to reduce my capital - this would be declared I would imagine as capital - I was just wondering if it would make any difference to my entitlement to HB. Please don't see me as trying to screw the system. I have worked all my life (16 years) and never claimed benefits. I am just trying to find out what I will be entitled to if any benefits at all. I am trying to decide whether or not to pay my debt and what would be best for me in the long run. If paying my debts means that I cannot get some benefits then I would better off continuing with the payments on a monthly basis until I get a job. I have no intention of being out of work for a prolonged period of time.

Thanks again for your help. Any other comments are most welcome.

Jowo_2

sunnyday123 wrote: »

Thanks for all your advice. Jowo - the reason behind paying my rent in advance is not to reduce my capital - this would be declared I would imagine as capital - I was just wondering if it would make any difference to my entitlement to HB. .

The LHA Direct website and the Shelter website will explain about how LHA works. Payment of it is usually made to the tenant in arrears and the personal/contractual arrangement that the tenant makes with the landlord to pay their rent is irrelevant.

The main thing that determines receipt of LHA as a means tested benefit is capital and income. The LHA direct website will give you an idea of what size of property you are eligible for (LHA wise), such as a shared accommodation rate for single people under 25 (will be increased to 35) for the area where you live.

You can find out the maximum LHA payable on the LHA website and then model the impact of your capital on it on the Turn2us website.

Hope that helps as the system is very complex and these calculators will help get your head around entitlements. Do get expert advice as the whole deprivation of Capital rules are also complex.

property.advert

Benefits payments do not cover interest payments on credit cards and thus it is illogical to say that someone should merely make minimum repayments. I can understand the government having a misguided approach though but the logic is there.

sunnyday123_2

It seems quite ludicrous that the government are saying that if you pay off your debts it is an attempt to deprive your capital to get benefits. Surely if someone is being made redundant then the truly sensible thing to do would be to pay off their debt, whether it is at the court stage or just at the stage where it needs to be paid because of all the interest its accruing. No one wants to be living on benefits with thousands of pounds worth of debt hanging over their head. I am not saying that I will be, but what happens if I am in several month's time? Because I didn't pay my debts when I could have done it could leave me in a whole lot of ....erm.... trouble.

seven-day-weekend

AFAIK you have to just repay the minimum repayments otherwise it will be classed as deprivation of capital. There is no legal requirement to pay more than this, therefore as far as the benefits system is concerned, you should not pay any extra/