Redundancy lump sum and benefits

scooby75

A friend of mine is due to be made redundant soon with a lump sum payment of several thousand pound. He is using the money to pay off debts, one of which is to me oi lent him some money a while back to assist him grtting a new job), but he will only have a small amount left I reckon after paying these. He will be applying for benefits I presume, but will the money he will get be taken into consideration when calculating how much benefits he's entitled to even if he has little of it left?

paddedjohn

How much is the lump sum?
How much is he paying out?
If he pays his debts and claims benefits it could be seen as deprivation of capital.

scooby75

Thanks for responding.
Hes getting about 9000 and paying debts of around 7000
what is deprivation of capital?

paddedjohn

getting rid of his cash so he is entitled to benefits.

scooby75

I see, thankd. That's not the reason he's doing it. He was telling me yesterday that he wanted to use the money to clear his debts which I thought was quite sensible. So if he does claim, then yhe benefits agency will be ssking what he has done with the money? I dont want him to pay me back if it means him getting into trouble.

Caz3121

he will be fine to claim CBJSA irrespective of savings. The issue will come with means tested benefits such as housing benefit/council tax benefit. Anything over £6k affects benefits and £9k would reduce means tested benefit entitlement by £12 per week.
The decision maker will decide whether the spending is reasonable or not, eg making monthly payments on a credit card or loan are fine, paying them off when there is no urgent need to may not be.
When my husband was made redundant last year we discussed the use of the redundancy and he paid off all his debts as we knew with me working he was not entitled to means tested benefits anyway and it reduced the monthly outgoings

BigAunty

scooby75 wrote: »

...That's not the reason he's doing it. He was telling me yesterday that he wanted to use the money to clear his debts which I thought was quite sensible. So if he does claim, then yhe benefits agency will be ssking what he has done with the money? I dont want him to pay me back if it means him getting into trouble.

Do you have a written agreement about the repayment of the loan and evidence about it or was it a cash loan with verbal agreement?

For the debts they have, are these CCJs or sums on credit cards? are the loan repayments overdue?

Find the official DWP documentation on Deprivation of Capital (and Notional Capital which is where they treat the claimant as if they still have the cash, even though they've given it away).

There are decision maker guides (staff manuals) on the internet.

That way you'll understand what it covers. It's also supposed to cover just deliberate behaviour (intentional deprivation).

It is sensible to pay off debts but not really sensible for taxpayers to foot the bill for someone's living expenses when they had the means to fund themselves but chose to pay off consumer debts early when they didn't have to, for example.

I don't think there's a problem paying off debts that are legally due but there could be issues when a claimant has used a lump sum to pay down debts ahead of the repayment date, when they did not have to fulfill the terms. For example, paying off a loan in one go when it had monthly payments or putting a big lump sum into a mortgage.

scooby75

The agreement with me is verbal but I can show that I lent the money and he can show that he received it - we agreed that it should be paid when he can afford it which he can now. I think his main debts from what he said are a credit card and car finance.

poppasmurf_bewdley

scooby75 wrote: »

I see, thankd. That's not the reason he's doing it. He was telling me yesterday that he wanted to use the money to clear his debts which I thought was quite sensible. So if he does claim, then yhe benefits agency will be ssking what he has done with the money? I dont want him to pay me back if it means him getting into trouble.[/QUOTE]

If he wants to pay you back the money he owes you, it would be better if he could show that you ARE pressing him for the money (letters asking for the money, solicitors letter, etc), as the DWP do allow you to pay what is due.

BigAunty

scooby75 wrote: »

The agreement with me is verbal but I can show that I lent the money and he can show that he received it - we agreed that it should be paid when he can afford it which he can now. I think his main debts from what he said are a credit card and car finance.

He'd best seek further advice as deprivation of capital is a very complex topic.

I'm not particularly au fait with the rules but did get the impression that paying off a loan early when there is no legal requirement to do so can be viewed quite dimly, therefore if he's intending to pay off the balance of a car loan ahead of its full term, he should check whether this will affect any means tested benefits that he applies for.

That's about as much as I know about debts and deprivation of capital.

I don't know how the DWP, local council or HMRC view claimants that pay off a credit card debt in one go (as the sum is legally due) or if they expect them to continue to pay off the minimum balance (as that's what they've been doing) and use their money to pay for their rent and council tax.

Or how they will view a verbal loan agreement.

Perhaps someone else knows the position?

MrsManda

As BigAunty mentioned, you can read the decision makers guide on Deprivation of Capital which will give a more indepth explanation of what it means.
http://www.dwp.gov.uk/docs/dmgch29.pdf
(page 149)

This is in relation to JSA and Income Support. I'm unsure what the rules are regarding Housing Benefit/Council Tax Benefit as they're administered by the local council not the DWP.