A totally hypothetical question

chattychappy

Yep, a s11 Fraud Act 2006 offence. "Obtaining services by a dishonest act knowing that the services are made available on the basis that a payment would be made for them but intending not to make that payment at the time of obtaining them." Dishonesty would be the determined according to the "ghosh" test - ie by the standards of a reasonable person it was dishonest and the defendant must have known this.

That's the criminal law. Most of the bankruptcy stuff (eg reversing transactions at undervalue) etc, is civil law. Ie it's about restoring assets rather than prosecution. Different limits apply in different situations. Eg s423 Insolvency Act 1986 (attempting to put assets beyond the reach of creditors) there is no real time limit and people have been caught many years after the transfer (20 years I believe in once case).

Eonel

_Andy_ wrote: »

Absolutely not true. How would it be 'fraud' exactly?

The difficulty would be for the credit card to prove that the creation of unsecured debt was done with the deliberate intention to default - fraud.

However the credit card transactions would show a suspicious audit trail of a rapidly inflating balance through a series of cash withdrawals, transfers or other cash equivalent transactions.

Cornucopia

So the question of whether it is fraud or not comes down to the level of stealth with which the debt is accumulated? Doesn't sound right to me.

Presumably, the Fraud Act definition would apply only to fees & interest and not to the capital itself?

chattychappy

Cornucopia wrote: »

So the question of whether it is fraud or not comes down to the level of stealth with which the debt is accumulated? Doesn't sound right to me.

Yep - fraud is fraud. If you're stealthy enough you won't be discovered, or the CPS might decide there is insufficient evidence, or a jury might not be sure enough to bring in a guilty verdict. But it is still an offence if the "elements" of the offence are present.

Cornucopia wrote: »

Presumably, the Fraud Act definition would apply only to fees & interest and not to the capital itself?

Interesting point. I think it would apply to the whole lot (the Act refers to "payment for or in respect of them [services]"). It might be that it's also scooped up by s2 "fraud by false representation". I recall under the previous legislation it was held in a particular case that in taking a loan there was an implied intention on the part of the borrower to pay it back - so it would be a false representation if you intended not to (without saying so). I'm not sure, but I'd be amazed if you "got off" by arguing that it was only the capital you didn't intend to pay back!

Eonel

The question of stealth does not drive whether it is fraud or not. The question of intent is what would create a fraud.

The question of stealth would drive if you get caught or not.

Fraud would apply to the whole balance not just fees & interest. You created unsecured debt with the intention of not paying any of it back, not just the fees & interest.

eggbox

Well, as its "hypothetical" and a bit of fun, I'll add my view. Whilst it would be fraud (as you would be deliberately setting out to not pay) that fraud would have to be detected and then proven. Which I would suggest would have gone totally under the radar pre-recession but may now fall under a bit more scrutiny in these financially harsher times.

From a detection point, though, it wouldn't be so obvious as to your intention if the payments came from several different sources. Especially as the recession has already seen thousands of people having to pay their mortgage commitments from their credit cards - so it wouldn't raise alarm bells as its not an unusual expense to see.

Once the mortgage has been paid off and "your" property has been transferred legally and solely to your wife's name, then a creditor cannot pursue a Charging Order if your name is not on the Land Registry deeds. (This transfer would be challenged if fraud was suspected but then the game would probably be up anyway!)

So if no fraud was suspected, you would be subject to the other, fairly arbitrary, methods of debt collection, a kaput credit record for six years, and no credit lending available for that period either.

But with no mortgage to pay you possibly wouldn't need credit? (Although, you might have to keep a little set aside for rent if the missus kicks you out after you have signed everything over to her!)

chattychappy

eggbox wrote: »

Once the mortgage has been paid off and "your" property has been transferred legally and solely to your wife's name, then a creditor cannot pursue a Charging Order if your name is not on the Land Registry deeds. (This transfer would be challenged if fraud was suspected but then the game would probably be up anyway!)

If I was pursuing a debt and got as far as considering a charging order, seeing that the property had recently disposed of in this way wouldn't put me off. I'd be looking at s423 Insolvency Act 1986 to recover nevertheless. All depends "how much" and "how obvious".

eggbox

chattychappy wrote: »

If I was pursuing a debt and got as far as considering a charging order, seeing that the property had recently disposed of in this way wouldn't put me off. I'd be looking at s423 Insolvency Act 1986 to recover nevertheless. All depends "how much" and "how obvious".

But you wouldn't have any grounds to be pursuing a Charging Order as there would be no "asset" to charge? Once you have your CCJ its not an option open to you on the property. And any creditor who would be considering bankruptcy under section 423 would only do so if they had suspicions of fraudulent behavior.

I know its only a "hypothetical" scenario but debtors defaulting on credit cards aren't really investigated through what purchases they made as its "unsecured" lending. The recession, as I stated, has seen credit cards being used widely for mortgage repayments anyway; so its not an uncommon "purchase". If, lets say, a £100k mortgage was paid off through 8 different credit cards that would be a debt of only £12.5k each. A figure no credit card company is going to be suspicious about given the general current level of borrowing.

As a postscript, I do part time work for a debt charity and the level of credit card debt we see is, quite frankly, astonishing with £60k-100k certainly not a surprise. Now a lot of this debt has come about by compound interest getting out of control when creditors decide that someone only paying back minimum is a risk and raise their interest levels to near 30% APR rates. Often, what will happen is that one credit card is paid off by another in an attempt to lower the interest rates (this was (is) especially true of 0% cards) but after things get so out of control and they default (and they come to us) I can't recount one instance when anyone said the credit card company wanted to investigate my spending?

chattychappy

eggbox wrote: »

But you wouldn't have any grounds to be pursuing a Charging Order as there would be no "asset" to charge? Once you have your CCJ its not an option open to you on the property.

Perhaps my post wasn't clear. If I was looking to enforce a debt (ie got a CCJ, but no money) and it was significant enough to consider a charging order, then I'd need to look at the Land Registry for the property concerned. On seeing that the judgment debtor had recently transferred the asset to a spouse I'd look to s423.

eggbox wrote: »

And any creditor who would be considering bankruptcy under section 423 would only do so if they had suspicions of fraudulent behavior.

"bankruptcy under section 423" doesn't make sense. S423 is not concerned with bankruptcy (despite being in the Insolvency Act). Under S423 where a person undertakes a transaction with the purpose of putting assets beyond the reach of a claimant, a court can make an order to restore the position to what it was beforehand. You don't need to be insolvent. So I'd apply for such an order, restoring the asset and then charge the property. In the meantime I'd apply for a restriction/notice.

Establishing the "purpose" is not onerous - the courts can infer this from behaviour and it doesn't have to be the only purpose. The test is balance of probabilities that a "significant" purpose was to put the asset out of reach.

The point is, it doesn't matter whether the CC transactions are suspicious or fraudulent or not. I'm not talking about establishing fraud on the original CC activity. Merely the money remains owed (established by CCJ) and there is an asset I can charge. If that asset has been shifted into wife's hands to avoid the debt then it can be shifted back. Different story, of course, if it's been sold at fair value to a third party.

S423 has ancient origins - originally being part of the Fraudulent Conveyances Act 1571. Even after ending up in the 1986 Act it was rarely used. But with the recession, it's been rediscovered.

Yep, all hypothetical, I know. But my point stands - if I cared enough to charge a property, then seeing it had been recently transferred to a wife wouldn't put me off.

eggbox

chattychappy wrote: »

Perhaps my post wasn't clear. If I was looking to enforce a debt (ie got a CCJ, but no money) and it was significant enough to consider a charging order, then I'd need to look at the Land Registry for the property concerned. On seeing that the judgment debtor had recently transferred the asset to a spouse I'd look to s423.

You, as an individual, possibly would. But the question was asked regarding credit card payments being made. For the reasons given, the detection of fraud would be extremely difficult if the load was spread around.

chattychappy wrote: »

if I cared enough to charge a property, then seeing it had been recently transferred to a wife wouldn't put me off.

Again,you probably would care, but as the overwhelming majority of CCA bad debt never reaches even the CCJ stage then Land Registry details being changed aren't going to be noticed either.