Issue regarding big backdating of tax credits.

redskyatnight_2

This friend of mine went bankrupt in Sept 2010, and wrote off £4000 tax credits that were owing. (why she owed it is debatable; She claims it was their fault and they claim it was hers and so said she must pay it back... But she was quite entitled to write it off in a bankruptcy back then...which she did.) Despite this, tax credits kept taking the debt in instalments of about £12 a week (so about £50 a month.)

Even the OR said (in late 2010,) that they should write it off, and he wrote to them telling them so. My friend wrote to them in May 2011, because they still had not written it off, and they were still taking the money from them towards the debt. (They were taking about £50 a month from their award..)

They said they will sort it and it will be written off. They fought it for 2 years...writing every few months, asking again and again WHY they are continuing to take the money from them, for a 'bankrupted' debt!

Long story short: Fast forward to Jan 2013. They finally wrote off the amount, wrote to my friend saying the £4000 is no longer owing, and after taking over a thousand pounds that they should not have taken, announced she would get it back in her bank account. Mid Feb, she got it back.

She was discharged in Sept 2011. So is any of this money due to the creditors or the OR? (As tax credits have backdated what they shouldn't have taken, all the way back to Oct 2010.) So you could say that she has technically 'now' had the full amount all along, even though the OR would have looked at her I & E with that £50 a month income deducted. (In other words, if they had written the debt off immediately, her income would have been £50 a month more, so the overall income would have been more.)

Also, she has been on housing benefit all this time (she has had about £200 of the £500 a month rent paid,) and because her tax credits were reduced, the HB was increased by a tenner a week...) So given the fact that she has now been refunded ALL the extra tax credits that was she was deprived of (about £12 a week for 2 years,) does this now mean that housing benefit should have some of the £1000 as well as (potentially the OR?)

I hope this makes sense.

Thank you.

redskyatnight_2

Anyone please?

Mouse1812

The tax credit rebate is not a pre bankruptcy asset - the amount owed to your friend accrued after her bankruptcy. The amount does not therefore form part of her bankruptcy estate and does not belong to the OR.

As the amount received was received after discharge the OR can not make a claim for it as an after acquired asset.

I'm not sure about the housing benefit, but if that was awarded on the basis of income at the time and it was correct at the time then I do not see how they could claim it back. She should however report the "windfall" now if she is still in receipt of housing benefit and it may stop or be reduced for a while.

redskyatnight_2

Thanks mouse! I will report it back to her. Obviously it would be nice to keep it as a grand is a lot to anyone these days! But she doesn't want to get into trouble.