Trying to understand whether a Debt Relief Order is right for me

trialanderror2020

My situation is that I brought three cases against my local authority (A) in the last year after it breached my rights, and in each of them its lawyers lied to the court and persuaded it to order me to pay their costs, totalling about £16,500. I'm in the process of appealing all three cases, but that could take a year or more to resolve, and there's no guarantee that I'll win.

I was also ordered to pay another public authority (B) their costs of £6,711 about three years ago (again after their lawyers lied to the court), so in total I owe about £23,200. None of these debts are contractual, but A is still threatening to charge me 8% interest.

B briefly tried to persuade me to pay it, but gave up as I have no assets or savings, and my only income is disability benefits.

A knows that I have no means of paying it, as it administers my housing benefit and knows exactly what my income is, and it gave me a grant of £300 a few weeks ago to replace my 20-year old fridge because of my low-income and lack of savings, but it's still demanding that I pay it £900/year, otherwise it says it will begin enforcement proceedings or apply to have me declared bankrupt.

My best option may be to apply for a DRO, but there's a few things that I'm unclear about.

1) Are my disability benefits excluded from the means assessment for a DRO? I receive income-related ESA because I can't work due to my disability, plus PIP. I also receive a small pension of about £50/month but that's deducted from my ESA so I'm no better off as a result.

2) I have a LPA for both health and finances, but it only applies if I'm incapacitated. Do I have to cancel these if I get a DRO?

3) I know that even if I win all my appeals, such that the court decides that the costs orders shouldn't have been made and I don't owe A anything, the DRO will still stay on my file for 6 years, but what happens in these scenarios?
a) I successfully appeal and win some of the cases against A. Would it be entitled to withhold any damages awarded to me to offset the cost orders in the other cases?
b) I successfully appeal and win all of the cases against A. Would the Insolvency Service take some of my damages to pay the costs owed to B, even though it hasn't chased me for those costs in over three years?
c) I lose all the appeals and the court orders me to pay A's costs for some or all of the appeals, such that my debt increases. Would the DRO be cancelled?
d) I lose all the appeals and during the 12-months of the DRO I win a case against another party which results in me being awarded damages. Would the Insolvency Service take that money and use it to pay off all the costs that I owe A and B, or could my solicitor pay it into a disabled person's Trust for me to protect it?

4) If I don't apply for a DRO and A successfully applies to have me declared bankrupt, would I be any better or worse off in the above scenarios?

sourcrates

Well your asking a lot of questions that are quite specific to your circumstances, so its impossible to answer everything with any degree of certainty.

There is no means assessment for a DRO, you do not make any payments to a DRO, there are various qualifying criteria, the only income related pre-requisite is that you must have £75 or less left after all your essential bills are paid, not including debt re-payments.

I`m not sure if court costs can be included in a DRO, I know court fines are an excluded debt.

LPA has no bearing on a DRO, but you can`t include debts you might owe, you have to be certain one way or the other.

Bankruptcy is often used as a threat to encourage payment, if you have no assets, and only benefits as income, there would be little point in going down that road, however it would cover all your debts in that scenario, and you would be no worse off for it, as long as they aren`t using it as a lever to evict you.

trialanderror2020

What I mean by "means assessment" is assessing my income and whether I have £75 or less left over. Some places say that disability benefits aren't counted as income for this purpose, other places say only "disability allowance" is excluded (which doesn't exist but maybe they mean DLA).

Regarding the LPA, I read that "If you have a Lasting Power of Attorney, you must cancel this if you go ahead with a DRO".

I don't understand what you mean by "you can't include debts you might owe, you have to be certain one way or the other", or how that relates to my LPA. At the moment, I owe the sums referred to. If I win my appeals I will no longer owe most of them, but I may not win.

A is vindictive and seems determined to harass me for these monies. It recently spent £400 getting an order requiring me to attend court to provide information about my means, even though it knows exactly what my means are already, so I wouldn't be surprised if it was willing to waste more money to have me declared bankrupt just to punish me, even though it knows I can't pay it anything, but I need to know whether I'd be better or worse off with a DRO rather than a bankruptcy order before I can decide what I should do, and that depends on what would happen in the scenarios set out in my question 3.

fatbelly

DLA/PIP is counted as income and expenditure in a DRO so it is effectively disregarded.

I assume you mean that you have given someone else power of attorney over your affairs (if incapacitated) - your DRO would have no effect on this provided the power is not being exercised

All your questions under point 3 assume that you will apply for a DRO while appealing the decisions. I would advise you not to do this. Let the appeal process conclude and then see what remains.

It's most unlikely anyone will apply to make you bankrupt if you are in the position of minimal assets/surplus income. It would be a waste of their time and money (but would save you £680)

It sounds like your aggressive creditor has already established that by an 'order to obtain information' - I wish more creditors would do that.

trialanderror2020

Thanks for confirming that DLA/PIP is effectively disregarded for the purposes of a DRO.

Yeah, I've granted a LPA for both health and financial affairs in the event that I'm incapacitated (I have quite a lot of surgery, in fact I'm going in for surgery tomorrow, and there's always a risk of something going wrong, and I also suffer from mental health problems so I could be incapacitated as a result of that).

The advantage that I see with applying for a DRO now is that the debts will be wiped out in 12 months, which will probably be before my claim against another party is heard or decided, so if I win that claim the local authority won't be able to take that money from me, whereas if I wait and apply for a DRO later it may still be in effect when I win that other claim, and if the LA does apply for a bankruptcy order I think that lasts for 6 years, so maybe they'd be able to take any money that I obtain in that time?

Their decision to apply for an 'order to obtain information' wasn't a rational thing to do, as they already knew exactly what my means are as they administer my housing benefit, and they spent about £450 in court fees (plus their lawyer's fees) making the application and an application for alternative service, rather than just emailing me to arrange a time when I could receive personal service. So it wouldn't surprise me if they applied to make me bankrupt, even though it would be a waste of their time and money (taxpayer's money actually, so it doesn't cost them anything to harass me, and their lawyers get paid for making these pointless applications, so they have a reason to advise the LA to make them).

MalMonroe

Hi, I see that you are going for surgery tomorrow and I hope all goes well for you.

From what you say, though, it appears that you would really benefit from speaking to a debt help advisor. The free ones are at Citizens Advice, National Debtline and StepChange. (Links in the signature of sourcrates' post, above). StepChange used to be able to help with submissions for DROs but now they have to direct you to another intermediary. However, Citizens Advice can help with debt advice and submitting applications for DROs and bankruptcy or whatever option they feel is best for your individual circumstances. Citizens Advice can also advise about obtaining free or reasonable legal help. 

Their service costs nothing except a bit of your time. But for now, I do agree with fatbelly in that it might be better to just hang on a while, especially as you are going to be recovering from your surgery and it's always best not to act in haste. 

These are obviously just my own thoughts and opinions, as per my signature below. I do hope you manage to get something sorted and wish you all the very best for a speedy recovery. 

trialanderror2020

Thanks, the surgery went well and I'm pretty much recovered now.

It was actually StepChange who I contacted previously and they included my PIP in my available income in the Personal Plan they sent me, and also said that my LPA would have to be cancelled if I wanted to apply for a DRO, so they don't seem to know what they're doing. If they can only direct me to another intermediary, I don't really know what the point of giving them all my information was.

I'd rather hoped that the local authority had accepted that it was pointless pursuing the debt, after I provided my bank statements (which they already had anyway) showing that my only income is disability benefits, and proof that I can't cash in my civil service pension, as they haven't pursued it since, but they've just emailed me to say that they propose to serve me with a statutory demand under the provisions of the Insolvency Acts, which they say will give me 21 days to pay the debt or to make proposals for the payment of the debt to their satisfaction, after which a bankruptcy petition may be presented.

They've asked me to provide them with dates and times within the next 2 weeks when I'll be available to accept personal service, failing which they'll make an application for alternative service (and add the costs of that to my debt).

So I guess I need to urgently try and contact National Debtline or Citizens Advice about applying for a DRO, before the LA applies to have me declared bankrupt.

sourcrates

I wouldn`t bother to be honest.

If you have no assets, and little in the way of income, let them make you bankrupt and end this farce once and for all.

All bankruptcy will do, is expunge your debts, and wipe them out completely, you won`t get an IPA, as no disposable income, basically they will be paying the fees on top of what they allege you owe, and losing the lot.

I say let them fill there boots, you should actually bite their hands off at that deal, there is no downside for you, hand on heart, I can truthfully say that it won`t affect you that much, except for the negative mark on your credit file, but in 6 years time, all will be forgiven.

Unfortunately the fact that they are stating they will add costs to your debt, and using that as leverage, makes me think its all a bluff, as why would you be bothered about any more costs if they were going to bankrupt you ?

They are hoping you make a deal, they have no intention of making you bankrupt.

Let them get on with it and see what happens, your situation can`t be made worse by doing so, don`t rush into a DRO just yet, I would suspect this is all bluff, but if not, then bankruptcy would likely work just as well for you.

trialanderror2020

Thanks. You may be right that they're bluffing, but I'm concerned that if they make me bankrupt and I subsequently win my unrelated claim against another party, they (or the official receiver) will be able to take my damages to pay the costs that I owe them. Am I wrong about that, and once I'm declared bankrupt all the debts are wiped and no-one can touch any damages that I subsequently receive from another party?

The other downside is the bankruptcy lasts for 6 years, whereas the DRO wipes the debts after 1 year (although it will still be recorded on my credit record for 6 years), and it will obviously affect me more if I can't get a credit card for buying things that I can't afford to buy straight out, like a new fridge or washing machine, for 6 years rather than 1 year. If I wait to see if they're bluffing and they do seek to have me declared bankrupt, I don't think I'll be able to apply for a DRO after they've started that process.

flipflopflo

A bankruptcy is only a year also. It is on your credit file for six years. A bankruptcy will cover all your debts whether they are noted on your form or not (with a couple of notable exceptions). A DRO only covers debts up to £30k and only those that are noted on the form. 

You will have the same trouble with getting credit whether you go for either as they are both a form of insolvency. We suggest that you have an emergency fund sorted before you go for it so that when you have a washing machine break down then you can replace it. 

Also if you get an award before the year of the DRO is over then it will fail and you are left with the debts again. 

sourcrates

There is not much difference in real terms between a DRO and Bankruptcy.

Both last 12 months, both affect your credit for 6 years, the only real difference is a DRO can fail, if you come into money within those 12 months, whilst Bankruptcy can`t fail.

There is a 30k limit on debts with a DRO, Bankruptcy includes all your debts, whether you know of them or not.

You should not need credit for a new washing machine or fridge, you can buy both for less than £150 each (if you shop around) any such purchase should come from your emergency fund.

Let them make their move, with both options, if you get money after the 12 months are up, its yours to keep.