Posted by admin - December 12, 2013 2:22 pm Mis-sold PPI claims and Insolvency

Judging by the amount of texts I receive advising me that I can claim for my mis-sold PPI, I don’t believe there can be anyone who is not entirely sure what PPI is. For those of you who may have been living in the wilds with no TV, internet or phone, PPI stands for “Payment Protection Insurance”.

PPI was an insurance added to loan repayments as a way of protecting the borrower should he be unable to make the repayments due to loss of income. In recent years it has transpired that many of these policies were mis-sold, which has resulted in many individuals making a claim for compensation.

So what happens to the compensation claim if the individual has been subject to an insolvency procedure?

Bankruptcy

Based on my experience of the calls I have received I think most people believe that any compensation would automatically belong the individual; especially if the bankruptcy was some time ago. In fact the complete opposite is true!

The claim for compensation is not classed as a new asset, therefore if your policy was mis-sold prior to the date of your bankruptcy any compensation claim will belong to the office holder, such as the Official Receiver or Trustee. The compensation is also not classed as an after acquired asset so whether or not you have received your discharge from bankruptcy the position remains the same.

So what about claims for compensation when the loan had been repaid prior to the bankruptcy? Well this may come as a shock but the PPI claim still belongs to the office holder and you would be in exactly the same position as stated above. The reason being that even though you were not aware you had an asset of the compensation claim; this did in fact pass to the office holder on the making of the bankruptcy order.

A word of warning, however, should you instruct a management company to assist you in any compensation claims for mis-sold PPI, be aware that this will normally is taken as % of the amount any management company realises. However, all of the compensation claim will be payable to the office holder and therefore the individual could be left with a debt for the management fees!!

Individual Voluntary Arrangement

The rules for claiming PPI for those who have been subject to an Individual Voluntary Arrangement are not as clear; as they are dependent on the terms of the Proposals. Most Voluntary Arrangements however are governed by Standard Terms and Conditions with an “all asset clause” and if this is the case the compensation claim would become an asset of the estate.

The PPI claim would also belong to the Voluntary Arrangement even after it had closed and the Supervisor released. Although a former Supervisor does not have a duty to seek PPI mis-selling claims, if he becomes aware of it he may pursue the claim if it is cost effective to do so.

The best thing to do, if you find yourself in this position, is to speak to an Insolvency Specialist to ensure you have a full understanding of how claiming for a mis-sold PPI claim affects you.