Claiming PPI when Bankrupt

If you are currently Bankrupt there is nothing to stop  you making a claim against any bank who may have mis sold you PPI. However you need to understand that you will not benefit directly from any compensation money that you are awarded.

This is because any compensation you receive while you are bankrupt is treated as a windfall and must be paid to your Official Receiver (OR).

If you make a PPI claim during your bankruptcy the bank you are claiming from may get to the point of telling you that you are due a payment. However before they pay you they will do a final check to see if you are bankrupt. They will find out from the record in the Insolvency Register and instead of sending you the money they will forward it directly to your OR.

If on the off chance the bank you are claiming against does pay the compensation directly to you then you are legally obliged to inform the Official Receiver that you have received this windfall. The OR will then ask you to hand it over to them.

BMD Tip: If you are currently suffering particular financial hardship the OR might allow you to keep some or all of the compensation you have been awarded. However this only happens in very rare cases and you should not rely on it happening.

PPI compensation is an unrealised asset of your bankruptcy

An unrealised asset of your bankruptcy is an asset which you owned or were entitled to while you were bankrupt but it was not known about or realisable before you were discharged.

A good example of an unrealised asset would be an inheritance that you were left but not aware of while you were bankrupt. If this inheritance comes to light after you are discharged the OR can still claim the payment as part of your bankruptcy because the asset did exist while you were bankrupt. It is just that you did not know about it.

Mis sold PPI compensation which you claim for after you have been discharged from bankruptcy is treated in the same way. The rational for this is that even though you did not make the claim until after you were discharged the potential to do so while you were bankrupt did exist. As such any compensation awarded to you now must be treated as an unrealised asset and paid to your Official receiver.

This rule is now established and accepted both by the courts and banks. As such if you are awarded PPI compensation after you are discharged from bankruptcy it is likely that the bank you claim against will check whether or not you are a discharge bankrupt before sending the cheque to you. If you are then they will forward the payment directly to your old Official Receiver.

The unrealised asset rule never expires. As such it does not matter how long you wait after you are discharged from bankruptcy to claim for mis sold PPI. If you are eventually awarded compensation this is still likely to be paid to your old OR even if the elapsed time since you were discharged is many years.

Claiming PPI against debts which were not included in your bankruptcy

It is possible that you had some debts that were paid off in full before you went bankrupt. Given that these debts were not included in your bankruptcy you may be wondering whether you will be able to claim for mis sold PPI against them.

There is certainly nothing to stop you making such PPI claims. However if compensation becomes due to you while you are Bankrupt then this is still treated as a windfall and must still be paid to the Official Receiver.

If you have already been discharged it is possible that the bank might not check that you were previously bankrupt and pay any compensation directly to you. If this happens you are still obliged to inform your old Official Receiver of the payment and send it to them.

However if you keep the money it would be unlikely that the OR would ever find out as they are no longer monitoring your financial circumstances.

Claiming for PPI after you are discharged from bankruptcy

You may accept as reasonable that any PPI compensation your receive while you are still bankrupt should be treated as a windfall and paid to the Official Receiver to help repay your debt. But what about compensation that you receive after your bankruptcy is over and when have been officially discharged?

Under normal circumstances any cash windfalls that you receive after you have been discharged are yours to keep. So for example if you receive an inheritance payment or a lottery win you can keep this money as long as the windfall occurs after the date of your discharge.

However this situation is not the case for mis sold PPI compensation. The reason for this is that PPI compensation falls under the definition of unrealised bankruptcy assets.