PPI compensation has gone to pay bankruptcy debts

Last year Lloyds TSB offered £8,078.42 to bring my wife’s PPI complaint to conclusion. We accepted, but to this date have received nothing. We contacted the Financial Ombudsman Service in March but this also seems to have had no effect. Do you have any suggestions how we can move this issue to conclusion? KD, Porthcawl, Bridgend

I’m afraid the law has arguably let you down in this highly complex case. The PPI was taken out on a Lloyds TSB product in 2005. In 2008 your wife was declared bankrupt after a failed business venture, using the services of business recovery specialist Begbies Traynor to help with the bankruptcy. In June 2011 she was discharged from her bankruptcy, with a letter from Begbies Traynor stating: “As you are now discharged, any windfalls etc cannot be claimed for the bankruptcy estate.”

Lloyds TSB did eventually pay the PPI compensation in late June, but Begbies Traynor suddenly said it had unpaid debts from the bankruptcy deal of around £9,000, so the Official Receiver ordered Lloyds TSB to pay the cash to the Insolvency Service.

I contacted Begbies Traynor to ask how it was possible that they could swipe this cash, having previously told your wife she was debt-free. A spokesman said that if the PPI was taken out before the date of the bankruptcy order, it forms part of the bankruptcy estate and is available to creditors in that estate. It would not be classified as a windfall because the “right of action” pre-dates the bankruptcy. This means they have a legal right to claim the money. I double-checked this for you with Frances Coulson of specialist bankruptcy law firm Moon Beever, who confirmed the bad news.

She said: “I am afraid we are also bringing such claims. The right to compensation for the mis-selling is a cause of action that vests in the bankruptcy estate when it arises. I appreciate that it is a disappointment to a victim of mis-selling but a trustee is under a duty to recover what he/she can for the creditors under the law and the law is something the trustee has to abide by.”

You used the services of a PPI claims handler to recover the money. If they contact you to ask for the percentage they believe is owed to them, contact me again.

You can email Mark King at your.problems@observer.co.uk or write to Mark King, Your Problems, The Observer, Kings Place, 90 York Way, London N1 9GU. Include a phone number.

Article source: http://www.guardian.co.uk/money/2012/jul/28/ppi-compensation-bankruptcy-debts?newsfeed=true