With claims for Payment Protection Insurance (PPI)  mis-selling on the increase the question often asked is whether you can make a claim for a PPI refund if you are bankrupt or have already been discharged from bankruptcy?

If you are currently bankrupt or have been discharged from bankruptcy you may be thinking about making a claim for PPI if you feel you were mis-sold your policy. In these circumstances, there is absolutely nothing to stop you making a PPI claim. However, before you do so, you need to understand what will happen to any refund you are awarded.

Making a PPI claim while still bankrupt

While you are bankrupt, any windfalls or payments you receive must be paid into your bankruptcy estate for the benefit of your creditors. This means that if you successfully claim for PPI mis-selling and are awarded a refund while you are bankrupt, this money must be paid in full to your creditors.

You are obliged to inform the official receiver or your Trustee in bankruptcy of any money that you receive. Not telling them about it could be viewed as non cooperation resulting in your bankruptcy being significantly extended.

However, it is unlikely that you will have to worry about not telling the official receiver. If you are bankrupt it is likely that the bank which refunds you for PPI mis-selling will simply pay it directly to the official receiver (OR) anyway.

After discharge from bankruptcy

After you have been discharged from bankruptcy, you are allowed to keep any windfall payments that you subsequently receive. The question is what is classed as a windfall?

If you receive an inheritance payment which was not due to you while you were bankrupt or if you have a lottery win, this is certainly a windfall and you will be able to keep this money in full.

However a PPI refund may not be treated as a windfall. It could be viewed as a refund for the money you paid for the insurance which was mis-sold to you. The money you originally paid for your PPI is seen as contributing to the reason you went bankrupt, so any refunds must be paid to the official receiver to be put towards repaying your debts.

You may ask how this can be if you have already been discharged from bankruptcy.

The answer is that even after you are discharged from bankruptcy your debt is not written off. A line is simply drawn under it. If any assets come to light in the future which should have been included in your bankruptcy, the official receiver has a right to take these from you. As with people who are still bankrupt, in the case of a PPI refund, the bank due to make the payment to you is likely to be aware that you are a discharged bankrupt and will normally pay any claim directly to your OR.

What if the original loan was not part of your bankruptcy?

If you feel that you were mis-sold PPI on a loan which you took and fully repaid before you declared yourself bankrupt, it is likely that even a refund for this will be payable to the official receiver. This is because the official receiver or your trustee will argue that the loan and PPI which you paid in full was still a contributing factor to the reason you then went bankrupt.

Having said that, where this situation occurs it is less likely that the bank; who must pay you the refund, will be aware that you were bankrupt in the past. As such it is possible that they will make any refund directly to you and the official receiver will not discover this unless you tell them about it.

Is there any point in making a PPI claim if bankrupt?

The answer to this question will very much depend on your attitude to repaying your debt. There is absolutely no reason why you should not make a claim if you feel that you have been mis-sold PPI. However you need to understand that as a bankrupt or discharged bankrupt it is likely that you will not benefit from any refund received. The people who benefit will be your unpaid creditors.

You may feel that you have an obligation to do anything you can that helps to return funds to your creditors and making a PPI claim could help towards this. With this in mind, you need to decide for yourself whether or not making a PPI claim is the right thing to do.

Sally Bowyer, Managing Director of leading financial claims firm Brunel Franklin, said that consumers could recoup many years’ worth of premiums plus interest. “If you were mis-sold PPI, you may be entitled to several years’ premiums plus 8% interest, which can in some cases amount to several thousands of pounds.”

Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51.