Bankruptcy

This fact sheet is aimed primarily at council tax payers who have been threatened with bankruptcy proceedings to recover council tax arrears.

The council has been threatening me with bankruptcy proceedings. Can the Ombudsman help?

In some cases, yes. We can deal with some aspects of the council’s approach to recovering debts. Often the debt is arrears of council tax. (See also our fact sheet on council tax, and our Focus report 'Can't pay? Won't pay? Using bankruptcy for council tax debts').

Taking bankruptcy proceedings is one of the options available to councils for recovering a debt, although generally would be a last resort. We cannot stop the council taking bankruptcy proceedings but we can consider whether it has followed the procedure properly. But only part of the process is within the Ombudsman’s jurisdiction: we cannot investigate court proceedings.

We can consider what happened up to the point that the Bankruptcy Petition is issued by the court. Any events after that are, by law, outside the Ombudsman’s jurisdiction, which includes actions of a Trustee in Bankruptcy and any costs payable to them or a court.

If the money you owe is arrears of council tax we can consider, if appropriate, whether the council dealt properly with your council tax and council tax benefit.

We can consider also whether the council followed the procedure properly in deciding to take bankruptcy proceedings, and whether it took the right steps after that, up to the point that the Bankruptcy Petition was issued.

How do I complain?

You should normally complain to the council first. Councils often have more than one stage in their complaints procedure and you will usually have to complete all stages before we will look at your complaint.

Then, if you are unhappy with the outcome, or the council is taking too long to look into the matter – we think 12 weeks is reasonable – you can complain to us.

You should normally make your complaint to us within 12 months of realising that the council has done something wrong.

For more information on how to complain, visit our contact page or complete an online complaint form.

If you can consider my complaint, what will the Ombudsman look for?

We will consider the individual circumstances surrounding your complaint and the council’s approach. This might include looking at whether:

  • the council has been in touch with you to allow you an opportunity to explain your circumstances, and if appropriate, to settle the debt
  • the council considered properly any information you provided
  • you have made a claim for council tax benefit, and if so, whether the council properly considered the benefit position
  • the council checked with adult social care to see if you have any needs relating to your physical or mental health and whether the council should have suspended the proceedings in order to consider new information, and
  • the council kept records of its decision making and how it considered if bankruptcy was a reasonable approach.

What happens if the Ombudsman finds that the council was at fault?

It depends on what went wrong and how that affected you.

  • For example, if we found that the council failed to take some important information into account (and otherwise it may not have taken bankruptcy proceedings) we could ask the council to suspend the action while the information is considered.
  • In appropriate cases, we can recommend that the council pay financial remedy. The level of financial remedy will depend on the how badly the council’s wrong-doing has affected you.

Examples of some complaints we have considered

A council made a woman bankrupt for non-payment of council tax, even though she had mental health difficulties and was unable to conduct her own affairs. The Ombudsman says part of the council knew of the woman’s problems, but the Revenue department did not find this out because it failed to make effective internal enquiries. Had it done so, the council would most likely have taken different steps, with less serious consequences. The Ombudsman did not think it unreasonable for Revenue Officers to look beyond their own departmental information and consider a council's records as a whole. This is in line with guidance from the Information Commissioner, which says that that information held by different authority departments can be shared as long as it not for a completely separate and unrelated purpose, and data protection principles are applied. (Typical example)

A council made a woman bankrupt for unpaid council tax without making proper enquiries into her health. Mrs A suffered from untreated mental and physical health problems and owed the council a significant sum in arrears of unpaid council tax. Her mother complained that that the council had made her daughter bankrupt without giving proper consideration to her vulnerability, as her daughter had been incapable of dealing with her own financial affairs at the time the arrears had accrued. The Ombudsman found that the council had pursued this debt over a number of years without making adequate enquiries into the debtor’s health problems to determine whether this was a suitable course of action, although she had told the council that she was terminally ill.

The Ombudman criticised the council for: failing to have adequate written procedures to include standard checks at an early stage as to whether the debtor’s personal circumstances made bankruptcy proceedings inappropriate, failing to make enquiries, and failing to keep a clear written record of the way its decisions were made. Mrs A’s reclusive behaviour, while apparently a function of her mental health problems, would not have helped the council in making these enquiries, and the Ombudsman was not able to say clearly that the council would not have sought her bankruptcy even without maladministration. The council, as the only creditor in the bankruptcy proceedings, withdrew its claim, once it was made aware of the problem. (Typical example)

Other sources of information

The Insolvency Service has lots of useful information about what happens if you are made bankrupt. See https://www.gov.uk/government/organisations/insolvency-service.

Our fact sheets give some general information about the most common type of complaints we receive but they cannot cover every situation. If you are not sure whether we can look into your complaint, please contact us.

The Local Government and Social Care Ombudsman provides a free, independent and impartial service. We consider complaints about the administrative actions of councils and some other authorities. We cannot question what a council has done simply because someone does not agree with it. If we find something has gone wrong, such as poor service, service failure, delay or bad advice and that a person has suffered as a result the Ombudsman aims to get it put right by recommending a suitable remedy.

August 2019