Changes in Debt Recovery Under the Care Act 2014
The Care Act 2014 brings changes to debt recovery practices for care and support services. It revokes Section 22 of the Health and Social Services and Social Security Act 1983 from April 2015, eliminating unilateral powers and aligning debt recovery with minimum requirements. The Act focuses on fair and transparent means of recovering owed funds while ensuring alternative payment methods for debtors.
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The Care Act 2014 : Debt and Enforcement Tish Hanifan Barrister Founder and Jt Chair Society of Later Life Advisers
Current System Health and Social Services and Social Security Adjudications Act (HASSASSA) 1983, Section 22 Applies where a resident fails to pay an assessed charge for accommodation and has a beneficial interest in land. This specific power to create a charge is contained in the Health and Social Services and Social Security Adjudications Act (HASSASSA) 1983, and so the general powers contained in section 111 of the Local Government Act 1972 aren t used. Interest cannot be charged during the resident's lifetime on a debt which is covered by the creation of a charge on property under section 22 of HASSASSA. HASSASSA requires interest to be charged from the day after the resident's death
Registration of Charge 3.5 It is the Department's view that where one person owns land then his interest is in the land itself and a charge can be registered against that interest under section 22 of HASSASSA. However where more than one person owns the same piece of land then their interest is technically in the proceeds of sale of that land and not in the land itself. In this case, section 22(8) of HASSASSA has the effect of preventing the registration of an interest in the proceeds of sale of land. Registering a caution (which affords less protection than a registered charge) is the best step an authority can take in such circumstances.
HASSA and Joint Tenancies 22(5) The charge on the interest of a joint tenant in the proceeds of sale of land held upon trust for sale shall be in respect of an amount not exceeding the value of the interest that he would enjoy in those proceeds if the joint tenancy were severed but the creation of such a charge shall not sever the joint tenancy. (6) On the death of a joint tenant in the proceeds of sale of land held upon trust for sale whose interest in the proceeds is subject to a charge under this section- (a) if there are surviving joint tenants, their interests in the proceeds ; and (b) if the land vests in one person, or one person is entitled to have it vested in him, his interest in it, shall become subject to a charge for an amount not exceeding the amount of the charge to which the interest of the deceased joint tenant was subject by virtue of subsection (5) above.
Changes under the Care Act 2014 The Care Act 2014 consolidates local authorities powers to recover money they are owed for arranging care and support for a person. Key change for Local Authorities Section 22 of the Health and Social Services and Social Security Act (HASSASSA) 1983 is revoked from April 2015 and no new debts can be recovered under that provision. The reason for the change is that the powers under HASSASSA are unilateral. They allow a local authority to place a charge against a person s property but do not give the person from whom the recovery of the debt is being pursued the opportunity to seek alternative means for payment. Brings debt recovery in line with minimum requirements for other debt recovery
Care Act 2014 Changes . From April 2015, local authorities must only use the debt recovery powers under Section 70 of the Care Act in order to recover any debts from the date the Act comes into force, including for debts that were incurred before that date. Any arrangements that are already in place, or proceedings that are already underway, prior to that may continue to their conclusion, but no new arrangements can be made under those routes. The above includes debts being recovered under Section 22 of HASSASSA (1983)
Care Act 2014 : Recovery of Debts The Care Act enables the local authority to institute County Court proceedings to recover debts where a person does not pay or misrepresents information relevant to the financial assessment The new provisions bring the balance of power more into line with other areas of law protecting local authorities from potential lawsuits under Human Rights legislation provide increased protection for the person through improved oversight and due process. These will be equivalent to provisions that already exists in other areas where a local authority may need to seek to recover a debt.
Process The Care Act has Increased emphasis on ensuring that a fair and transparent process is embedded in the system. The process should be viewed in terms of the reduction in risk of challenge to the fairness of the process itself. Extremely important to document actions decisions and their rationale [ particularly DPA refusals] Correspondence should set out the potential options for debt recovery by the LA Signposting to debt advice Instigating County Court proceedings seen as last resort Referral to legal department [ capacity issues]
Recovery and DPA . A local authority must offer a person the option of a deferred payment agreement (DPA) in order to recover the debt wherever the person could be offered a DPA, and can only make an application to the court should the person refuse a DPA. Local authorities are encouraged to use their discretion to offer DPAs to people who do not meet the mandatory acceptance criteria for DPAs. DPAs can only be offered to people in care homes or supported living environments, and people must agree to them and be able to secure the debt. 258 The local authority can exercise its discretion under the care act to refuse to agree to defer any further care costs, whilst securing any .
Care Act 2014 Section 69 Recovery of charges, interest etc. This section replaces sections 22 and 24 of the Health and Social Services and Social Security Adjudications Act 1983 and section 45 of the National Assistance Act 1948. This section allows authorities to recover as a debt any sums owed, such as unpaid charges and interest. The exception to this is cases where an authority could enter into a deferred payment agreement, (in accordance with regulations under section 34) unless the authority offers someone this option and they refuse (subsection 2). This exception is to ensure that a local authority cannot use the debt recovery power as an alternative to entering a deferred payment arrangement.
Section 69 All administrative and other costs are fully recoverable through the County Court and a local authority can apply to receive interest. The maximum amount of interest that can currently be applied is 8%, which is higher than the level of interest that may be applied for a deferred payment agreement or the current costs of debt financing.
Capacity Issues Ensure person has capacity or they have someone who is appointed to make decisions for them Where a person lacks capacity to make financial decisions, for example because they have severe dementia, and they have substantial debts to the local authority or are likely to accrue them, then the local authority should ask the family to apply for a deputyship. Where there is no family or they choose not to, the local authority should apply for one before they proceed to the County Court Bear in mind the risks of a conflict of interest
Discretion Even if there is a debt, the local authority will need to consider whether it is appropriate to recover it. The local authority does not have to recover the debt it can choose not to do so. The local authority should consider not recovering a debt where: (a) The amount of the debt is small and the costs of recovery would be disproportionate. (b) The impact of recovering the debt would adversely affect the well-being of the person receiving care and support. (c) The person or their representative could not reasonably have been aware that the asset in question needed to be included The local authority should contact the person and assess if there has been a change in capacity, i.e. does the person now lack capacity to make financial decisions, and take action appropriately
Care Act 2014 Local authorities are bound by the public law principle of acting reasonably at all times and must act in accordance with human rights legislation, as well as the wellbeing principle, so they should consider taking legal advice before instituting recovery proceedings. This was true with HASSSA which stated 3.4 If the LA is considering placing a charge on a resident's interest in land, the resident should be advised to or assisted to consult a solicitor about this procedure.
Recovery from Third Party Recovering charges from a third party 20. Where the person has transferred the asset to a third party to avoid the charge, the third party is liable to pay the local authority the difference between what it would have charged and did charge the person receiving care. However, the third party is not liable to pay anything which exceeds the benefit they have received from the transfer. 21. If the person has transferred funds to more than one third party, each of those people is liable to pay the local authority the difference between what it would have charged or did charge the person receiving care in proportion to the amount they received. 22. As with any other debt, the local authority can use the County Court process to recover debts, but this should be as a last resort. When pursing the recovery of charges from a third party, a local authority must read Annex D on debt recovery. Annexe E Statutory Guidance
Recovery from an Estate In most cases this will make recovery a straightforward process as property and other assets are liquidated by the executors as part of the probate process Possible Problems Delay due to executor failing to carry out their obligations and/ or not taking out a grant of Representation Insolvent estate Applications may be made by a creditor using Non-contention Probate Rules 1987
Alternatives to County Court Emphasis on Dispute Resolution Statutory Guidance specifies that all other avenues must have been exhausted before County Court Action Commences DPA Negotiating a settlement [ could be done by LA or through a 3rd party solicitor /Independent advocate Some charities have will act on behalf of a person who had debt problems eg CAB, AGE UK, Step Change Mediation Arbitration
Deferred Payments A local authority must have adequate security in place when entering into a deferred payment agreement i.e. have enough security to be confident of the person s ability to pay back the amount deferred in the future. Otherwise they can refuse the DPA. The regulations set out some forms of security that local authorities must accept in all circumstances. They also provide discretion for local authorities to accept other forms of security as they see fit.
Other Forms of Security Consumer credit Issues Risk Profile of the Authority Imperative to have a Policy which includes consideration of other options for security A solicitor s undertaking letter. This offers low security as on paper there is considerable risk, ultimately security is based on the assumption that solicitors want to retain their professional accreditation and do not want to be reported to the Law Society. Furthermore there is nothing to stop the client from instructing a new solicitor therefore nullifying the undertaking. However, in practice they very rarely result in bad debt, but it is high risk and not recommended for a long term undertaking. They are usually used for individuals if they have debts but are assured of funds coming to them shortly
County Court Action Where all other reasonable avenues have been exhausted, a local authority may wish to proceed to the County Court in order to recover the debt owed. The County Court has been chosen to enable all the parties involved to have an equal say regarding the debt that has accrued. Before making a claim, local authorities should read the HM Courts and Tribunal Services (HMCTS) leaflet EX302
County Court Process It is important to remember to check the dates set by the court for response at each stage of the process. If a date is missed, your claim may be stopped known as stayed and the only way to continue the claim after this period is to apply to the court for an order to lift the stay, for which there may be a fee. This is known as a relief from sanctions which comes with strict criteria and may not always be granted. A local authority will therefore want to ensure it does not miss these dates. NB Once a final judgment or order has been made, it is not possible to add any further debts that may have accrued. Local authorities will therefore need to think carefully about what steps can be put in place to ensure that a person is able to meet their assessed contribution towards the cost of their care and support. Should debts continue to accrue, a local authority will need to begin the debt recovery process afresh
Interest on Debt This can be claimed form date the debt feel due and continuing to date of judgement Important to use correct wording: The claimant claims interest under section 69 of the County Courts Act 1984 at the rate of [8]% a year from [date when the money became owed to you] to [date you are issuing the claim] of [amount] as well as interest, at the same rate, up to the date of judgment or when the money is paid (if this is earlier) at a daily rate of [daily rate of interest].
Enforcement Options A warrant of execution empowers a County Court bailiff to attend a judgment debtor s address to take goods to sell at a public auction[ over 5k LA can apply for enforcement in High Court. Under a third party debt order money owed to the judgment debtor is paid directly to the creditor from their bank or building society account. Under an attachment of earnings order money is stopped from the judgment debtor s wages to pay a debt (obviously, this order will only help if the debtor is in paid employment). A charging order turns an unsecured debt into a secured one. Under this order a legal charge is placed on the judgment debtor s property (usually the debtor s home) to the value of the debt owed to the judgment creditor (plus interest). If the property subject to a charging order is sold, the full amount of the charge (i.e. the outstanding debt) has to be paid before any of the proceeds of the sale can pass to the judgment debtor. Each option has its own benefits but consideration might need to be given both to the general principles of the Care Act and to public policy in terms of prioritising enforcement
Recovery Time Limits )A sum is recoverable under this section (a)in a case in which the sum becomes due to the local authority on or after the commencement of this section, within six years of the date the sum becomes due; (b)in any other case, within three years of the date on which it becomes due.
Financial Assessments and Pensions Annex C: Treatment of Income: Where a person is in a care home and paying half of the value of their occupational pension, personal pension or retirement annuity to their spouse or civil partner the local authority must disregard 50% of its value.
Pension Income Notional income should also be applied where a person who has reached retirement age and has a personal pension plan but has not purchased an annuity or arranged to draw down the maximum income available from the plan. Estimates of the notional income can be received from the pensions provider. 35. Where notional income is included in a financial assessment, it should be treated the same way as actual income. Therefore any income that would usually be disregarded should continue to be so. 36. Notional income should be calculated from the date it could be expected to be acquired if an application had been made. In doing so, a local authority should assume the application was made when it first became aware of the possibility and take account of any time limits which may limit the period of arrears. P.34 Annexe C Treatment of Income
Financial Assessments and Pensions maximum available under an annuity product, the actual income that is being drawn down should be taken into account. Annex C: Treatment of Income: The rules for how to assess pension income for the purposes of charging are: (a) If a person has removed the funds and placed them in another product or savings account, they should be treated according to the rules for that product; (b) If a person is only drawing a minimal income, then a local authority can apply notional income choosing not to draw income, or according to the maximum income that could be drawn under an annuity product. If applying maximum notional income, the actual income should be disregarded to avoid double counting; (c) If a person is drawing down an income that is higher than the
