LGO warns of maladministration risks in seeking bankruptcy over council tax debts

Complaints about local authorities pursuing bankruptcy for council tax debts are relatively small in number but produce an unusually high number of formal reports with findings of maladministration, the Local Government Ombudsmen have revealed.

In their report, Can’t pay? Won’t pay?, the LGO warned that bankruptcy could have “devastating consequences” for debtors. In one case an original council tax debt of just under £840 soared to £67,000 by the end of proceedings.

However, the Ombudsmen also stressed the importance of councils using their lawful powers to collect council tax, pointing out that this funds almost a quarter of local services.

“Amongst the 10 most deprived areas the council with the lowest collection rate would have almost £6m more to spend each year if it could match the council with the highest collection rate,” they said.

Councils initiated more than 4,700 bankruptcy proceedings over council tax debts in 2009/10, with eight authorities accounting for 70% of these proceedings.

The report – which is intended to help local authorities improve their performance – said a common theme in its formal reports was the way the councils decided to pursue bankruptcy. The Ombudsmen were likely to find maladministration if a council:

• did not have a formal, published Debt Recovery Policy
• had not gathered and considered information about a debtor’s circumstances
• did not include in its Debt Recovery Policy the step officers must take before deciding on bankruptcy, committal to prison or charging orders, or
• pursued bankruptcy without clearly recording that each of these steps had been taken.

The LGO also emphasised the importance of councils considering whether the debtor may be mentally ill and taking account of their duties under the Equality Act.

The report cited one case where a council took bankruptcy proceedings against a woman who suffered from long-term, severe mental illness. The council would not have gone down that route, the LGO said, if the officers responsible for the decision had known of her circumstances.

More specifically in relation to debt recovery policies, the LGO argued these should require council officers to have made reasonable efforts to contact the debtor in person, including visiting their home if necessary. Such visits were an opportunity to gather information, and a council’s expectations about what should be recorded by its own staff or bailiffs should be set out in the policy.

The report said that a senior officer should also have decided that pursuing bankruptcy was a fair and proportionate action after:

• reviewing an accurate history of the origin of the debt and attempts to recover it
• considering information about the past, present, disputed or outstanding benefit claims or any discounts or exemptions that might be relevant
• assessing that the debtor has assets that will clear the debt if bankruptcy is pursued
• assessing that there is no realistic prospect of recovering the debt by other means in a reasonable timescale
• gathering sufficient evidence about the debtor’s circumstances
• considering whether a debtor’s failure to respond to other recovery measures could arise from a disability (including a mental impairment with a long-term and substantial effect on normal day-to-day activities), and
• considering whether the debtor’s personal circumstances warrant them from being protected from the consequences of recovery action.

The LGO said written information should be provided to the debtor when proceedings are being considered. That information should warn the debtor of the serious consequences of bankruptcy and their continued failure to make arrangements to pay the debt, and urge them to seek independent advice and ‘sign-post’ to local sources of advice.

Anne Seex, one of the Local Government Ombudsmen, said: "Councils have the lawful power to pursue bankruptcy orders against people who will not pay their council tax debts. We will not criticise a council for using bankruptcy or other debt recovery methods if the decision to do so has been properly made. The case studies of complaints made to us involve avoidable mistakes that have had terrible impacts on the individual citizens.”

A copy of the report can be downloaded from the LGO website.

Philip Hoult