Annex D: Recovery of Debts

This annex covers:

• the principles underpinning the approach to debt recovery
• options for debt recovery
• processes around debt recovery

1) The Care Act 2014 introduces a modern legal framework for the recovery of any debts that may have accrued as a result of a local authority meeting a person’s eligible care and support needs. Section 22 of the Health and Social Services and Social Security Act (HASSASSA) 1983 was revoked from April 2015 and no new debts can be recovered under that provision. New powers are provided under Section 69 of the Care Act that provides equal protection to both the local authority and the person. Section 70 of the Care Act also provides a local authority with the power to recover charges from a third party where a person has transferred assets to them in order to avoid paying charges for care and support.

2) 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. The new powers under Section 69 of the Care Act provide equal protection for both the local authority and the person.

3) Ultimately the Care Act enables a local authority to make a claim to the county court for a judgment in order to recover the debt. As a first port of call, a local authority must offer a person the option of a 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 this be refused. In practice, local authorities will wish to consider the full range of options in order to secure the contributions owed to them. This section of the guidance is designed to cover both the alternative options a local authority may wish to consider and what to do should a case proceed to the county court. Implementation support tools will be provided to accompany this guidance and local authorities should consider the information offered in these tools alongside the guidance.

4) Whilst this is a change for social service departments of local authorities, this is not completely new for local authorities as a whole. Local authorities already have set processes for recovering other debts that are owed to it such as rent arrears which may provide some useful experience, and social services departments will want to consider how the new legislation fits with the wider approach of their local authority. Whilst adding the recovery of debts that arise as a result of the provision of care and support services to central teams would be a viable option, given the nature of the client group and the potentially much larger size of the debt, local authorities may wish to consider the merits of embedding their approach within their social care teams. If doing so, they will need to ensure that this function is adequately resourced with clear lines of responsibility for making decisions on taking claims forward as well as ensuring that local authority staff tasked with following up debts are able to effectively liaise with social care practitioners before taking action. In either case a local authority will need to ensure that adequate records are maintained to support a debt to be recovered.

5) When designing their system for debt recovery in social care, local authorities should be aware of the population they are dealing with. Unlike council tax or rent arrears debt, the local authority is not dealing with the general population. Much of this is debt is likely to be from a move into care homes of very frail people in their 80s and 90s, many with dementia. All debt recovery systems should be designed with a full understanding of the needs and capacities of this population to engage with the system being designed.

Principles underpinning the approach to debt recovery

6) The recovery of debts from those who are receiving care and support is a sensitive issue given the potentially vulnerable nature of the client group and local authority’s ultimate responsibility to meet needs. There could also be a variety of reasons why the person has not paid the assessed charge, for example, there could be issues around diminishing capacity, an administrative error or they may have needed to enter hospital meaning they may not have been able to notify the local authority of the change in circumstances or are not easily able to arrange payments. Given this, local authorities will want to bear in mind the following principles when approaching the recovery of debts:

• possible debts must be discussed with the person or their representative
• the local authority must act reasonably
• arrangements for debt repayments should be agreed between the relevant parties
• repayments must be affordable
• court action should only be considered after all other reasonable avenues have been exhausted

7) Local authorities should clearly discuss with the person or their representative at the outset that care and support is a chargeable service and that where the person has been assessed as being able to afford to do so, they will be required to contribute to the cost of that care. It should also be explained that this means there will be invoices and that an agreement should be reached as to whom the invoices are sent, and if the person wishes, that their agreement and authority is obtained for the use of an agent.

8) Local authorities should also bear in mind that they 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 set out in the Care Act. Given this, a local authority will wish to consider all other reasonable avenues before utilising the powers provided under the Act.

9) Before pursing any course of action the local authority should consider whether it is appropriate to recover the debt – although it has the power to do so, and in many cases will wish to do, it does not have to or indeed it may wish to only recover part of the debt. Such circumstances may include:

• where the amount of the debt is small and the costs of recovery would be disproportionate
• the person or their representative could not reasonably have been aware that the asset in question needed to be included in the financial assessment.

10) It should also consider how different approaches might impact on a person’s wellbeing, in line with a local authority’s general duty to promote a person’s wellbeing.

Timing of debt recovery

11) The point at which a debt becomes due continues to be the date at which the sum becomes due to the local authority. This means that, for example, if a bill was sent giving 30 days to pay, the payment becomes due on day 30. For any debts that have accrued prior to the commencement of the Care Act 2014 the time period for recovering that debt continues to be three years as previously set out under Section 56 of the National Assistance Act 1948 as any change to this would be retrospective and unfair. For any new debts that occur after the commencement of the Care Act 2014, the time period to recover debts has been extended to 6 years from the date when the sum became due to the local authority. Where a debt is taking some time to be recovered, provided legal proceedings have issued within the limitation period, enforcement can continue. If it has not, the debt must be written off.

Options to recover debt

12) Local authorities should consider the full range of options available to recover the debt. This is particularly important as if the claim does end up in the court they are likely to consider what efforts have been made to resolve the issue first. Whilst it is at the discretion of the Court to award costs, if no effort has been made to reach an agreement first a judge may hold this against the local authority when considering making an order for payment of the costs in the case. The greater the person’s need, the more effort should be made to resolve the issue positively through the use of effective social work skills. Options may include negotiation, using an advocate to help the person understand the options available to them, supporting the family to gain a power of attorney or deputyship, the local authority itself applying to be a deputy or the use of independent mediation. Local authorities should have regard to Practice Direction – Pre-Action Conduct guidance published by the Ministry of Justice.

13) As a first step, the local authority should contact the person or their representative in an effort to ascertain why the contribution to their care and support costs has not been met. In the first instance this is likely to be by phone, but may also include written communication in an appropriate format or a visit. This should not be a tick box exercise and there should be more than one effort to contact the person by each of these routes in order to simply and quickly address the issue if possible, whilst balancing the need to minimise further delays.

14) In some cases the issue will be easily resolved as a result of the contact, either through the amount being paid or from the offer of a DPA, where appropriate and further detail on this is set out below. However, some cases will be more complex. For example if a person does not meet the eligibility criteria for a DPA, a DPA is refused or there remains a dispute about the amount. Or a person may be unhappy about being placed in a care home and wish to return home, or could be depressed, have mental health needs or dementia. In many cases, social work assistance may be required.

15) The local authority must establish whether the person has the mental capacity to make financial decisions. This is important as a person who lacks capacity to make financial decisions is in a different legal position from someone who has capacity. While both may be liable for their debt, the way to proceed to recover the debt is different.

16) Where a person has mental capacity to make financial decisions, the local authority can proceed to the county court but does have alternative options and should consider these. These can include:

a) Negotiating an agreement: This could be through dealing directly with the person or their representative to broker a solution. This can be done by the local authority which may well support a better outcome, but in some circumstance this may be better led by an independent person such as an advisor or solicitor. In some cases it may be useful to involve an independent advocate to support the person to understand the options available to them.

b) Mediation:
This is where an independent third party assists those involved to reach an agreement. This could be carried out by a professional mediation service, but could also be carried out by anyone who is not involved in the issue, such as an independent social worker or a local voluntary organisation. It is important to understand that it is the people involved, not the mediator, who decide the course of action.

c) Arbitration:
This involves an independent arbitrator hearing both sides of the issue and making a decision on behalf of the parties that will resolve the issue. Local authorities should be aware that arbitration is usually binding on both sides and therefore cannot usually take the case to court after the arbitrator has made a decision.

Diminishing or lack of mental capacity

17) In some cases a debt may have accrued as a result of diminishing or a lack of mental capacity. In such cases, the local authority may need to involve their safeguarding teams. It is estimated by the Alzheimer’s Society that some 80% of people who enter into care homes have dementia. This means that many of those who are being placed in care homes may lack capacity to make financial decisions, and may have not been able to understand financial assessment forms, or the requests for payments. Social workers should be asked to carry out a decision specific capacity assessment where there is a diagnosis of mental impairment or mental disorder, or where the person’s engagement with care planning shows they may lack capacity to make some decisions.

18) The better the local authority’s understanding and application of the Mental Capacity Act 2005, the easier it is to prevent debts from building up and the easier it is to recover them. Where people with dementia or with learning disabilities have relevant mental capacity assessments on file, and where they also have appointed attorneys or deputies to make financial decisions with them or for them, or friends to support them in care planning, the local authority will be clearer about who to involve in financial decision making. This should help lead to less debt, and where it does occur, make it easier to recover.

19) Where a person has an attorney for property and financial affairs or a deputy, these roles give the attorney or deputy the legal authority to make financial decisions on behalf of the person, and require them to consider and engage with any debt recovery on behalf of the person. The local authority can use all the above methods with the attorney or deputy. They can negotiate an agreement, they can offer mediation, or they can use arbitration to recover the debt.

20) Where the person lacking capacity has no attorney or deputy and has substantial debts, then an application for a deputy is required. The application has to be made to the Court of Protection. Where there are family involved with the person, they may make the application to become a deputy. Where the local authority has an in house or contracted deputyship service, and there is no family, this service should make the application. Otherwise the social worker can make the application for the Court to appoint a deputy. While this process may take some weeks, it leads to the appointment of someone who has the legal authority both to make financial decisions and also to execute them – i.e. to access bank accounts and make payments. The local authority should also consider the risk of a conflict of interest where it applies to take on a property and financial affairs deputyship.

21) Local authorities should not send threatening letters demanding payment. They should always seek to establish who has the legal authority to make financial decisions and engage with that person.

Recovering debt and deferred payment agreements

22) Where a debt has accrued and a person could be offered a DPA, the local authority must offer the person or their attorney or deputy the option of repaying the debt through a DPA as set out in Section 69(2) of the Care Act 2014. A person could be offered a DPA if they are receiving care in a care home or are renting an extra care property, and the person has a form of security adequate to cover the DPA (usually a property).

23) The local authority is only required to offer the DPA for the amount of the accrued debt and is not obliged to defer any future costs*; however it may wish to consider allowing the person to defer further payments so as to avoid any further accrual of debts.

* The local authority can exercise its discretion under the care act to refuse to agree to defer any further care costs, whilst securing any already-accrued debt. However, if the person meets the criteria governing eligibility for deferred payments, the LA must agree to defer future care costs.

24) This option is likely to be attractive to a person as the interest rate for DPAs is set by regulations and is lower than the maximum amount the county court can apply. It will also avoid the person needing to meet the costs of the local authority if the county court finds against them. It is also likely to be attractive for a local authority as it will ensure that the debt is secured, is at less risk of default and is likely to be quicker to secure. If a DPA is agreed upon, a local authority must have regard to the guidance set out in Chapter 9.

25) Only where a person refuses the option of a DPA or does not meet the eligibility criteria can a local authority seek to enforce the debt via an application to the county court. A local authority should therefore make sure a refusal, along with the reason, is recorded appropriately.

26) 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, bearing in mind the risks of a conflict of interest.

Issuing a claim and subsequent enforcement through the county court

27) 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.

Getting started

28) Before making a claim, local authorities should read the HM Courts and Tribunal Services (HMCTS) leaflet EX302 Taking a claim to court when you’re in a dispute and comply with the Practice Direction – Pre-Action Conduct published by the Ministry of Justice . The Court will require the local authority to prove the legal basis for their claim. Therefore before applying to the court, local authorities should consult and engage their legal departments and collect the necessary evidence.

29) Issue of claim and other processes, including enforcement, attract a court fee. The level of the fee will vary depending on the amount that is being sought and will vary depending on whether the claim is being issued online or by paper. Details setting out the level of fees can be found in the HMCTS leaflet EX50 Fees in the Civil and Family Courts – main fees. Whilst there is an upfront cost to a local authority to meet this fee, if an order or judgment is made in favour of the local authority, the Court may add the fee to the debt recoverable. Any other pre-issue fees the local authority wishes to recover should be included in the claim form. If a solicitor is acting for the local authority, fixed costs may be claimed.

30) In order to make a claim, the local authority will need to fill out the relevant form. This can be done either on paper or online. Conditions apply for claims started online, including that the claim must be for a specified sum of money (under £100,000); that it cannot be against more than 2 people; and it cannot be against a known protected party or child, this includes a person who lacks capacity. Local authorities will also wish to note that fees are often reduced for online applications. Access to the Money Claim online service and registration for an account with the UK Government Gateway is required. The paper based claim form N1 and notes for guidance N1A and N1C can be downloaded from the HMCTS website. It is important that these guidance notes are read carefully. It is at this point that initial fees are required to be paid. If making a paper application this will need to be by cash or cheque and online, by credit or debit card.

31) In order for a local authority to claim interest on the debt, they must include the following text from leaflet EX302: in the section of the form entitled ‘Particulars of claim’:

32) Once the court has issued the claim, a Notice of Issue will be sent to the local authority and a copy of the claim to the person the local authority is seeking to recover contributions from. The person will then have the options of not responding to the claim, admitting the full amount of the claim, or defending the claim. If no response is received to the claim, or if the person admits part or the whole amount of the claim, and the local authority accepts the part admission, they may request the court to enter judgment against the person. The local authority may then commence enforcement proceedings if the person does not pay the judgment. If the claim is defended or the person does not accept the part admission, the claim will proceed to the next stage and further details are set out below.

33) If the person is a protected party, the local authority may only issue and serve the claim. At this point, any person who lacks capacity to litigate will need to have a litigation friend appointed which involves a separate application. It is the responsibility of the local authority to inform the court that there is a need for a litigation friend. Where the person has a relevant attorney or deputy, that person may be appointed as a litigation friend with the permission of the court. Ultimately it is the court that will appoint the litigation friend. Where a person does not have a relevant attorney or deputy, in making the first step to respond to the claim, the person seeking to become the litigation friend may file a certificate of suitability stating that they satisfy the conditions set out in Part 21 of the Civil Procedure Rules.

34) The role of the litigation friend is to represent the person in court. They may therefore raise any issue that the person would such as disputing the debt, seek alternative arrangements to repaying the debt or raise any other issues they consider relevant to the question of the debt. It is therefore important that the local authority has acted properly in relation to the person who lacks capacity and there is no evidence of any perceived harassment. This must be with regard to both care and debt recovery.

What next?

35) Local authorities should read the HMCTS leaflet EX304, After you start a claim in the County Court – what happens next? which sets out the different next steps depending on the person’s response. In all cases, except where steps are being taken in relation to the appointment of a litigation friend, a local authority cannot take any action until the date by which the person must reply to the claim has passed. This date is specified on the Notice of Issue, but the period may be extended by 14 days if the person files an Acknowledgement of Service. The court will inform the person if an acknowledgement is filed.

36) The leaflet sets out details of the action the local authority should take depending on the response from the person. These are:

• how to request a judgment by default if no reply to the claim is received. If a request is not made within 6 months, the claim will be stayed until an application to lift the stay is made
• how to request judgment if the claim is admitted in part or in full
• the next steps if the claim is defended
• how to request issue of enforcement proceedings if the judgment is not paid

37) 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. The rules in respect of sanctions are set out in Part 3 of the Civil Procedure Rules.

38) If a claim is defended, it will be provisionally allocated to one of three tracks based solely on the value of the claim. These are:

• the small claims track for claims under £10,000
• the fast track for claims of £10,000 – £25,000
• the multi-track for claims over £25,000

39) At this point both the local authority and the person will be directed to complete and return a Directions questionnaire. If the case is allocated to the multi-track, the court will also require the local authority to file a costs budget. Where the case is allocated to the small claims track and both parties indicate they wish to use the in house mediation scheme provided by the HMCTS the mediator will contact the parties with a view to resolving the dispute. If the parties do not wish to use the service or the claim is allocated to one of the other tracks, the claim will be sent to a county court hearing centre. A preference can be indicated on the claim form and Directions questionnaire.

40) On receipt at the county court hearing centre the papers will be referred to a judge for directions. Depending on the value and complexity of the claim the judge will confirm or may change the track allocation. The court may give directions for case management of the proceedings and a hearing may be fixed. In some instances, a further listing and hearing fee will be payable.

Receiving a county court judgment or order

41) 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.

Enforcing the judgment or order

42) Where there is a court order or judgment for payment, but the person has not complied with it, the local authority may choose to enforce the order. The HMCTS leaflet EX321 What to do if a defendant doesn’t pay money after judgment sets out the various options. It is important to note that the court will only issue enforcement proceedings at the request of the local authority.

43) There are various methods of enforcement and local authorities will wish to think carefully about which may be the most appropriate taking into account the person’s circumstances and their own responsibilities to the person. The most appropriate are likely to be one of the following:

• a warrant or writ of control
• an attachment of earnings order
• a third party debt order
• a charging order

44) A warrant or writ of control essentially enables enforcement agents or officers to take control of goods from the person’s home or business. If the order is for £5,000 or less, an application for a warrant of control may be made to the county court. If the order is for over £5,000 the local authority may apply to the High Court for a writ of control.

45) An attachment of earnings order allows for the periodic deduction of monies by the person’s employer (where they are known). It cannot be used if a person is unemployed or self-employed. An application may also be made to the court for deductions to be made from other earnings such as a pension. Earnings are disregarded during the financial assessment of what a person can afford to contribute towards the cost of their care so in some instances, this may be an option.

46) A third party debt order will instruct a third party such as a financial institution that holds a bank or building society account for the person to pay out the available funds, less that financial institution’s fees, to the local authority. The process will only be successful if there are monies in the account on the day the financial institution receives the court order. Third party debt orders may not be made where the account is held in the name of more than one person. Savings are taken into account in the financial assessment of what someone can afford to contribute towards the cost of their care and this may therefore be a suitable option in some cases.

47) A charging order places a charge on a property or other assets owned by the person in order to secure the debt. This means that, just as with a DPA, payment will only be realised when the property or assets are disposed of. A further claim must be made for an order for sale to enforce the charging order. Where a person owns their own property this is likely to be the most viable option for recovering the debt. It is similar to a DPA in that a charge is secured against the person’s property but by order of the court. The charge is usually a first charge unless other charges such as a mortgage are already registered against the property.

48) Further detail on both third party debt and charging orders can be found in the HMCTS leaflet EX325, Third party debt and charging orders

Other routes

49) Local authorities may also want to consider what other options may be available to support them in the recovery of debts. For example, Section 423 of the Insolvency Act 1986 provides additional routes to recover debts where a person may has transferred or sold their assets to a third party at a price that is lower than the market value with the intention of putting those assets out of reach or, or prejudicing the interests of, someone who may wish to bring a claim against that person. In considering the options, a local authority should seek the advice of its legal department.

Further information

50) HMCTS have developed a number of leaflets to help guide anyone through the court process.

A summary of those already referred to in this guidance and others that may be of use are listed below:

• EX301: How to resolve a dispute in or out of court
• EX302: Taking a claim to court when you’re in a dispute
• EX304: After you start a claim in the County Court
• EX305 and EX306: Small claims track, fast track and multi-track
• EX321: What to do if a defendant doesn’t pay money after judgment
• EX325: Third-party debt and charging orders
• EX50: Fees in the Civil and Family Courts – main fees

Complaints

51) A person may wish to make a complaint about any aspect of the way a local authority uses its powers under the Care Act. A local authority must therefore make clear what its complaints procedure is and provide information and advice on how to lodge a complaint and set out details of how to contact the Local Government and Social Care Ombudsman.