Debt solutions for benefit deductions
Debt relief orders, bankruptcy, IVAs and breathing space can prevent deductions from benefits for overpayments and other debts.
Debts that can be recovered though benefit deductions
A benefit authority can use its discretion to deduct money from a claimant's universal credit or housing benefit.
The benefit authority for universal credit is the DWP. The authority for housing benefit is the local authority. The rules for both benefit authorities are the same.
Deductions for debts to the DWP or a local authority
The DWP or a local authority can deduct money from a claimant's benefit to pay off a debt owed to it by the claimant.
This includes the recovery of benefit overpayments and the recovery of benefit advances.
Deductions for debts to other creditors
Deductions to other creditors are known as third party deductions.
The DWP can pay all or part of a claimant's benefit entitlement to a creditor if it is in the best interests of the claimant and their family to do so.[1]
Deductions can only be made for specific debts, including:[2]
rent and service charges included in rent
fuel costs
water charges
council tax
Read more about third party deductions from benefits on Shelter Legal.
How insolvency affects benefit deductions
Benefit claimants who are subject to personal insolvency could have their benefit deductions suspended or written off.
The Insolvency Service notifies the DWP or local authority that the claimant is subject to insolvency.
Insolvency solutions that affect benefit deductions
Personal insolvency solutions that affect an ongoing benefit deduction are:
bankruptcy
debt relief orders (DROs)
individual voluntary arrangements (IVAs)
The DWP Benefit Overpayment Recovery Guide explains how insolvency affects recovery of benefit overpayments.[3]
Who is responsible for stopping the deduction
For overpayments, the DWP or local authority must stop the deduction, as they are the creditor.
Third party deductions for debts that are included in an insolvency solution must also stop. The creditor the debt is owed to is responsible for instructing the DWP to stop the deduction.
The rules are specific to the type of insolvency and the type of debt.
Deductions for benefit advances
Deductions for benefit advances that have already been paid are suspended during an insolvency period. The debt is discharged at the end of the period unless it is classed as fraud.[4]
Advances that are paid during an insolvency period are recovered as usual.
Benefit deductions during breathing space
A breathing space moratorium under the debt respite scheme gives a person in debt a 60 day pause in enforcement action from their creditors.
A mental health crisis moratorium under the debt respite scheme gives a break in creditor enforcement action for a person receiving mental health crisis treatment.
Read more about breathing space and mental health moratoriums.
Universal credit overpayments
The DWP must stop deductions for overpayments of universal credit when the claimant is in a breathing space moratorium or mental health crisis moratorium.
During the moratorium period, the DWP must not start a new deduction for a universal credit overpayment.[5]
Housing benefit overpayments
The local authority must stop deductions for overpayments of housing benefit when the claimant is in a breathing space moratorium or mental health crisis moratorium.
During the moratorium period, the authority must not make a new deduction for a housing benefit overpayment.[6]
Deductions allowed during a moratorium
The benefit authority can continue to make benefit deductions during a moratorium if they are for:
Benefit deductions during a debt relief order
A debt relief order (DRO) is an insolvency measure a person with a low income and few assets to have up to £50,000 of qualifying debts written off.[10]
After a DRO is approved, it is in force for a moratorium period, which is normally 12 months. Creditors named on the order cannot take any action to recover their money unless they have the court's permission.
Read more about qualifying debts in a debt relief order.
Benefit overpayment deductions
Where a benefit claimant is subject to a DRO that includes a benefit overpayment as a qualifying debt, the DWP cannot start or continue to recover that overpayment during the DRO moratorium.[11]
To be a qualifying debt, the DWP or local authority must have issued a notice of a recoverable overpayment. If no notice has been issued, the debt is a contingent liability and cannot be included in a DRO.
Read more about contingent debts in a DRO on Shelter Legal.
Third party deductions
Third party deductions for a qualifying debt must stop during the moratorium period and are discharged at the end of the moratorium.
Some third party debts are not qualifying debts. For example, magistrates' court fines.
Benefit deductions when the DRO moratorium ends
The outstanding amount of overpayment must be written off when the DRO moratorium ends, except when the overpayment resulted from fraud. If the DWP or local authority determine the debt has been incurred through fraud, they can continue to recover the debt after the end of the DRO moratorium.[12]
The debt is classed as fraudulent if the claimant has been prosecuted or accepted an administrative penalty as an alternative to prosecution.
Benefit deductions during bankruptcy
Bankruptcy is an insolvency measure for people unable to pay their debts. Bankruptcy covers all debts owed by an individual at the time of the making of the bankruptcy order.
Bankruptcy covers all benefit overpayments regardless of whether the DWP has issued a notice of overpayment.
Benefit overpayment deductions
The DWP or local authority cannot start or continue to recover any overpayments of housing benefit accrued before the making of the bankruptcy order.[13]
Third party deductions
Third party deductions for a provable debt must stop during the moratorium period and are discharged at the end of the bankruptcy.
Some third party debts are not qualifying debts. For example, magistrates' court fines.
Benefit deductions after bankruptcy is discharged
The outstanding amount of overpayment must be written off when the benefit claimant is discharged from bankruptcy, except when the overpayment resulted from fraud. If the DWP or local authority determine the debt has been incurred through fraud, they can continue to recover the debt once the bankrupt is discharged.[14]
The debt is classed as fraudulent if the claimant has been prosecuted or accepted an administrative penalty as an alternative to prosecution.
Benefit deductions during an IVA
Under an IVA, the person in debt usually agrees to make monthly payments for five or six years, or to pay a lump sum towards the debts. During this time, qualifying debts are frozen.
Benefit overpayment deductions
Benefit overpayments that are included in the IVA cannot continue during the period of the arrangement and are written off when the IVA ends.
Third party deductions
Debts to third parties that are included in the IVA cannot continue during the period of the arrangement and are written off when the IVA ends.
Debts incurred by fraud
Deductions can be made during a breathing space for debts incurred by fraud.
Debts incurred through fraud are not discharged after bankruptcy or a DRO.[15]
Fraudulent benefit claims
Benefit regulations create an offence of dishonest representations that applies to benefit claims. The dishonest representation could include failure to notify the DWP or local authority of a change of circumstances.[16]
The DWP can decide to treat a benefit claim as fraudulent. They must follow their internal fraud investigations guide. The DWP can recover a benefit as fraudulent if the claimant was prosecuted for fraud, or has accepted an administrative penalty.[17]
A notice of a recoverable overpayment is not a decision about the claimant's fraud, even if the DWP has stated it believes fraud has taken place. It only states an overpayment has occurred and the DWP will recover it.
Administrative penalty
The DWP can offer an administrative penalty to the benefit claimant as an alternative to prosecution through the courts. It is available when the claimant has received no other fraud penalty in the previous five years.
The claimant can refuse to accept an administrative penalty. The DWP or Local Authority will decide whether to pursue prosecution for fraud through the criminal courts.
Formal cautions are not issued by the police for benefit overpayments. The DWP or local authority uses an administrative penalty as an alternative to a caution.
Read more about debts incurred through fraud on Shelter Legal.
Last updated: 30 July 2025