A woman was left in “considerable distress” due to a botched debt collection by Haringey Council.

An official report says the council made mistakes when chasing down an individual’s business rates debt and told the local authority to pay her more than £3,000 in compensation.

The report, by The Local Government and Social Care Ombudsman, says Haringey Council tried to have the woman – referred to only as Ms B – declared bankrupt in a bid to claw back a debt of more than £50,000.

But it significantly overestimated her ability to pay due to mistakes in calculating the amount of cash she had tied up in her house.

The council also breached the data protection act by contacting Ms B’s employer asking for details about her and her debt, causing her further “avoidable distress”.

In 2009, Haringey Council was granted a court order against Ms B for unpaid business rates totalling more than £20,000, and it made several attempts to recover the money, without success.

In 2015, Ms B was sent an email from a service manager telling her the council had put enforcement action on hold.

But two years later, in December 2017, the council sent Ms B a letter telling her to pay more than £55,000 in debt and extra costs – and if she did not pay up within seven days, it would try to have her declared bankrupt.

The council started bankruptcy proceedings against her in 2018.

As a result, the ombudsman’s report says Ms B is at risk of losing her home, has had her bank account suspended and “suffered considerable distress”.

Haringey Council’s policy says bankruptcy is “a last resort in most cases” and should only be considered when an individual has enough assets to pay the debt and all costs incurred.

But the ombudsman found the council bungled an attempt to estimate the amount of cash Ms B had tied up in her property.

It calculated she had £230,000, when the true figure was just £17,768 – nowhere near enough to cover the debt.

The ombudsman said the council would have been unlikely to start bankruptcy proceedings if it had made the right calculation.

He recommended the council cancel the bankruptcy, pay £3,400 to make up for the distress caused by its errors, and send a letter to Ms B telling her how it plans to recover the debt.

The council confirmed it will pay the money and decide whether to cancel the bankruptcy later this year.

Local Government and Social Care Ombudsman Michael King said: “While councils have every right to pursue people who do not pay their tax or business rates, they should also do this without undue delay and not let debts drift to such an extent.

“To take someone to court for bankruptcy is a very serious matter and…the council based its decision on a flawed assessment. This has had significant financial and emotional consequences for the woman.”

A Haringey Council spokesperson said: “In response to the report, we have agreed to pay the debtor £3,400 and accept that we made a miscalculation in the original valuation of the property.

“We want to be clear that we would only ever pursue bankruptcy orders as a last resort and understand that this can cause distress.

“However, the debtor still owes the council a substantial sum of money which we have been unable to recover over a number of years.

“We have been – and will continue to be – in communication with the debtor about finding a way forward.”