If you are receiving benefits there is no reason why you cannot go Bankrupt to deal with a debt problem.
Jump to article contents:
- Can you go Bankrupt while on benefits?
- Do you have to pay any more towards your debt?
- How much does it cost?
- Can you borrow to pay for bankruptcy?
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Can you go Bankrupt while on Benefits?
You can go Bankrupt if you are on Benefits. The amounts you are receiving are not affected in any way. They will continue to be paid to you each week or month.
Given you are on a low income it might be an ideal solution for you. Once you are bankrupt you will not have to make any further payments towards your debts unless you can afford to do so.
If you are renting your property will not be at risk as long as as the rent payments are maintained. Your landlord is unlikely to be informed about your situation. If you live in council property and have rent arrears these debts will also be written off.
Your benefits will not be affected if you go bankrupt. They may even increase if you currently have deductions due to over payments
Do you have to pay any more towards your debt once you are Bankrupt?
You are required to declare all your benefits income on your application form. However this does not mean that money will be taken from you. It is likely that you will actually be better off as your ongoing debt payments will stop.
One of the advantages of bankruptcy is that you only have to make further payments towards your debts if you have disposable income. It is unlikely that this will be the case if you receive benefits.
If you are receiving Disabled Living Allowance (DLA) or Personal Independence Payment (PIP) you must include this in the income section of your application. However how you spend the money does not have to be justified. You simply include the same amount in your expenses budget.
Where you do have disposable income you must expect to pay this towards your debt for 3 years. This could happen if you have other forms of income as well as benefits.
What will it cost to go Bankrupt if you are receiving Benefits?
Before you go bankrupt you have to pay a fee to the Government. There is no way around this and no possibility of a discount (unless you live in Northern Ireland).
Generally speaking there are two ways of getting the fee together. You can either borrow the money you need or save it. To help you save you should stop paying your unsecured creditors. The money you would have paid them can then be put towards the fee.
Your creditors are likely to contact you if you you stop paying them. You should tell them that you have decided to go bankrupt and ask them to put your account on hold to give you time to organise your application. They will normally be helpful in this regard.
The bankruptcy fee can be paid in instalments. However you cannot submit your application until the total amount is paid in full.
Can you Borrow to pay for Bankruptcy?
You are allowed to borrow money to pay for bankruptcy. If you have available credit you can use this facility to pay the fee. You could also consider borrowing from friends, family or a Payday loan company.
Any money borrowed for this reason is then included as a debt and written off as part of the process. As such remember you will not be able to repay a friend who has lent you the money until after your bankruptcy is over.
You may be worried that it is fraudulent to borrow more just before going Bankrupt. However as long as the money is used for paying the fee it is not a problem. The Official Receiver understands you borrowed just a little more to stop your overall debt situation getting worse.
If your debt is less than £20,000 you might be eligible for a Debt Relief Order. This is much cheaper to implement than Bankruptcy.
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