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Is it possible to go Bankrupt while on benefits
Money Advice, Debt Advice & Debt Help

Is it possible to go Bankrupt while on benefits

Is it possible to go Bankrupt while on benefits

If you are receiving benefits there is no reason why you cannot go Bankrupt to deal with a debt problem.

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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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12 thoughts on “Is it possible to go Bankrupt while on benefits

  1. Jules says:

    I recently went bankrupt but am now expecting to get a lump sum which is made up of a DLA back payment. I was going through the application process before I went bankrpt and they have only just sorted it out.

    The amount I will get will be around £1500. I would like to use this money to pay back family who helped me pay my bills while I was waiting for the disability award. Do I have to tell the OR about this money and will I be able to keep it?

    1. Hi Jules

      In most circumstances if you receive a windfall (such as an inheritance payment) while you are bankrupt it would have to be handed over to the official receiver. However you should be able to keep a DLA or PIP back payment.

      The reason for this is that the OR will not normally take PIP or DLA payments into account as part of your income when calculating what you can pay towards your debts. These payments are received to fund your care needs and not your living expenses as such. Therefore I think it would be very unlikely the OR could justify taking a DLA or PIP back payment from you.

  2. Stephanie says:

    Hi i am applying to go bankrupt however my only form of income is child tax credit and child benefit. I dont receive anything else as my partner works. I am reading he is not liable for my debts but realistically any surplus income will be his? Or part of my benefits for my kids, so how will it work please?

    1. Hi Stephanie

      You are correct. If you go bankrupt your partner will not have to pay towards your debts. However when you apply you will still need to give details of both your incomes. You will also have to list the total household expenses. This will enable the official receiver to calculate the total household surplus income.

      Generally speaking if your only income is benefits then the household surplus is likely to be zero (or you might even have a deficit). Where this is the case you will not be asked to make any further payments towards your debt whatever.

      If there is a surplus then if you were working this would be divided between you and your partner based on the % of the income you both generate. Your share would then have to be paid towards your debts. HOWEVER given your income is just benefits your share cannot be taken from you. As such you would have nothing to pay.

  3. Stephen says:

    Hi there,
    I have a few questions if I may?

    1. I’m very sorry to ask about something you have already stated on this page but please may I just double check with you about paying for my Bankruptcy Fee with my credit card that I will including in my debt and Bankruptcy application?

    When I had my appointment with the CAB last week they were unsure and didn’t believe that I would be allowed to do this. Has anything changed with regards to doing this recently ?

    Can you confirm as to whether it could be looked upon unfavourably or not by the OR

    2. I have just been awarded Universal Credit of £812 today and have no other income.
    I’ve had the money paid into one of my bank accounts that doesn’t have an overdraft facility (Nationwide Flex Account).

    My question is (as I am planning to send my Bankruptcy application in within the next week) will this account also be frozen with my main Natwest Current Account?

    I was wondering if I should:
    (a) Pull out the cash so that I have access to pay Rent and bills manually?
    (b) Open a Basic Bank Account that won’t get frozen this week before I send my application?
    (c) Or just wait until the Account is unfrozen (if it is) and email or call utilities companies and other Direct Debits and warn them to expect the payments to fail and tell them I’ll pay once my account is unfrozen and I have access to the benefits payment?

    Sorry to ask so many questions, but I’m just concerned that whatever I do may have implications.

    Thank you for your time.

    1. Hi Stephen

      To answer your question about borrowing money from a credit card to pay for your bankruptcy. This situation is not ideal and I do not recommend it as general practice. However if there is absolutely no other way of getting the fee together borrowing a little more to resolve your overall problem is an option.

      Taking money from a credit card to do this is no different to using an overdraft or payday loan. In my experience the Official Receiver does not approve but at the end of the day there is nothing they can do about it. Your bankruptcy will not be treated any differently if you use this option for funding the fee.

      If you have opened a new Nationwide account it is unlikely that this would be frozen. However if it is it will not be a huge problem. Normally the OR will communicate with the bank to confirm they have no interest in the account and it can be unfrozen within a matter of hours. As such there should be no need to pull out cash to keep in reserve.

  4. Wayne says:

    Hi

    I’m thinking of going bankrupt I have saved my fee. My ex partner left me owning 25000 and everything was in my name. I am currently in a homeless hostel as didn’t have anywhere else to go after my ex kicking me out. I didn’t take anything with me as I have a kid with her so thought by taking my stuff I’d be leaving my child without which I thought wasn’t fair as my kid is innocent.

    My mom was my Carer but died in 2015 to brain cancer. then my 24 year old brother cared for me but nine months later committed suicide to join my mom. I had a breakdown after my mom brother then my 14 year relationship broke down so ended up where I am today

    I’m only on benifit I get 390 fortnightly on Esa plus 330 monthly pip. If I move in with my new girlfriend will she be affected. I think it’s unfair to bring her into it as she a good woman and didn’t cause this. Also if I go bankrupt can they still look for more out of my benefits?? I’m trying to sort out my application with Cumminity law but can only get a 45 min appointment every 2-3 weeks.

    1. Hi Wayne

      It sounds as though bankruptcy is a very sensible solution for you to resolve your debt problem. From what you have said it is exactly the right thing for you to be doing.

      You do not need to worry about moving in with your girlfriend. Neither she or her property will be affected. In addition you can rest assured that you will not lose any of your benefits. If your only income is benefits the official receiver will not take any of these from you.

      Your debts will be written off and after 12 months you will be discharged from bankruptcy. You can then put this behind you.

      If you have further questions or need more help or assistance why not joint our bankruptcy forum. It is free to join and you can get fast answers you any questions you might have.

  5. Nic says:

    Hi,
    I have just submitted a bankruptcy application as my business closed and I had personally borrowed for investment for the company and then personally guaranteed the business debt. I was made redundant when the business closed and am currently claiming universal credit.

    I have 2 questions, the first is that I opened a new basic account to have my benefits paid into, will this be able to remain open so I can pay my bills? The second question is, if I start working within the bankruptcy period will the court decide that I have to contribute to the debt?

    1. Hi Nic

      If you have opened a basic account then this should remain open once you are bankrupt. Most banks allow their basic banking facility to be used by a bankrupt person so you should not have an problem there.

      In terms of getting a job, if you start working while you are still bankrupt you must let the OR know. They will then ask you to complete a new income and expenses budget. If you still have no surplus you will still not have to pay anything. However if your new income means you then do have a surplus you will have to pay this towards your debts for 3 years.

  6. Nadeem says:

    Hi,

    I had unsecure debt of over £24k and had to quit work due to poor health. I filled for bankruptcy in June 2019. As I was not working at the time I filled for it I had no restrictions put on me apart from the standard ones.

    currently still non working but I am on benefits (carers Allowance and universal credit. I have been offered a gift of cash by my mum of around £600. Would it be ok for me to accept it or will the OR want that money off me?

    1. Hi Nadeem

      You do not need to worry. You can accept this gift from your Mum and it will not be at risk of being taken by the Official Receiver. In fact you don’t even need to tell them about it as they would not be interested. Lets face it, if there was a risk that these funds would be taken then your Mum would not give you the cash.

      The only time you need to disclose money you receive is if you get a real windfall. For example if you were to inherit some money or get a compensation payment. This is money which you couldn’t say no to. Legally it would have to come to you and the OR would then be entitled to it.

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