If you are receiving benefits there is no reason why you cannot go Bankrupt to deal with a debt problem.
Included in this article:
- Can you go bankrupt while on benefits?
- Will you have to make payments 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 in the same way as the are now.
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.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
Will you have to make payments towards your debt after 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.
How much does bankruptcy cost if you are on 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.
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.
If your debt is less than £30,000 you might be eligible for a Debt Relief Order. This will give you the same outcome as going bankrupt but the application fee is much cheaper.
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.
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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?
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.
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?
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.
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.
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.