You should not get a Payday Loan while you are bankrupt. However if you have an unexpected financial crisis you might considering doing so.

Because your credit rating is poor you will not be able to borrow from standard lenders such as your bank. However a Payday Loan company might be willing to lend to you.

Are you allowed to get a Payday Loan if you are Bankrupt?

Strange as it may seem you are allowed to borrow money while you are bankrupt. However there are certain restrictions. The main one is that you are not allowed to apply for more than £500 without first informing the lender of your situation.

Even if this restriction did not exist you will not be able to borrow money from a bank or a credit card company. This is because of your poor credit rating. If you were to apply they will carry out  a credit check which you would fail.

However a Payday Loan company or other short term credit provider such as a Doorstep lender may well be prepared to lend to you. If you borrow less than £500 you do not need to tell them you are Bankrupt. They have different lending criteria to the main stream banks. In addition they may not carry out a credit check against you.

Should you take a Payday Loan if you are Bankrupt?

The best advice is do not borrow more money while you are bankrupt.  The main reason for this is that you will struggle to pay the money back. You will already be living within a restricted living expenses budget. This means you will have no surplus to repay any new debt you take on.

If you have surplus income it is likely that you will already be paying this towards your debts with an Income Payment Agreement (IPA). If you try and repay a Payday Loan you may not have sufficient cash for your IPA. You will then have to explain the situation to the Official Receiver.

BMD Tip: You may think that you will be able to make savings out of your living expenses during the month and use these to repay your loan. However this almost never works. Making any savings while you are living in a restricted budget is very difficult.

Can a new Payday Loan be added to Bankruptcy?

If you have taken a Payday loan while you are bankrupt you may think this new debt can be included in the procedure. This is not the case. Any debt you taken on after you are bankrupt is not included and you will have to pay this yourself.

If you do borrow more money while you are Bankrupt you must speak to the Official Receiver about this. They will not be happy but if you have an IPA they may be able to help you depending on the reasons you took the new loan.

The OR may allow you to take a few months payment holiday from your IPA so you can use the money to repay your Payday loan. However if they will not allow you to do this you will have to try and make cuts in your living expenses.

How to avoid having to borrow more while Bankrupt

If you are Bankrupt and you have an unexpected financial crisis such as urgent boiler or car repairs the first thing you should do is speak to the Official Receiver. If you are paying an IPA they can give you a payment holiday.

This money can then be used to pay for what you need. The IPA you miss will simply be added to the end of the agreement.

If you are struggling financially during an IPA it may mean that your disposable income was miscalculated at the start of your bankruptcy. You may therefore be paying an amount towards your debts that you cannot really afford. The OR can review your situation and may cancel your IPA.