If you go Bankrupt the Official Receiver (OR) will review your income and reasonable living expenses in detail. You will normally be required to make a payment towards your debts if you have any money left over after all of your reasonable living expenses have been taken into account.

Of course this then leads to the question what will the Official Receiver count as your income when they are working out what you have coming in and what you can afford to pay.

Your income is calculated not only by including any wages you receive from employment but also other areas such as benefits or a pension payment you are receiving. We will explain exactly what will be taken into account within this calculation and whether any of your income is not included.

How is the payment I will be asked to make calculated?

The Official Receiver (OR) will work out whether or not you should make any payments towards your debts by deducting your reasonable living expenses budget from your total income.

Generally speaking anything left over is classed as your disposable income and you will have to pay this towards your debt for up to 3 years in the form of an Income Payment Agreement (IPA).

If you do not have any disposable income you will not have to make a payment towards your debt and if your circumstances do not change before you are discharged then your debt will be written off and no more payments will be required.

Will my partner’s income be counted as my income?

If you are in part time or full time employment then of course any wage you personally receive will be considered as part of your income. However if you are living with a partner you will also have to have to declare their wages and any other form of income they receive.

This does not mean that they will have to contribute to your debt. The OR simply needs to understand what your partner is earning so they understand what portion of the household living expenses your partner should be paying.

Simply put if you both have the same income this means you are both responsible for half the total income. As such you should each pay 50% of the household living expenses. Any disposable income left over is then normally split 50/50. The official receiver would claim your half and your partner would be able to keep their half for themselves.

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Will benefits be included as income in Bankruptcy?

If you are in receipt of any benefits you have to confirm these on your application form so that the OR is aware of them.

If your only income is made up of benefits it is unlikely that you will have to pay anything towards your debt even if on paper you have a disposable income. This is because your benefits are calculated to cover only your reasonable living expenses and generally do not allow for the repayment of debt.

If you are in receipt of benefits as well as earning a wage and you have disposable income then it is likely that this will be taken by the OR. However this situation is rare as income related benefits are usually only granted to top up an already low wage.

BMD Tip: If you are receiving income such as a carer’s allowance this is generally treated as a wage by the OR and you will be at risk of getting an IPA if you have disposable income.

What happens if I am receiving a pension while I am Bankrupt?

If you are already collecting pension payments when you go bankrupt these will be treated as part of your income for the purposes of calculation your disposable income.

If you are not currently claiming your pension but you reach pensionable age and start to receive your pension before you are discharged bankrupt you must declare this new income to your OR at that time.

The OR will then carry out a review of your income and expenses budget to see if your disposable income has been affected. If it has gone up you might be asked to increase or even start an income payment.

BMD Tip: If you are due to receive a large pension it may be worth delaying this until after you have been discharged if you are able to. However it is possible that the OR could force you to draw your pension to help pay towards your debt.

What if my income changes during my Bankruptcy?

Whether or not you are currently making a payment towards your debts if your income changes while you are Bankrupt you should inform the Official Receiver.

If you are already paying an IPA and as a result of the change your disposable income increases the amount you are asked to pay will also increase. If your disposable income falls the payment you are making will be reduced or cancelled altogether if this figure is now zero.

If you are not currently paying an IPA but the change means you can now afford to do so this will be put in place and will then last for 3 years from the date it started continuing even after you are discharged.

BMD Tip: An IPA can only be introduced while you are still Bankrupt. If one has not been issued and your income increases after you are discharged the OR can no longer ask you to start making payments. For this reason it is best to delay any wage increases or a new job that would result in a large increase in your income until after you are discharged.