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Can I go Bankrupt if I am on Benefits?
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Can I go Bankrupt if I am on Benefits?

Can I go Bankrupt if I am on Benefits?

If you receive benefits Bankruptcy may be an ideal debt solution. You may not have to make any further payments towards your debts.

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Is it possible to go Bankrupt if you are on Benefits?

If you are receiving benefits but are struggling with debt you can go Bankrupt. There is nothing to stop you using this solution if you feel it is right for you.

Bankruptcy may actually be a very sensible option for you. The fact that you receive benefits may mean that you are on a low income. As such other solutions such as an IVA which require you to make monthly payments may not be affordable.

If you go Bankrupt and cannot afford to make payments towards your debt you will not have to. The money you owe will be written off after 12 months.

Do you have to pay the Bankruptcy Application Fee if you receive Benefits?

If you want to go Bankrupt you will have to pay the application fee whether you are receiving benefits or not. Despite the fact that you probably have a low income you will not be eligible for any reduction.

In England & Wales the bankruptcy application process moved on line on the 6th April 2016. The fact that you no longer have to visit the Court is seen as a positive step by many.

However the downside is that there is no longer any option to waive part of the fee for those on a low income.

It is possible to pay the bankruptcy application fee in instalments. However you will not be able to submit your application until it is paid in full.

Will you have to make payments towards your Debts?

When you go bankrupt you have to declare all of your income including any benefits. The Official Receiver will then calculate if you can afford to pay towards your debts.

If your only income comes from benefits it is very unlikely you will have to pay anything. This is because you are unlikely to have any surplus income.

Your benefits are set so that you can pay for your reasonable living expenses only. There should be no surplus which can be used to pay for anything else.

You may have other forms of income as well as benefits. In these circumstances your total income is taken into account. If based on this total you can afford to make a payment towards your debts you will have to do so.

How to pay the Bankruptcy Fee if you are on Benefits

Finding the money to pay the Bankruptcy Fee is unlikely to be easy if you are on benefits. However there are some things you can consider which might help.

First can you borrow the money you need? Perhaps a friend or family member can lend you the money. If you have available credit on a card or overdraft you could also use this or borrow from a Payday lender. This is not ideal but you will not be penalised.

If you borrow money to pay for your Bankruptcy this becomes a debt which is then included in the procedure. If you want to repay this money you will normally have to wait until after you are discharged.

If borrowing is not an option then you will have to save. To help you do this you should stop paying the debts which you will include in your Bankruptcy. Instead put this money aside and save it towards the fee.

When you stop paying your creditors will probably start to hassle you and threaten Court action. You should explain that you plan to go bankrupt in the near future and request that your account is put on hold.

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54 thoughts on “Can I go Bankrupt if I am on Benefits?

  1. Lynda says:

    Hi myself and my husband want to go bankrupt, can we do this together or do we have to apply for bankruptcy separately ? We are both on benefits due to my disability and my husband is my full time career

    1. Hi Lynda

      Bankruptcy is an individual process. As such both you and your husband would have to make separate applications. You both have to complete a separate application form (although much of the income and expenditure detail will be the same in each). Unfortunately despite being on benefits and a low income you would both have to pay the application fee.

      If either of your debts is less than £20,000 that person might qualify for a debt relief order which would give the same outcome but be cheaper to implement.

  2. Scott says:

    Hi me and my wife are about to go bankrupt, we are self employed and on universal credit, if they freeze our bank accounts will we still get access to our benefits? And also as sole traders will this cease or will we continue as normal? Thank you very much.

    1. Hi Scott

      You and your wife can have a bank account if you go bankrupt. However it will need to be a basic account. You should check with your bank to see if the account you have now is a current or basic one. If it is a current account it will need to be changed to a basic one. Most banks will be happy to do this for you. You will get a new bank account and sort code so you will need to make sure you update Universal Credit with the new details.

      If you are self employed (working as sole traders) you can certainly continue to do this after you are bankrupt. You should be able to continue trading as normal. Having said that if your business has assets (for example a shop would have stock) or you have employees this needs more careful consideration. Please call us if you would like to discuss this (0800 044 3194)

  3. Roger says:

    Hi. I claim carers allowance for my partner who claims esa/pip. Where should enter my partners pip payment as an expense on the application form?

    Ultimately all of our income currently comes from state benefits, with no view to change in the foreseeable future. Is it likely I will end up with a payment order, in your opinion?

    1. Hi Roger

      Your partner’s PIP has to be included as part of her income on your application. However you do not have to justify how this is spent. As such you include the same amount in the expenses section under “other expenses” right at the bottom. Call it PIP expenditure. This money should not be taken into account by the OR when calculating surplus income

      Your carers allowance is not actually treated as a benefit by the OR. As such in theory some of it could be taken from you if you have a surplus. However I think this would be very unlikely given the only other incomes you have are benefits. As such I do not believe you will get an IPA.

  4. Tammy says:

    Hi I’m in the early stages of bankruptcy I’m unemployed at the beginning of the year due to my metal health issues and never been on benefits before. I’m entitled to a few benefits which will be over £1000 a month can the bankruptcy still take money of me if it’s over £1000 in benefits? Thanks Tammy

    1. Hi Tammy

      If your only income is benefits you have no need to worry. Even if the total you receive is greater than £1000 non of your benefits will be taken from you to pay your debts. You would only ever be asked to make payments towards your debts by the Official Receiver if you have earned income such as wages or a combination of wages and benefits.

      If your situation does not change and you do not get back into work before you are discharged then you will never be asked to make further payments towards your debts.

  5. Hannah says:

    Hi I’m wanting to go bankrupt but can’t afford to pay it in one go as I’m on benefits and I have a lot of debt is there any other options to pay for it

    1. Hi Hannah

      Unfortunately the bankruptcy fee always has to be paid. There are no reductions for people on benefits. Having said that you can pay the fee in instalments of as little of £5. The only thing is that the application cannot be submitted until the fee is paid in full.

      Are your debts less than £20k? If so one alternative you might be able to consider is a Debt Relief Order (DRO). This gives exactly the same outcome as bankruptcy but only costs £90 to implement. The DRO is specially designed for people on low incomes who will struggle to pay the bankruptcy fee.

      If your debt is greater than £20k or you do not qualify for a DRO for some other reason then one other option is contacting a charitable organisation. There are some who might be able to help you with the Bankruptcy fee.

  6. Mark says:

    Thanks for the info James…

    I have just added up my debts and i’m just over 20k.

    Can I pick & chose which debts I want included in a DRO? so I would definitely be under the 20k limit?

    Say if i was to leave out a Credit Card debt that i have with my bank for £1200 would that be acceptable? obviously I know I would have to then keep making payments to my bank which i would be happy to do.


    1. Hi Mark

      Unfortunately you cannot leave a debt out of a DRO. As such if your total debt is greater that £20k you will not qualify. The only option would be to pay off a debt to bring your total below the £20k level. However if this means paying more than £680 it is clearly counter productive as the cost of going bankrupt is only £680 which you can do straight away.

      Remember in your situation bankruptcy and a DRO would give exactly the same outcome.

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