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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?

Are you receiving benefits such as Universal Credit, Tax Credits or ESA? If so, bankruptcy could be an ideal debt solution for you. If you have no other sources of income you will 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 from friends or family to pay for Bankruptcy, you will not normally be able to repay this money until after you are discharged.

Where 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.

Comments 96

  1. Andrea

    Hi just an enquiry. If on benefits have you got to pay the full 680 to go bankrupt or is it just the 130 application fee that needs to be paid?

    1. 19.04.2021

      Hi Andrea

      Since April 2016 (when the bankruptcy application process moved on line) everyone has had to pay the full £680 fee. You do not get any discount if you are on benefits i’m afraid.

      If you will struggle with the fee, there are some ideas about how you can get the money together to pay it in this article: “Can’t afford the Bankruptcy fee – What can I do“.

  2. Shaziya

    If I go bankrupt on benefits, will my house contents be sold to pay for my debts

    1. 30.03.2021

      Hi Shaziya

      I confirm that you can keep all of your personal possessions including your house contents if you go bankrupt (unless of course you own anything extremely valuable), so you have nothing to worry about.

  3. Joe

    2 questions.
    Q1. Will the official receiver ask for proof or call up the persons who have been staying with? Basically I lived at a friends for 13 months and gave them cash of £500.00 every month for rent and bills. There was no contract written up and my friend didn’t notify the council I was living there. He is concerned the Official receiver will call him and look into him. This is no good for me as I when It comes to explaining to the official receiver where £6500 as gone. Will they want to call my him?

    Q2 I have since moved back home since December and give my parents £250.00 House keep. Again this is cash. I don’t want them know that I have gone bankrupt. Will the OC ask for prove of this as again this will further £1500 I have laid out & I don’t want the OC contacting my parents.
    Many thanks,

    1. 19.03.2021

      Hi Joe

      You have noting to worry about. The OR is not going to contact your landlord. You have been lodging with friends. This is very common and normally a lodger will have no written agreement. £500/mth does not seem unreasonable. I can assure you the official receiver will have no interest in your friend to whom you were paying rent. Whether he declared you to the council or declared the income he received from you to HMRC is not the OR’s concern.

      If you are living at home you are allowed to pay your parents rent and this is a legitimate expenditure in your bankruptcy living expenses budget. I would suggest £250/mth is on the low side. The OR will not ask for proof of this payment. It is well within the guidelines for reasonable expenditure on rent. You your parents will not be contacted and their property will not be affected in any way.

      If you need further advice before going bankrupt, please give me a call. I would be happy to chat to you. The advice is free and without obligation. I can be reached on 0800 044 3194).

  4. Rebecca

    Hi im wondering if i go bankrupt what will happen to my universal credit payments that go into my account monthly. And also am i allowed to repay my rent arrears

    1. 17.03.2021

      Hi Rebecca

      If you go bankrupt, you do not need to worry about your universal credit. It will continue to be paid to you as normal.

      In terms of your rent arrears, officially these would be included if you go bankrupt. If you live in council or Housing Association accommodation this is no problem. However, if you rent privately, it could cause an issue with your landlord. As such I advise that you do not go ahead with bankruptcy before speaking to us. You can call free on 0800 044 3194. The advice is free and without obligation.

  5. Hannah

    Hi, I am thinking of bankruptcy, I am currently in an IVA but struggling to pay each month. Both me and partner are on benefits, universal credit, child benefit. My daughter receives dla and I get carers allowance for being her full time carer. We also have a motability car as part of her DLA, would this be taken away if I went bankrupt? Also would I have to make any payments each month if I receive carers allowance? We live in a rented house from housing association. Thank you

    1. 01.03.2021

      Hi Hannah

      Given you live in rented accommodation and the majority of your income is made up of benefits, stopping your IVA and going bankrupt would be a sensible option. I can confirm that your daughter’s DLA money would not be touched. The mobility car would also remain unaffected. You would be able to keep it. Even though you get carer’s allowance, your overall income is likely to be low and you are unlikely to have any surplus. As such you would not have to make any further payments towards your debts at all.

  6. Mark

    Hi im currently on sick benefit after breaking both feet im about to go bankrupt. How do i get my benefits if they close my bank account

    1. 17.12.2020

      Hi Mark

      You will still be able to have a bank account where your benefits can be paid if you go bankrupt. However, it will have to be a basic account.

      All high street banks offer basic accounts. They come with standard services such as a debit card and internet banking but have no credit facilities.

      If your account is already a basic one (check with the bank if you are not sure) you have nothing to worry about. It will simply remain open after you go bankrupt. If it is a current account you will need to speak to the bank about downgrading it or you can open a new basic account with any other bank you choose.

  7. Lydia

    Can you declare yourself bankrupt if you have payment plans in place with debt collection agencies?

    I have a substantial amount of outstanding debt (in excess of 30k)but am currently repaying at £1 per month to various debt collection agencies. I am also a single parent, on UC and rent via HA.

    Any advice would be gratefully received.
    Many thanks.

    1. 06.10.2020

      Hi Lydia

      If you live in Housing Association accommodation, your only income is benefits and your car is worth less than £1000, bankruptcy would be an extremely good solution for you.

      You can certainly go bankrupt even though you already have payment plans in place (even if these are for just £1/mth). Once you are bankrupt you simply stop paying these plans. The official receiver will write to your creditors to tell them what has happened. Given your only income is benefits you will then not have to make any further payments towards your debts at all.

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