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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.

  • Is it possible to go Bankrupt if you are on Benefits?
  • Do you have to pay the Appliction Fee?
  • Will you have to make payments towards your Debts?
  • How to pay the Bankruptcy fee while on Benefits

Want help to go bankrupt? Give us a call on 0800 044 3194 or complete the form below to speak to one of our experts

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 which require you to make payments towards your debt each month may not be affordable.

If you go Bankrupt and cannot afford to make payments towards your debt you will pay nothing more. The money you owe is likely to 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 a Fee. This is the case 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 will certainly not be easy of you are on benefits and have a low income. However there are some things you can consider which might make this easier.

The first is to borrow the money you need. Perhaps a friend or family member can lend you the money. If not you could borrow from an available credit card or overdraft facility. You could also consider borrowing from a Payday lender.

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 the money you need. A good way to do this is to stop paying the debts which will be included in your Bankruptcy. Instead you put the money aside and save it towards the fee.

When you stop paying your creditors will probably start to hassle you and threaten Court action. As soon as you go Bankrupt these actions will stop. Also any legal action that may have been taken against you will be overturned (with the exception of a charging order against your house).

Saving for your Bankruptcy fee will become easier from the 6th April 2016. From this date you will be able to pay in instalments as and when you have spare cash.

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

  1. Mrs Lynda nettleship says:

    On benefit ESA , had to move out of my house which I was buying and move to private rented ,18 month been on sale and getting into arrears can’t pay anything need help

    1. Hi Lynda

      If you have debts that you cannot afford including a possible mortgage shortfall after the repossession of your property then bankruptcy could well be a sensible option for resolving the problem. You can certainly go bankrupt if you are on benefits as the article above explains. If you need more help or advice about how to best deal with your debts please do not hesitate to contact me on 0800 044 3194.

  2. Charlotte Read says:

    I have debts of at least £4000 approx I’m a single mum of 2 on benefits and struggling to keep up repayments and pay my creditors off £2000 is just electric which by time I’ve done food rent and council tax I can’t afford to pay my electric really stuck as too if I go bankrupt will I still be entitled to my benefits?

    1. Hi Charlotte. Bankruptcy does not affect your entitlement to benefits. If you were to go bankrupt you would still qualify for your benefits and they would still be paid to you as normal.

      Given your debt is less than £4000 I also recommend that you consider a Debt Relief Order. This solution works in the same way as bankruptcy and gives exactly the same outcome. However it costs much less to implement (£90 compared to £680 for bankruptcy. If you are living in rented accommodation then I would thenk that you will almost certainly qualify. You can find out more info here: What is a Debt Relief Order

  3. kay moffett says:

    Hi I am a single mother of 5 kids on benefits and have been Hinding from my debts but it’s all getting to much now. I cant even remember who I have debts to and how much. I need help help please

    1. Hi Kay,

      I am sure that there is a sensible solution for your debt problem. If you owe less than £20,000 and are living in rented accommodation you may qualify for a Debt Relief Order. This will only cost £90 to implement and then you get the same benefits as Bankruptcy. If you owe more than £20,000 then bankruptcy might be the best way forward. Please do not hesitate to give us a call and we will be happy to give you more advice (0800 044 3194).

  4. Tracy says:

    I have just lost my home saving to go bankrupt but just moved in with my partner he is claiming tax credits for both of us,will he be effected when I go bankrupt don’t want him or his address to be involved

    1. Hi Tracey,

      Your partner is not affected in any way if you go bankrupt. You will have to confirm his income (including benefit income) on your application form but he will not be liable to make any payments towards your debts. For more info about how your partner is affected if you go bankrupt have a look here: My Partner and Bankruptcy

  5. Wayne Holmes says:

    I have got debts which I can’t pay and I can’t remember who I owe money too but would like to apply for bankruptcy but am on benefits

    1. Hi Wayne,

      There is nothing to stop you applying for bankrutpcy if you are on benefits. You are just as eligable to apply as anyone else. In addition one of the advantages of bankruptcy is that you do not have to remember who you owe money to. You should try your best to list the people you do know of on your application. However if you forget some they are still included and these balances also written off. If any of these were then to contact you after you are bankrupt you simply inform the Official Receiver and they will deal with them for you.

  6. breda quinn says:

    If I apply for bankruptsy can i use another name that i have been called and have debts in this name also

    1. Hi Brenda

      If you have debts in another name such as your maiden name there is no problem with this. They can be included in the same bankruptcy application. When you complete the application form you will be asked whether you have had debts in any other name and if so you can include that name as well. All the debts in both your names will be included.

  7. Sarah says:

    Hi, I am self employed making very little sometimes nothing, claim working tax Credits and child tax Credits. If I go bankrupt will my child maintenance from her father count as income to pay debts off? Thanks

    1. Hi Sarah

      I can confirm that Child Maintenance payments are considered as part of your income. As such if you have any disposable income the Official Receiver is likely to require you to pay this towards your debts for 3 years yes. This rule is confirmed in the Insolvency Service Technical Manual Section 31.7.75.

  8. Daryl says:

    Hi,
    When applying for Bankruptcy whilst on Benefits (ESA) does the EX160 form no longer apply? Is it no longer possible to get part of the fee waived? Will I have to pay the full fee of £680?
    Thanks.

    1. Hi Daryl

      In April 2016 the bankruptcy application process in England and Wales moved online. Given you no longer have to go to the Court there is no “Court Fee” to pay. The EX160 Court Fee Waiver application is therefore no longer applicable to the bankruptcy process. I am afriad everyone now has to pay the full £680 fee whether they are in receipe of benefits or not.

      If you are struggling to get the £680 together there are certain charitable trusts that may be able to help. You can find out more about this in the last section of this page: The cost of Bankruptcy

  9. Philip says:

    I have a debt of just under £2,000 which I can’t afford to pay back . I don’t claim any job seekers allowance or any other benefits and I’m not working as I look after my kids while my partner works part time. I don’t have any money at all. Don’t know how I can pay this debt off as my partner needs all her wage for living costs

    1. Hi Philip

      Your situation sounds similar to that of Charlotte Read above.

      Given you have debts of less than £20k and have little or no income I suggest you consider a Debt Relief Order (DRO). This solution gives you the same outcome as bankruptcy but only costs a one off payment of £90 to implement (compared to the £680 fee to go bankrupt). If you are not a home owner this solution is designed specifically for you.

      You can get a DRO by making an appointment with the debt counsellor at your local CAB (Citizens Advice) or by speaking to the Step Change debt charity.

  10. R cooper says:

    Hi thinking of going bankrupt and I know they will freeze my bank accounts. If this happens how do you get your housing benefit? Please help

    1. Hi there

      Maintaining a bank account when you are bankrupt is not as much of a problem as you might think. You are right if you have a current account the bank will normally freeze it a week to 10 days after you go bankrupt. However most banks will be happy to open a basic account for you which will remain open. You can have your benefits paid into that account.

      If you already have a basic account you do not need to worry. This will simply remain open. However if you owe money to your current bank I would advise opening a new basic account with a different bank. At present TSB seem to be very helpful in this regard. You can open your new account either before or after you go bankrupt it will make no difference.

  11. Donna says:

    Hello,

    I have just been hit with a 14,000 bill from a solicitors that I was using as a no win no fee personal accident claim. After 3.5 years, I was chatting to him and mentioned something that I know had disclosed to him prior.He denyed this, and said that I had signed my witnes statement to the contrary. I looked at it later, and the statement wasn’t there on the original.It had been added recently, and after a bombardment of emails and telephone calls, I just scanned through and signed missing the vital added- not by me, statement.

    I can’t possibly pay this back.I have other debts too.My income as a carer only comes to roughly 1000 a month. Is bankcruptcy an option for me. I actually feel sick thinking about it.

    1. Hi Donna

      Thank you for your call just now. I can confirm that if you owe a debt to a solicitor that you cannot pay this would certainly be included and written off if you went bankrupt. Any other unsecured debt in your name would also be included.

      Given you are not a home owner and do not own a car you have nothing to lose by going bankrupt. The only thing to note is that as you are employed if you have any surplus income you would be obliged to pay this towards your debts for 3 years.

      My first suggestion is that you go back to the solicitor in question and explain that if you cannot come to a sensible agreement you will have no choice than to go bankrupt. Perhaps offer him £500 for his time. If he will not budge and wants to press you for the full amount my advice would be not lose any more sleep over it. Just go bankrupt and have done with it.

  12. Fiona says:

    I am currently on a dmp and owe £3715. I do not work and am in receipt of housing benefit, council tax benefit and carers allowance. My 13 yr old son has sensory processing disorder and is on the waiting list for autism spectrum disorder.

    My dmp are wanting most of his dla to repay MY debt which I feel is unfair as the money is to pay for the things he needs. Would I be able to go bankrupt owing this amount of money?

    This is the first time in years I have had enough money to make sure he has the things he needs and enough for the extra petrol to take him the places he needs to go. If they take it we will be back to square one. Is bankruptcy an option for me? Many thanks Fiona

    1. Hi Fiona

      Firstly you do not have to make payments into your Debt Management Plan (DMP) from your son’s DLA payments. As you rightly say this money is to pay for his needs and not your debts. As such no DMP provider can force you to hand this money over.

      Having said that most DMP providers can only help manage a DMP on your behalf if you are able to make a minimum payment of at least £75-£100/mth. If you are unable to do this without using some of your son’s money this may be why you are being asked to hand some of it over.

      In terms of whether or not bankruptcy is an option for you if (as I assume) you are living in rented property the answer is yes. If you went bankrupt your debts would be taken away from you. Given your income is made up of just benefits it would be highly unlikely you would have to make any further payments towards them. After a year you would be discharged and the debt written off.

      Having said that the issue for you will be the up front bankruptcy fee. This has to be paid in full before you can apply. Given this I would recommend that you look into the option of a Debt Relief Order (DRO). This would give the same result as bankruptcy but given you qualify it would only cost £90 to implement. You should make an appointment with your local CAB to discuss this or speak to the Step Change Debt Charity.

      1. Fiona says:

        Hi James,

        Thank you so much for your reply. I forgot to add that I have a car on finance from First Response, if I took out a DRO would I be allowed to keep on paying for the car? Where I live I really need a car to get us anywhere.

        Kind regards
        Fiona

        1. Hi Fiona

          The fact that you own a car on finance may affect your ability to use a DRO. The issue is that to qualify for this solution the second hand value of your car must be no more than £1000 regardless of any outstanding finance. If the value is more then you would not qualify and you would need to consider the bankruptcy option.

          In terms of bankruptcy you are allowed to keep a car as long as its second hand value net of any outstanding finance is £1000 or less. In other words you are allowed to deduct the value of any outstanding finance before the final valuation is reached.

          For example: If the value of your car is £2500 and the outstanding finance is £2000 you do not qualify for a DRO because the value is more than £1000. However if you go bankrupt you could keep the car (as long as you continue paying for it) as the value net of outstanding finance is only £500.

          Note: Normally if you go bankrupt and have a car on finance the finance company will allow you to keep it as long as you maintain the payments. However you need to double check with them that they would be OK with it BEFORE you go bankrupt. If they say it is OK then the official receiver will normally have no issue with you maintaining the payments while you are bankrupt as long as they are not unreasonably high.

  13. Sam says:

    I am looking to go bankrupt, I have put it off thinking I can clear the debt owed, but now realise it’s just not possible. I receive child tax credit, housing benefit, child maintance, student finance, as well as income from casual employment which varies evwry mnth.I am classed as a full time student and single mum. What would be included as income?

    1. Hi Sam

      You will need to record all these forms of income on your bankruptcy application form (other than student finance which is not income). Having said that the Official receiver will not automatically take any of this money from you. They will want to look at all of your reasonable living expenses as well. They will only ask you to make a payment towards your debt if you have any disposable income (money left over after all your living expenses are covered).

      As I do not know anything about your expenses it is impossible to say whether you might have to make a payment or not. Having said that given the majority of your income is made up of benefits I would say that it would be fairly unlikely. A list of the allowances you can include in your budget can be found in our living expenses guide.

  14. Harry says:

    If I go bankrupt but am then paid back payments for a non income related benefit within the 12 months before I am discharged would the official receiver take this away from me?

    1. Hi Harry

      If you go bankrupt you have to declare any benefits that you receive. Generally speaking if your income is just made up of benefits you will not have to make any further monthly payments to your debt. This is because you are unlikely to have any disposable income. Your benefits are calculated to cover your personal needs not to fund extra expenses such as debt payments.

      However if before you are discharged you are paid a lump sum because you are owed back payments on your benefits the official receiver (OR) is likely to view this as a windfall. As such they may ask you to hand it over. That said if the lump sum received is relatively small you would probably be allowed to keep it.

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