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

  1. 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.

  2. 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.

  3. 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.

  4. 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.

    Regards

    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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