Can I go Bankrupt if I am on Benefits?
- 03 Feb 2022
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.
Included in this article:
- Is it possible to go Bankrupt if you are on Benefits?
- Do you have to pay the Application Fee?
- Will you have to make payments towards your Debts?
- How to pay the Bankruptcy fee while on Benefits
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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.
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
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.
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
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.
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.
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.
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
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.