What happens to council tax debt if I go bankrupt
- 29 Apr 2022
Generally speaking, council tax debt is written off if you go bankrupt. However different rules apply for your current bill and if the debt is in joint names.
Included in this article:
- Are council tax arrears included if you go bankrupt?
- What if the debt is in joint names?
- Is your current year’s bill written off?
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Are council tax arrears included if you go bankrupt?
Council tax arrears are included if you go Bankrupt. This debt is written off in the same way as any other utility bill debts you have.
It doesn’t matter whether the debt is from a previous property or the place where you are currently living. Bankruptcy will protect you. The council will no longer be able to take enforcement action against you to collect the debt.
Any action currently being taken against you has to stop. If a bailiff visits your property on behalf of the council, all you have to do is tell them you have gone bankrupt. They must leave immediately. They are not allowed to take any further payment or possessions from you.
In the same way, if a liability order has been issued against you for non payment of council tax, this will be overturned.
Once you are bankrupt, your council tax arrears are written off. This is the case even if you living in a property rented from the council. You will not be evicted from your home.
What if the council tax debt is in joint names?
As with any other debt, you need to understand what happens if your council tax arrears are in joint names with someone else.
Going bankrupt protects you from most joint debts. However, only you get the protection. The other joint account holder remains liable for 100% of the outstanding balance. The creditor can still chase them for all of the money.
In other words, if your joint council tax arrears are £1500 and you go bankrupt, the other person still has to repay the full £1500. The council will continue to take enforcement action against them unless they pay it (with a bailiff if necessary).
The good news is there are ways to protect the other joint account holder from collection action. The best option is to ensure the debt is paid. You are allowed to agree a payment plan with the council and make a provision to pay for it in your bankruptcy living expenses budget.
Of course, if this is not affordable or they also have other debts, it might be better for the other account holder to go bankrupt as well. Alternatively they could use a different debt solution.
Bankruptcy only protects you. The other account holder remains liable for any joint council tax debt. You will need to make provision for them to pay this.
Is your current year’s bill written off?
When you complete your bankruptcy living expenses budget, you must include a monthly allowance to pay your ongoing council tax. If you pay over 10 months you will need to take the full annual bill and divide by 12 to get the true monthly figure.
If the bill is in your name only, the Official Receiver (OR) may tell you to stop making the payments and pay the monthly amount to them instead. The reason for this is that your council tax bill is issued annually in advance. This means even the current bill is a debt that is included in your bankruptcy.
This arrangement only lasts until your next bill is issued the following March. At that time, you stop making any associated payments to the OR and pay the new bill yourself as normal.
This is quite legitimate. The council will understand and agree.
Where your current bill is in joint names, you must continue to pay this as normal. In these circumstances, the Official Receiver will not expect you to stop paying your council tax.
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