When you complete your application form, you do have to list all the different types of benefits you receive in the income section. But don’t worry, non of this money is at risk. If benefits are your only source of income you won’t have to make any further payments towards your debts.
The only time this could change is if you get a job during the year you are bankrupt.
Where you are working and also receiving some benefits, the official receiver will consider your total income. If you have a surplus over and above what you need to live on, you will be asked to pay this towards your debt for 3 years. It is assumed any surplus comes from your earned income.
If your income is made up of benefits only, you will not have to make ongoing payments towards your debts after you go bankrupt.
What if you owe money in because of previous overpayments?
You might owe money because of a past overpayment of benefits. Common examples of these are overpayments of tax credits, housing benefit or income support.
These debts can be included in bankruptcy.
In 2013 the Supreme Court ruled in a case known as Nortel and Lehman. The Court confirmed that bankruptcy includes all liabilities that arise from a contractual or statutory relationship that existed before the date of the bankruptcy.
As such as long as the overpayment was a mistake (not because of a fraudulent claim), these debts are included. This applies to all benefits overpayments.
It is common for DWP to claim that they are still allowed to make deductions from ongoing universal credit payments to recover previously overpaid tax credits. However, legally speaking, if you subsequently go bankrupt this is not allowed.
On benefits and need more advice about going bankrupt? Give us a call (0800 044 3194) or complete the form below and we’ll call you.
I have been advising people on how to solve their debt problems for over 20 years. During this time I have helped many people go bankrupt. I am an FCA Approved Person and the Managing Director of Wilmott Turner Financial Services (owner and operator of Bankruptcy Expert