What if I lose my job while I am bankrupt
- 20 Apr 2022
This article explains what you need to do if you lose your job while you are bankrupt. In particular, it provides advice on whether or not you need to inform the official receiver and what would happen to any redundancy payment you receive.
Included in this article:
- Do you have to tell the official receiver if you lose your job?
- What if you get a redundancy payment while you are bankrupt?
- The implications if you already have an income payment agreement (IPA)
- What to do when you get a new job
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Do you have to tell the official receiver if you lose your job?
Whether you tell the Official Receiver (OR) that you have lost your job while you are bankrupt depends on your circumstances.
Legally speaking, you only have to inform them if your income increases (Section 333, Insolvency Act 1986). When it falls, you don’t have to.
Generally speaking, they will not be interested. A fall in your income will not help them increase the amount you can pay towards your debts.
However, you might want to tell them. This would be the case if you are currently making a payment towards your debt each month which you now need to reduce.
What if you get a redundancy payment while you are bankrupt?
You must inform the OR if you receive a redundancy payment after losing your job.
The lump sum you are paid is regarded as a windfall (or more technically ‘after acquired property’). The OR are allowed to take 100% of any redundancy payment you receive. This is because the payment is received as compensation for the loss of your job rather than loss of earnings. It is therefore considered to be a windfall.
The OR does not have to take into account how you will fund your ongoing living expenses until you find a new job.
If you receive a redundancy payment while you are bankrupt, you must inform the OR. In most cases, 100% of such funds received will have to be paid to them.
The implications if you already have an income payment agreement (IPA)?
Where you have an income payment agreement (IPA), this means you pay your surplus income towards your debt every month. Clearly if you lose your job, you will no longer be able to afford this.
You must tell the OR as soon as possible and confirm that you can’t continue with your agreed payment. They will normally ask for a copy of your P45 as proof you have lost your job. Once this is received, your IPA will be suspended.
One of the advantages of bankruptcy is that it is not dependent on you being able to make a monthly payment towards your debts each month. If any payments you are making have to reduce or stop, you are still bankrupt and your debt is still written off.
In addition to informing the OR, you should also speak to the collection agent to whom you have been making your monthly payment. This will normally be Advantis Credit. They may also ask you to send them a copy of your P45. They can then update their system so you are not recorded as missing payments.
If you are making payments to the Official Receiver as a result of a tax code change, you need to tell them as soon as you become aware you will lose your job.
What to do when you get a new job
If you get a new job before you are discharged, you need to tell the Official Receiver.
They will ask you do complete an IPOQ (Income Payment Order Questionnaire). This is basically an income and expenses budget. The information you provide is used to review your new income and expenses and calculate whether you have any surplus income.
Despite your new job, you may still have zero or negative surplus income. Where this is the case, you will not have to pay anything.
If you do have a surplus, you will have to start paying this towards your debt. An IPA will be set up with associated payments lasting 3 years unless your income reduces again in the meantime.
Where you previously had an IPA that was suspended, it will be restarted. Your payments will last until the IPA is completed.
If you have already been discharged, you do not need to tell the OR about your new job unless you have a suspended IPA. Any money you earn from now on is yours to keep. However, where you have a suspended IPA, you have to inform the OR of any increase to your income for the full 3 years it is in place. This is regardless of whether you have already been discharged or not.
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Hi,
I received a redundancy payment end of March this year. Was discharged from bankruptcy end November, 2021. I was notified in September 2021 of formal redundancy, was due to leave end Dec 2021 but then stayed on until March 2022. Would I need to pay any of my redundancy to OR? Currently I do not have any income.
Hi Colinb
If you were notified of your redundancy during your bankruptcy, the OR might claim that any subsequent payment received (even after your discharge) is still an asset of your bankruptcy. However, although you were notified before, I believe that technically, the date you are actually made redundant is your last day of work. Given that this date was after your discharge I think you would have a strong argument to say that the redundancy payment you received is not an asset of your bankruptcy and yours to keep.