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Does it matter if your wages go up while you are bankrupt?
When you go bankrupt, you have to provide detailed information about your income and expenses. If you have nothing left after all your reasonable expenses are accounted for, you will not have to make ongoing payments towards your debts.
As long as this situation does not change, your bankruptcy will end after one year and you will have nothing more to pay.
But what if you get a pay increase and your wages do go up?
If this happens at any time during the year, you have to tell the Official Receiver’s office. They will then review your income and expenses budget to see if you now have any surplus income. If you do, they will issue you with an IPA (Income Payment Agreement).
You will still be discharged from your bankruptcy after 12 months. However the IPA payments continue for the full 36 months from the date they started.
To avoid the risk of having to make ongoing payments towards your debts, it is best to avoid any wages increase while you are bankrupt if you can.
Can you keep increases to your wages after you are discharged?
There is only a risk that you will have to start making payments towards your debts, if your wages go up while you are bankrupt. You can only get an IPA during those 12 months.
You can’t be asked to start making payments towards you debts after your bankruptcy ends. Any increase in your wages from that point on are not taken into account.
So after you are discharged, you can earn what ever you like. If your wages go up, all the extra money you bring home is yours to keep.
The only time this is not the case is if an IPA was already issued against you while you are bankrupt. If so, you then have to inform the official receiver if your wages increase at any time with the Arrangement is in place (even after you are discharged).
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What if you do overtime or get a bonus while you are bankrupt?
Overtime and bonus payments are not the same as a permanent increase in your wages. They go up and down and are not guaranteed.
Nevertheless, if your wages increase due to these types of payments while you are bankrupt, you still have to inform the Official Receiver.
Generally speaking, if you earn a small amount of overtime here and there, the OR will not be interested. They will let you keep the extra money as long as it is only a few pounds.
However, if the extra amount you get is significant, you will normally have to hand all of it over. The money will be used to pay towards you debts.
If you start earning overtime on a regular basis, the OR might decide to treat this in the same way as if you got an increase in your wages. They would then calculate that you now have a surplus income every month and tell you to start paying an IPA.
As with wage increases, it is generally best to try and avoid earning much overtime during your bankruptcy if you can.
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