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Debt Payments during Bankruptcy

Debt payments during BankruptcyYou may have to continue making debt payments after you have gone bankrupt. Whether or not this is the case will depend on your disposable income.

  • Will you have to make debt payments if you go Bankrupt?
  • Do you have to pay if you are on Benefits?
  • Does your Partner have to pay your debts?
  • What if your income changes?

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Will you have to make Debt Payments if you go Bankrupt?

Once you are bankrupt the Official Receiver (OR) will carry out a detailed review of your income and living expenses. They are specifically looking to see if you have any Disposable Income. This is the money you have left over after all your reasonable monthly living expenses are paid.

You will have to pay all of your Disposable income towards your debts. An Income Payment Agreement (IPA) will be set up to facilitate this. It will last for 3 years.

As of the 1st December 2010 the OR has been required to ensure you make debt payments based on 100% of your Disposable Income.

If you refuse to make the payment requested by the OR they will ask the Court to intervene. The Court will decide whether you should make debt payments or not. If they agree you will be forced to pay with an Income Payment Order (IPO).

Do you have make Debt Payments if you are on Benefits?

If you are on benefits there is nothing to stop you going Bankrupt. When you complete your application form you will have to declare the total amount you receive each month. This is the case even if benefits are your only source of income.

The Official Receiver (OR) will use this information to calculate your Disposable income in the normal way.

Where your only source of income is benefits it is very unlikely you will have any Disposable Income. As such the chance you will be required to make any further debt payments is small.

If your income is made up of a combination of benefits and wages it is possible you will have some disposable income. In these circumstances OR will normally ask you to start an IPA.

Does your Spouse or Partner have to pay your Debts?

If you are living with a Spouse or Partner you will have to declare their income on your Bankruptcy application form. This is so the Official Receiver can understand your total household income.

A Disposable Income figure is then calculated for the household. For this reason it is very important that you include the living expenses requirements for the whole household in the expenses section of your application.

If your household has no Disposable Income you are not likely to have to make debt payments.

Other people living with you cannot be made to pay your debts. Any Disposable Income is therefore split proportionally between you. The split is based on the relative amounts you contribute towards the income. You will have to make debt payments based on your share.

What if your Income changes?

You must inform the Official Receiver if your income improves before you are discharged. If your Disposable Income goes up as a result and you are already making debts payments these will increase.

Where you have not been making debt payments it is likely the OR will now require an IPA to start. The payments will last for 3 years from the date it is put in place.

After you are discharged if an IPA has not already been put in place you can no longer be asked to make debt payments. This is the case even if your income subsequently increases.

Once an IPA is in place you must inform the OR of any income changes that happen at any time during the 3 years it is running. Not just while you remain bankrupt.

If your income falls while your IPA is in place you must inform the Official Receiver. Your debt payments will then be reduced or will stop all together. However the IPA is not cancelled. If your income increases again before its end date your payments will restart.

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