Benefits are included in your income when declaring bankruptcy. If benefits are your only source of income, then you will not be asked to make payment into an Income Payment Arrangement (IPA). If you have a mixture of earned income and benefits then you may be asked to pay into an IPA, depending on the level of your disposable income. This article explains what to do when going bankrupt while on benefits.
Can I go bankrupt if I am on benefits?
Yes, you can go bankrupt if you’re on benefits. You have the option of declaring yourself bankrupt if you are insolvent and cannot pay your debts. Insolvent means either that you cannot pay your debts as and when they fall due, or that your debts are greater than your assets. If your only likely income in the future is benefits and you don’t have assets like a property with equity – bankruptcy could well be an option for you.
Will I have to make payments towards my debt?
The OR will calculate if you can afford to make payments towards your debts. If your only income source is from benefits, then it is highly unlikely you will have to make payments. This is because your benefits are set so you can pay for reasonable living and can be used to pay anything else. If you are getting income from other sources, then you will have to make payments towards the debt.
I can’t afford to pay the bankruptcy fees
If you go bankrupt, you will have to pay the complete bankruptcy application fees regardless of whether you are on benefits or not (You will not be entitled to any reductions). This means that if you are on benefits or have low income, finding the money to pay your bankruptcy can be very difficult.
In this case, we suggest borrowing money from friends and family members. If this is not possible you can borrow from an available credit card, overdraft facility or payday lender. Once you borrow money, this will become a debt in bankruptcy and you will have to wait until you are discharged to repay this money.
What if my circumstances change?
If you are no longer receiving benefits or are now receiving more benefits than before, you must contact the Official Receiver (OR) and advise of the change of circumstances. This is important as it may be that the payments to your Income Payments Order (IPO) could increase, decrease, suspend or end. Any payment requested by the OR will be from Non-Benefit income and the changes may mean that you have more, or less, of this available to pay into your bankruptcy.
There may also be a case where you can cancel your bankruptcy if you meet the correct requirements.