You don’t need to worry that your benefits will be cut if you go bankrupt. They are not. This guide gives you all the information you need when it comes to your benefits and bankruptcy.
Contents
What happens to benefits payments when you go bankrupt?
Any benefits you receive are not affected if you go bankrupt. The benefits agencies will continue to pay you as normal.
Your eligibility for benefits does not change. The two things have absolutely no relationship to one-another. There is no re-assessment of the money you are getting once you go bankrupt
This means the money you receive will not go up or down.
The only thing you need to be aware of is whether going bankrupt will mean you have to change your bank account. If so, you will need to make sure you notify the benefits agencies of your new bank account details. Your money can then be paid in there from now on.
Do you still have to pay towards your debts if you are on benefits?
If your income is based entirely on benefits, you will not have to make further payments towards your debts after you go bankrupt.
The money you receive is awarded on the basis that you need the funds to pay for your monthly living expenses. By definition, you don’t have any surplus left over to fund an Income Payment Agreement (IPA).
When you complete your income and expenses budget in your application form, you will still have to list all the benefits you receive. However, the Official Receiver will not want to review your expenses figures.
If you are working but also receive Universal Credit to top up your income, again, it is unlikely that you will have to make payments towards your debt. If you had surplus income you would not qualify for the benefits so how could the OR take money from you?
How are PIP and DLA disability payments treated in bankruptcy?
The Official Receiver will not take money from your disability benefits. You get this money to assist with the additional living costs associated with your medical needs.
Where you receive PIP or DLA, you still need to show this as income in your application. However, you must also add an equivalent amount in your expenditure budget entitled ‘disability expenses’. As a result, the overall effect on your budget is zero.
You don’t have to justify how you spend your disability benefits. It is acceptable for you to include a single amount in “other expenses” called “PIP or DLA Expenditure”.
How much does bankruptcy cost if you get benefits?
Unfortunately, the cost of bankruptcy is unchanged if you receive benefits.
You will still have to pay the standard fee.
You may feel it is unfair, but there are no reductions or exemptions if you are on a low income or are getting benefits payments.
Options for paying the bankruptcy fee
It is true that you can pay your bankruptcy application fee in instalments of as little as £5. However, you can’t submit your application and get protection from your creditors until your total fee has been paid.
You are allowed to borrow the money you need for your fee. The money could come from a friend or family member. You could also use available credit such as an overdraft or credit card.
There is little or no help available to pay for bankruptcy. The only time you might be able to get any assistance is if you are (or have been) in the armed forces or are currently a customer of United Utilities or British Gas.
Benefits overpayments – are they written off?
Yes. If you have been overpaid benefits in the past (such as tax credits, Universal Credit or housing benefit), these debts are written off once you go bankrupt.
This position was confirmed in 2013 by the Supreme Court ruling: Nortel and Lehman (2013).
In the Nortel case, the Court confirmed that bankruptcy includes all liabilities that arise from a contractual or statutory relationship that existed before the date of the bankruptcy.
In other words, as long as the overpayment was legitimate (i.e. not fraudulent) these debts are included.
Tax Credit Arrears and DWP
Responsibility for the recovery of tax credit debt (previously owed to HMRC) is being transferred to DWP (the Department for Work and Pensions).
As a result, after your discharge from bankruptcy, the DWP may still send you a demand to repay your tax credit overpayments.
If this happens, you should escalate the problem to the Official Receiver’s office Central Case Team (CentralCaseTeam.OR@insolvency.gov.uk). Remember to quote your bankruptcy reference number.
The Central Cast Team will confirm your bankruptcy to DWP and this should stop any further enforcement activity.
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