Bankruptcy and Council Tax

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What happens when council tax makes you bankrupt?

With wages in the UK remaining stagnant, if not depreciating in value as a result of the high inflation on living costs, it’s safe to say we’ve all been feeling the crunch in the post crash era. The bad news is, this doesn’t look like it will end for several years to come.

The clever money is on this age being remembered as the Second Great Depression then, and what this means in everyday terms is that people everywhere are finding it difficult to stay on top of their finances. Debts are mounting, and despite both unsecured and secured loans being harder to come by than ten years ago, borrowing is continuing to rise.

We all know of the possible worse case scenarios that can develop as a result of poor financial management. Bankruptcy is a particularly notorious word in the English language, with social stigma hanging heavy round the letters therein. As such most people make a real effort to keep debts to private firms in check- whether that’s a store or credit card, mortgage or utility bill. Unfortunately, the same doesn’t always go for money owed to the state, or more accurately local government.

Last year the Evening Standard reported Londoners had a £500million unpaid council tax bill. The apparent reason for this being ‘breathtaking incompetence’, according to the article, yet criticisms of the policy enforcers aside there’s no denying this suggests a flagrant disregard for how serious these kinds of arrears can become if they are not addressed as a matter of relative urgency. Or at least within the next 12 months.

As per the law, council tax should be paid in full, each annum, by March 31st- the end of the British tax year. If you’re not in a position to do this then it’s imperative to contact your council, who may be able to offer an alternative method of payment. This could include spreading contributions out, or fixing a date by which the balance must be settled. In cases where this is not possible the scenario is far more complex.

Initially the council can apply at a local magistrates court for a liability order. This basically instructs you to pay the full amount for the year, not just the amount you are behind by. It’s important to note that even in shared households the named council tax account holder will always be the person who has action taken against them, with the official stance being any background mess is yours to sort out, not theirs.

The liability order will be followed by a court summons, but if you accept responsibility for the bill and agree to pay in full you do not need to attend. In instances where you do not agree to the charges this hearing affords an opportunity put across your point of view, explaining the reasons why this debt is not yours.

Once a liability order is made by court it is immediately possible for the council to file a petition to make you bankrupt, providing the amount owed is £750 or more. The process here is much the same as when a private firm makes you bankrupt, or if you declare yourself insolvent. An application will be submitted to court, you will be notified of the action, and then requested to provide details of your financial background, including all income and expenditure.

After this there will be at least one interview with the Official Receiver, who is appointed to oversee your case, and then your estate will be brought into order, with a view to selling assets in order to clear the debt. Where there is a shortfall it may be necessary to enter into an Income Payments Agreement (IPA) or Income Payments Order (IPO), enforcing you to make ongoing contributions towards the outstanding amount. Bankruptcy of any kind usually lasts for 12 months until discharge, but will remain on your record for six years.