What happens to my benefits when I go bankrupt?
Going bankrupt doesn’t affect your entitlement to state benefits, but you the benefits to which you are entitled can impact you bankruptcy
Making payments to creditors.
One of the aims of bankruptcy is that your creditors should receive at least part payment of what they are owed. When you are made bankrupt, your assets are often sold and the money will be split between your creditors.
In addition, the Official Receiver or your trustee in bankruptcy will often ask you to agree to make contributions towards your bankruptcy debts, if you can afford to, for a period of time – normally 3 years. They do this on one of two ways:
An Income Payments Agreement (IPA) – This is a voluntary agreement where you make payments to your creditors from your ‘disposable income’ – surplus income you have left after paying your living expenses
An Income Payments Order (IPO) – This is a court order which compels you to make regular payments into the bankruptcy estate from your disposable income. If you don’t keep up the payments, the trustee can apply for a court order suspending your discharge from bankruptcy or take other legal action to recover unpaid amount
Whether you will be asked to enter into one of these agreements depends on your whether your income comes solely or partly from benefits, as we see next.
If your income is only from state benefits
If your income is only from state benefits, the Official Receiver will not ask for an IPA or IPO. ‘State benefits’ includes all forms of income supplement and support such as:
- Income support
- Job seeker’s allowance
- Disability living allowance
- Incapacity benefit
- Council tax benefit
- State retirement benefit
- Child benefit
- Tax credits
However, if your income comes from benefits and other sources, the situation is different. Keep reading to learn more.
- If your income comes from benefits and other sources..
If your income includes benefit payments and income from a PAYE, job, self-employed work or pensions you may have to pay money to your creditors under an IPA.
The Official Receiver will look at your total income (including benefits) and your allowable day-to-day living expenses to establish whether you have any disposable (spare) income.
If the Official Receiver asks you for payments under an IPA, the amount of any payment has to come entirely from any income that is not benefits. The Official Receiver includes your total income (including state benefits) in the calculation of disposable income, but only the money you earn from working would provide the payments under the IPA or IPO.
- Make sure you claim all the benefits that you are entitled to..
Going bankrupt doesn’t affect your entitlement to state benefits. However, debt charity Step Change recently reported that many families are losing out on as much as £4,000 per year by not claiming their full benefits entitlements. Research from the charity shows that, on average, families are failing to claim £80 per week in benefits. Unclaimed benefits total around £16 billion in the UK every year.
If you find yourself in debt then you may be able to help yourself by claiming benefits that you’re entitled to. These may include tax credits, housing benefit or pension credit.