A couple of readers have asked recently about whether it’s sensible to turn down a job or overtime when you are bankrupt. Two things matter in this sort of situation.
First, have you been discharged from bankruptcy? Almost everyone is discharged from bankruptcy after a year.
And secondly, do you have an Income Payments Agreement (IPA) set? In an IPA, you have to make monthly payments for three years. An IPA can only be set before you are discharged from bankruptcy. Most people who go bankrupt don’t have an IPA set!
Should you take a new, well-paying job?
Ms A asks:
I am currently out of work and I went bankrupt 6 months ago. I’ve got a chance for a job at 40k a year. If I start it now, will I have to pay back money for 3 years in an IPA? What would happen if I had the same chance at this job after the first year of bankruptcy?
If she takes a well-paid job now, it is likely that an IPA may be set and she will have to make payments for three years.
In that case, she would usually be much better waiting until she has been discharged from bankruptcy – then an IPA can’t be imposed and she won’t have to make any monthly payments.
Until their discharge, many people decide to try to improve their CV by taking a short course or by doing some volunteering work (if that won’t affect their benefits).
There are some important exceptions here:
- if Ms A’s benefits aren’t covering all her priority debts such as her rent or car finance, she may have little option but to take this job and accept she will have to pay an IPA.
- with a less well-paid job, she may not have any spare income to pay an IPA anyway.
- the hardest decision is if you are offered a great job and you are worried you won’t get one as good in a few months’ time.
Of course if you are offered a job and you are in receipt of benefits, you will probably have to take it to avoid your benefits being sanctioned. But it’s usually easy to make sure you don’t get offered a job that you don’t want.
Should you work overtime?
Mr B says:
I’ve been declared bankrupt and an IPA has been agreed. I earn the same basic pay each month. Overtime is possible, but I am opting not to pursue this. Due to this, my pay won’t change other than inflation pay rises.
This is normally a very sensible decision.
Once an IPA has been set, you usually lose all extra overtime payments that you get, as your IPA payments would be increased.
What is the point in working harder if you get no benefit whatsoever? Take it easy for the next three years, see more of your children, find some hobbies that don’t require much expenditure.
You are legally obliged to inform the Official Receiver (or the Trustee in Bankruptcy if your case has been passed to one) if you have a pay rise, even if it just for inflation.
But you can also inform them if your expenses have increased – council tax, bills, petrol etc, These may offset a small pay rise or they may exceed it, in which case your IPA should be reduced.
Not a sensible system!
This is a hopeless system the Insolvency Service has set up. There is no incentive in there for people to work harder, so they won’t.
This doesn’t help them, it doesn’t help their creditors and it doesn’t help the economy.
But those are the rules. If you are bankrupt, you aren’t obliged to earn extra money if it isn’t going to benefit you.
Bankruptcy / What happens when you are discharged?
Credit Scores / Repair your credit record after bankruptcy
Priority debts / £150 help with electric bills through the Warm Home Discount scheme