A reader asked:
I’ve just received a backdated Severe Disability Premium (ESA top up as on PIP too) and I am aiming to go bankrupt in May or June. I’ve been advised by a money advisor to use this money for essentials as I have just been given permanent accommodation having been homeless. No furniture came with the flat.
I’ve been paying £1 a month to my creditors since last year. Should I now be dividing the whole amount of my back payment up and giving it to my creditors instead of using some of it for clothing and furniture? I don’t want to do anything to jeopardise the bankruptcy.
Furnishing a flat cheaply
It’s great you have got a flat – and what a good time to get this backdated money!
I agree with your money adviser that it’s fine to use this money buying essentials for your flat: bed, bedding, towels, sofa, TV, table, chair, microwave, toaster, oven, fridge, plates, cutlery etc.
If there is anything that would help with your health needs that should also be on your list.
Rugs, carpets, curtains would be good if there is enough money as they can help to keep your flat warm. And if you need some clothes, get them!
Don’t forget to keep enough money for your bankruptcy fees.
It’s often a good idea to look at second-hand furniture to make the money go further. See if there is a good charity shop that does furniture or electrical goods near you or a member of the Furniture Reuse Network. And see if there is a local Freecycle or Freegle group.
Will this affect your bankruptcy?
I don’t expect you to have any problems with this. Paying £2,000 for a leather sofa wouldn’t be a good idea, but I doubt you have enough money to be able to do that. I suggest keeping receipts for everything you buy, so you can show them to the Official Receiver if you are asked.
I’m going to tell you the “worst” that could happen, not because I think it will, but because it may stop you worrying.
Your bankruptcy can’t be jeopardised whatever you spend the money on. You could blow it all on a holiday and it wouldn’t matter, your bankruptcy would still be approved.
The worst that could happen would be that the Official Receiver decides you spent the money recklessly and it should have gone to your creditors. Then you might get a Bankruptcy Restriction Order. That may sound worrying but in practice, a BRO would probably make no difference to your life at all.
Going bankrupt
It’s normally good to go bankrupt as soon as possible. But getting yourself settled in and everything in the flat sorted in April then going bankrupt in May or June sounds like a sensible plan.
Bankruptcy timeline – what happens when
A checklist for going bankrupt
Completing the online bankruptcy application
Karen says
Hello I was getting severely disabled payment of £61.85 But it’s stoped with no warning no letters sent to me i have a husband on a visa with no help from public funding so he dont claim any befits at all im on pip and standered rate care should I be getting the severely disabled payment I have been getting since I switch over to pop in 2016
Thank You
Karen
Sara (Debt Camel) says
Hi Karen, can you go to your local Citizens Advice? They will be able to help you with this.
David says
Hi, if a person goes bankrupt while they are only recieving state benefits, will they have to make payments towards the debt out of their benefits for a number of years?
Sara (Debt Camel) says
No, if your only income is benefits, then you won’t normally have to make any monthly payments at all.
Jane says
Hi,
Can I just check something. If someone had gone bankrupt and then received a backdated award of PIP before they were discharged would this be ignored.
Thanks
Jane
Sara (Debt Camel) says
In brief (as I guess from your email you are a debt adviser) the OR will treat a backdated award of a benefit as additional income spread out over the next 12 months. But the Insolvency Service’s Technical Guidance (https://www.gov.uk/guidance/technical-guidance-for-official-receivers/35-income-payment-agreements-and-orders) says
35.28 As a matter of policy, an IPA (or IPO) should not be sought where the bankrupt’s only source of income is state benefits.
Jane says
Thank you Sara for clarifying this (and pointing out the relevant part from the TM) and getting back to me so promptly.
Jane
Michaela says
Hi Sara,
I am planning on going bankrupt as soon as I can. Originally J was going to pay the bankruptcy fee monthly, however I have now been made redundant. As I recieve benefits monthly half of this money will be for bills and I can also now afford the fee. I have to keep a chunk for bills as Benefits go by the month before not the month you are currently in so i won’t get any money from them for one month. Will the OR understand why i have had to keep money for that and not able to use it for creditors? Also i have got a small budgeting loan from the governement for essentials; my 1 year old needs clothes, a new cot, we need things for our home like a rug etc. As we haven’t had much since I moved into our flat when i was heavily pregnant. Will the OR understand this too or will i get in trouble for borrowing more money? As it is from the governement i am under the impression it will not be wrote off in the bankruptcy.
Thank you
Michaela
Sara (Debt Camel) says
Will the OR understand why i have had to keep money for that and not able to use it for creditors?
yes. you are not expected to have zero in your bank account, if the remining money is needed for bills and living expenses until your next benefits that will not be a problem.
Will the OR understand this too or will i get in trouble for borrowing more money?
this won’t be a problem. And as you say this loan will not be included in your bankruptcy so it will need to be repaid.
Can I ask if you have had advice on bankruptcy? It may well be easily the best option for you, but it is always worth talking about your whole situation in detail with a debt adviser in case there is any alternative or there are some practical points you need to know about. I suggest you phone National Debtline on 0808 808 4000.
Michaela says
Hi Sara,
Thank you so much for coming back to me I feel much better now. I have previously spoken to a few debt advisors. I went into an IVA a few years ago and then falling pregnant unexpectedly (but happily) my income decreased dramatically and now I no longer have a job to go back to. I also received a huge bill from my electricity supplier for almost £1400 even though I had been paying a monthly fixed amount every month. I also have a tiny one bedroom flat i did get them to investigate but they came back saying it was correct as I have storage heaters. I go to sleep feeling sick with worry about money and wake up feeling pretty much the same. I just want to be debt free so that I can give my son a happy stable life so I definitely think bankruptcy is right for me it has been thought about on and off for a long time. Thank you again so much for replying.
Marius says
Hello.
It’s possible that Official Receiver, may ask you to pay to Bankruptcy estate, backdated DLA for my child and backdated PIP for myself ( £7k) in my bank when I declare Bankrupt.
I’ve not declared Bankruptcy yet, but I have no any other option after my accident. At the moment – Limited Capability for Work, PIP Standard Living Rate + Standart Mobility Rate.
2 children below 3 yo, 1 DLA middle rate.
Thank you
Marius
Sara (Debt Camel) says
have you already received this backdated money?
Marius says
Yes I have.
Thank you
Sara (Debt Camel) says
ok, then if that 7k is in your bank account, if you go bankrupt now it will be taken by the OR.
The article above talks about a similar situation where the person had to furnish a flat from the money.
For you, the question is what you can spend the money now that will help you in the future. That much backdated benefits means you have been going without fenough money for a long while, so a lot of clothes and things round the house may need to be replaced.
If some of the money could be spent on disability-related items, that would be a good use of it. Or if you have an old washing machine, or old mattresses that need to be replaced. Or a microwave would be helpful. New curtains or carpets to help keep the place warm? New shoes, winter coats etc. Would a laptop help you or the children?
If you have any rent arrears, paying those off would be great!
If you aren’t sure how much you can reasonably spend, make a list of ideas and talk to an adviser at your Citizens Advice. Citizens Adive can also talk about whether you have any better options than bankruptcy – this is always worth checking on.
Keep receipts for everything you get. And remember to keep £680 so you can pay the bankruptcy fees….
Kim Birch says
Hi
I declared bankruptcy in January, I suffer from Lumbar spondylosis but still work. Since then my pain has increased abd I’m now claiming PIP. If I get my award backdated abd receive a lump sum would the OR take this? I will probably still have to work but at reduced hours so the award would be in addition to a salary.
Kind regards
K
Sara (Debt Camel) says
has the OR said if you will have to pay monthly payments?
Graham says
Hi,
I’m thinking of going bankrupt. I am thinking of voluntarily surrending the keys to my property which I have a mortgage on back to my mortgage lender. I’m currently upto date with my mortgage and never missed payment.
My mortgage is interest only and the mortgage term is coming to the end but I am unable to remortgage as the lease on the property is not mortgagable due to it being 35 years. I can’t afford to extend the lease and no one will buy as the lease is short and I can’t clear the mortgage. The only option is to hand back the property and go bankrupt.
Will going bankrupt ensure that the mortgage shortfall once the mortgage company sell the property at auction be included in any bankruptcy? There will probably be a 15k-30k shortfall on what I owe on the mortgage balance.
Sara (Debt Camel) says
Do you have anywhere to live? How do rents compare to what you have been paying on the mortgage?
Graham says
I’m going to have to move in with my parents as reset. Rents are on a par with what I’m currently paying but going to live with my parents and then look for somewhere a year or two down the line.
I’m just unsure how bankruptcy works. I don’t want debt collectors chasing me at my parents address.
I have great credit and didn’t think I’d be thinking of going bankrupt to solve my problems.
Sara (Debt Camel) says
Have you talked to a mortgage broker about your options? What would it cost to extend the lease? What would the property be worth if the lease was extended and how large is the mortgage?
Graham says
The price of the lease extension is in the region of £40-£45k to extend, I haven’t got that amount of money in order to do that. The property would be worth approx £50-60k more with the lease extended. I’ve not spoken to a mortgage broker because with only 39 years left on the lease no one is able to lend any money against it as the lease is under the minimum amount required by any mortgage lender. I think bankruptcy is my only option and voluntary surrender my property, I’m hoping that would stop the mortgage company chasing me for the mortgage shortfall as there will be. I realise that will affect my credit rating for 6 years but I don’t see I have any other option at the moment. I need to sit down with someone who can advise me about bankruptcy I think. This is stressing me out and on my mind most days at the moment.
Sara (Debt Camel) says
I think you should talk to National Debtline on 0808 808 4000 about whther bankruptcy is your only option
Graham says
Thanks, I spoke to them 5 or 6 days ago and they advised I speak to Leaseholders association to discuss if that £40-45k to extend my lease was right. National debt line also mentioned about discussions in government ongoing about lease hold properties and said if I speak to the leaseholders association they might be able to shed some more light on it and the possible timescale if new laws come into place about how prices are calculated to extend the lease. The problem is, it might take 2 or 3 years for new laws to come into place and that’s if they do, there is no guarantee anything will change.