Can you have too little income to go bankrupt?

A reader asked:

I was told bankruptcy is not recommended to me as I do not have an income. Not sure what that means really as that is why I have debt problems as I have no income :(  

Any possible future employment is not near enough to pay the monthly payments told to me of a debt management plan.

So confused I need to get richer to be bankrupt or get even richer to pay debt management or get filthy rich to clear all debts :(

I think you may have misunderstood what the debt adviser said to you about bankruptcy.

First some jargon that may help:

“disposable income” is the money you have left after you have paid your essential expenses.

Your expenses include bills (rent/mortgage, council tax, utilities, transport etc) and a reasonable amount for groceries, clothes, kids expenses etc.

So your disposable income is the amount you can pay towards your debts each month.

If your expenses are more than your income then you have “negative disposable income.” If you don’t have an income at all, you obviously have a very negative disposable income!

You can go bankrupt with negative disposable income

There are no rules which say you aren’t allowed to go bankrupt with a negative disposable income, or even no income at all.

About 20% of people who choose Debt Relief Orders (a simpler, cheaper form of bankruptcy if you are renting and meet some other criteria) have negative disposable income according to this Insolvency Service information.

I don’t know the equivalent statistics for bankruptcy, but people do go bankrupt with negative disposable income.

But debts probably aren’t your main problem!

I suspect when the debt adviser said bankruptcy “wasn’t recommended” this was for one of the following reasons:

• you may be surviving at the moment by borrowing – perhaps you still have credit remaining on a credit card, or some unused overdraft. This can’t continue for long! But you won’t be able to borrow when you are bankrupt so you need to get an alternative plan in place for extra income first;
• perhaps you may have to move to find a job. Although you can rent if you are bankrupt, it can be easier to find somewhere to rent first and then go bankrupt afterwards;
• you may have higher priorities. If you are homeless it’s probably more important to use your money for a deposit to rent than on paying the bankruptcy fees;
• getting some income seems more urgent than going bankrupt. There is usually some form of benefits you are entitled to. Or if you are expecting a job soon, why not wait and see what you will be paid? If it’s only going to be a month or two, it’s good to have all the information before you apply for bankruptcy as it’s not something you can change your mind about later.

There could be other reasons why bankruptcy isn’t a recommended option for you at the moment – perhaps you are expecting to inherit some money soon? Or you have a Personal Injury case going through rather slowly?

If you think there are good reasons why going bankrupt is the right option for you now, why not discuss them with the adviser?

You don’t have to get approval from a debt adviser before you put in a bankruptcy application, but it is worth double-checking in case there is something that you haven’t thought of.

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