Last payment from work and bankruptcy what is the best approach? 14 July 2021 at 10:17AM in Bankruptcy & living with it 3 replies 354 views

Newpersonhelp

Hello all,

I’m due to be out of work from the end of the month but will have one last payment at around £3,000. I planned to use this to see me through the next few months and live a very basic life until I’m able to return to work. I’m unsure of whether to file for bankruptcy when I have that money as it seems the OR could take this money to pay back my creditors and have been thinking to continue paying off my debts whilst using the rest of the money to live until there is nothing left and then file for bankruptcy. Has anyone got experience with a scenario like this? If I clearly state when going bankrupt what the £3,000 will be for over the 6 months or so will it mean they will allow me to keep this to live? 

Any advice will be appreciated. To make you aware I spoke to a charity who advised it will take me 30 years to clear my debts through a Debt plan and recommended BR or a DRO  as the best option. With a DRO, I do hope to get back into work when my health is better and I know if your circumstances change it can impact the DRO.

thanks all 

Sonic101

Hi there

These are just my thoughts - other, more knowledgeable people should also be along soon.

As I understand it, there is an asset limit with a DRO of £1,000, so it might be a bit of a problem if you had £3k in hand. If your circumstances are also likely to change for the better within the next year then this is also a problem. 

If you were to go bankrupt then yes, the OR would probably want a substantial proportion of the £3k.

I don't know what stage you are at with paying your debts, but it seems pointless continuing to pay them if you know you are going for one or other insolvency solution. 

In your position I would be tempted to use the £3k to live on for the next few months - and if you have any household goods that need replacing, now would be them time to do it (going on a massive spending spree would be a no-no, but it would be reasonable to say replace a vacuum cleaner or a tablet or something). If you're not going to then be earning this would be justifiable. 
Remember that the bankruptcy fee is £680 - so that would be a chunk of it gone right there. 

Platespinner123

One important point to be aware of is that if you use this money to repay some of your debts, and don't treat your creditors - including friends/family - equally (e.g. you only pay some creditors, or you pay different proportions of debts owed to different creditors), you could be treated as having given 'preference'. This could jeopardise either a DRO or bankruptcy application. If you're considering doing this, please get advice first!

The asset limit for a DRO is now £2,000, but yes, that could be a problem while you have the £3,000 in your account.

If you go bankrupt, the Official Receiver will freeze your assets but is able to authorise the release of money for living expenses. Your advice charity should be able to give you more advice on this.

If you go back into work during the DRO year, or before your bankruptcy is 'discharged' (usually a year too), it could cause some problems that you'll also need to be aware of. For a DRO, if your disposable income rises to over £75, the DRO is likely to be cancelled and you'll still owe the debts. For bankruptcy, you might be asked to enter into an Income Payment Agreement for a few years from your surplus income (and if you refuse, the Official Receiver can ask the court to make an Income Payment Order, which you must abide by).

If you go back into work, you have a reasonable amount of surplus income, and the work is sustainable (e.g. a permanent contract and you don't have health problems that could mean you might need to stop working again in a couple of years), you could consider an IVA instead. But don't do this lightly, as it's a long-term commitment and can go wrong!

Newpersonhelp

Thank you all for your honest comments. I’m going to research IVA in some more detail before making a final decision. It is great to get a different perspective so I really appreciate you coming back to me.