Bankruptcy is a legal process that allows you to deal with the debts you can’t afford to pay by writing them off after a set period. However, like most debt solutions, it can’t be used to deal with all types of debt.
Council tax debt is considered a priority debt, meaning there can be serious consequences for not paying it as soon as possible. It’s therefore important to know the many ways that can help you deal with it – including any debt solutions you can enter into that can help you pay it back.
How does bankruptcy work?
Bankruptcy is a legally binding solution that can help you deal with the debts you can’t pay if you’re experiencing financial difficulties. It’s typically considered a last resort due to the impact it can have on your credit score, but it can offer you a clean slate and allow you to make a fresh start with your finances.
It usually lasts for a year, after which time all included debts will be written off (cleared). During a bankruptcy period, you won’t have to pay anything towards your debt unless you owe over a certain amount and your creditors won’t be able to contact you or take legal action against you.
However, one of the requirements of bankruptcy is that you hand over all your non-essential assets to the person handling your arrangement (your trustee), who can then sell them to repay your debt. This includes any high-value belongings like properties, vehicles, and jewellery.
It’s important to weigh up the pros and cons of bankruptcy before applying. Just because you meet the eligibility criteria, it doesn’t mean it’s the most suitable debt solution out there for you or that it’s worth the consequences.
How much debt do you have?
What is council tax debt?
In the UK, anyone living in a property over the age of 18 is required to pay council tax. The money goes towards paying for a number of shared services, such as street lighting, park maintenance, waste collection, and road maintenance.
The amount of council tax you must pay depends on several factors, such as the value of the property on a certain date and where you live. It’s usually paid on a monthly basis over 10 months, but it can be spread out over 12 months for lower monthly payments.
For example, if your address falls within Glasgow City Council and your property is estimated to be worth up to £270,000, you’ll be in council tax band A. For the year 2024-25, you’ll need to pay £1363.59 (£136.36 a month).
If you miss any of your council tax payments, you’ll be in ‘arrears’ to your local council and they will take various measures against you to get you to repay the money you owe. It’s important not to simply stop paying if you can’t afford council tax – there is always help available.
Does bankruptcy clear council tax debt?
As well as researching the pros and cons of bankruptcy, it’s important you know whether it covers all of your debts or just some.
Bankruptcy can be used to deal with most unsecured debts, including credit cards, personal loans, utility arrears, store cards, overdrafts, benefits overpayments (except those accrued due to fraud), and council tax arrears.
From the moment your bankruptcy order is made, your local council will be instructed to stop asking you to pay anything towards the debt. This includes any enforcement action, including bailiffs hired to collect the debt.
If someone turns up at your door demanding payment of your council tax arrears, you must stand your ground. Show them a copy of your bankruptcy order to prove you’re in an active bankruptcy and are legally protected from any form of enforcement action.
However, it’s important to note that only council tax debts that already existed when you were made bankrupt can be included in your arrangement. This means that, if you have any outstanding council tax arrears from previous years (from your current address or any previous addresses), these can be written off by your bankruptcy.
During your bankruptcy, you also won’t need to pay any council tax as it falls due. Regardless of when your bankruptcy order is made, your payments will be paused until the following April when the new financial year begins.
The only exception to this rule is if your council tax is in joint names. In this case, the other account holder will be responsible for maintaining your council tax payments as normal.
The only way to write off joint council tax debt is for both parties listed on the credit agreement to go bankrupt or enter into any other legally binding debt solution, like an Individual Voluntary Arrangement (IVA).
What other debt solutions deal with council tax debt?
Bankruptcy can help you write off council tax debt, but it isn’t the only option available.
Here are some other debt solutions that cover council tax arrears:
Individual Voluntary Arrangement
An Individual Voluntary Arrangement (IVA) is a legal agreement between you and your creditors to repay your debt through a series of monthly payments based on affordability.
Most IVAs last five years in total, but they can be extended to six years if you break the terms and conditions of your arrangement or miss any of your monthly payments.
During an IVA, you won’t be required to pay anything towards your debt and your creditors won’t be able to take any further legal action against you to get you to pay. This can give you peace of mind while you manage your repayments.
Once your IVA term ends, any remaining debt will be written off and you’ll be free to make a fresh financial start.
Debt Relief Order
A Debt Relief Order (DRO) is often referred to as a cheaper and less serious form of bankruptcy.
It works by stopping all debt repayments and legal action for 12 months and is best suited to individuals with few assets and low incomes.
Once a DRO concludes, all included debts will be written off and you’ll be free to start rebuilding your financial situation.
Like all debt solutions, your credit rating will be temporarily damaged by a DRO.
Debt Arrangement Scheme
The Debt Arrangement Scheme (DAS) is a government scheme that can help you repay your debt at a rate you can afford under a Debt Payment Programme (DPP).
It’s only available to residents of Scotland.
Because you’ll be expected to pay all your debts, it lasts as long as it takes for you to repay your debt in full.
During the DAS, your creditors won’t be able to take any further action against you to get you to repay what you owe and all interest and charges will be stopped. This includes taking you to court or hiring bailiffs to collect the debt.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
What can your local council do if you don’t pay your council tax debt?
Council tax debt is considered a priority debt, which means there can be serious consequences for not paying it or ignoring it.
Most local councils are quick to recover council tax arrears and will likely contact you and ask you to make up for the money owed just two weeks after the first missed payment.
If you don’t pay within seven days of receiving a first reminder, you’re at risk of being asked to pay the whole year’s council tax in one go.
Here are some of the things your local council might do if you don’t pay your council tax debt:
Apply for a liability order
If your local council has sent you various notices about the debt with no response, they will apply to the court for something called a liability order. This is a legal demand for payment that gives them additional powers to collect the money owed.
The only thing that will stop them from applying for a liability order is if you pay the total amount owed within seven days of receiving a first notice. If this happens, the debt will be settled and you won’t hear about it again.
Once a liability order is in place, your local council will be free to take further legal action to get you to pay.
Send bailiffs to your address
One of the first things your local council is likely to do to recover council tax arrears is to send enforcement agents to your address.
When they visit you, they will start by asking you to pay what you owe and make a list of items they can potentially sell at auction to make up for the amount owed (called a controlled goods agreement). They will then return to seize these items if you fail to stick to the payment schedule agreed during their visit.
However, before a bailiff visits you about unpaid council tax debt, they must give you at least seven days’ notice. This is to give you a chance to pay what you owe or come up with a plan for how you will navigate the situation.
Apply for an attachment of earnings
Another thing your local council might do to forcibly reclaim the money owed is to apply for an attachment of earnings order. This is a court order that allows them to deduct a set amount from your wages each month until the debt has been repaid.
Like enforcement action, you’ll be informed before any deductions are made and will be given a chance to repay what you owe before any money is taken.
However, there are set limits on how much can be taken from your wages depending on how much you earn. In any case, you must be left with at least 60% of your net earnings after deductions.
Apply for a charging order
One of the more serious consequences of not paying council tax debt is being served with a charging order. This is a court order that secures the debt to your home, meaning that any money made from the sale or remortgage of your property must go towards repaying the debt first.
The charging order will remain in place until the debt has been repaid in full and, in serious cases, the council might force the sale of the property to repay the debt.
Before a charging order is put in place, you’ll receive notice of an intended charging order. The only way to stop a charging order at this stage is to pay what you owe in full, including any additional court fees and costs.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
I can’t pay my council tax bill. What should I do?
Realising that you can’t afford your next council tax payment can be worrying, but there are several options available to you.
Here are the steps you should take if you’re worried you can no longer afford your council tax at the current rate:
Contact your local council
The first thing you should do if you can’t afford council tax is to contact your local council. They might let you spread your payments over 12 months instead of 10, meaning you’ll pay slightly less each month.
They will also ask about your circumstances to determine if you’re eligible for a council tax reduction or discount. For example, if you’re on a low income or live alone, your monthly payments can be reduced or waived altogether.
Most local councils have a scheme designed to help residents struggling with council tax. Even if you’re expecting your financial situation to improve in a few months, it can be the difference between you maintaining your monthly payments and falling into debt.
Check your benefit eligibility
If you’ve had a financial emergency that you weren’t expecting (e.g. a sudden job loss, marriage breakdown, or car or home repair), you could be entitled to financial help from the government to prevent you from getting into debt.
Whether you’re expecting to bounce back quickly or don’t know where to turn, it’s important to claim any extra financial help you can.
Using a benefits calculator can let you know if you qualify for any financial help you’re not currently claiming.
Pay what you can
If you’re able to pay anything towards your council tax, you should.
Each payment will reduce the balance due and mean you owe your local council less when the time comes for you to repay your debt.
Even if you’re waiting to hear back from your local council about a payment reduction, paying what you can will prove that you’re determined to deal with your debt the right way and are not trying to get out of paying what you owe.
Conclusion
Bankruptcy is a legally binding debt solution that can help you deal with your unaffordable debt by writing it off after 12 months. It can be used to deal with a wide range of debts, including council tax arrears.
During a bankruptcy, you also won’t need to make any council tax payments until the following April when the financial year restarts. This can give you peace of mind while you’re working on rebuilding your finances.
It’s important to inform your local council if you’re worried you won’t be able to afford your monthly payments. They might let you spread your payments over 12 months instead of 10 or reduce your payments, making them easier to manage.
