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By Casey

I have got a question as to the 0 tax code in case I will get some work.

As I understand it, you are not taxed at all during bankruptcy, does that mean you will get all the money or where does the tax which isn't deducted go? I know it is meant for the creditors but what if you do not earn enough even without deducting tax to get an IPO? What I would like to know is, say you would earn £1000 for a part-time job, normally you would be taxed on that, in our cases will the full £1000 count if it comes to the IPO? And what about NI?

Many thanks in advance.

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By Geraldine
Hi there Casey

If you are working at the time you go bankrupt after about 6 weeks of the date of your bankruptcy HMRC will change your tax code to zero tax. This means that you would be paid 100% of the gross payment into your bank account from your employer (although NI is still deducted). When this happens you then inform the official receiver.

Normally the OR will ask you to pay this extra amount you are now receiving to them. However if your income is already way below your reasonable living expenses the OR does have the discretion to let you keep the money.

Remember this whole situation only lasts until the end of the tax year in which you go bankrupt. The following April your tax code goes back to normal whether you have been discharged by that time or not.
By Casey
Thank you, Geraldine, this is very informative.

I guess, the employer, if he doesn t know will not automatically assume that you are bankrupt because of the 0 taxe code? Who else could be on a 0 tax code or is it indeed only bankrupt people?

I have been with one agency and I hope very much that they will find me some part time work in the not for profit sector they have not asked in the registration form about debts or bankruptcy, however, their payroll would get the 0 tax code from the IR, I do not think in that case it would matter, but I wonder.

Also, this needs to be kept in mind that any salary will then be without tax meaning that if you want to figure out whether a particular job would get you an IPO this is quite important. I have been reading another post from John, and I can very much emphasise with him, it is not that you want an easy way out, or are greedy, but the prospect that your life will be on hold if you are put on an IPO for 3 years instead of 1 year is a great worry to I guess all of us. All we want is making a new start, you cannot make a new start if you have to pay almost 100% of you disposable income to the OR, if it were 50% as it used to be I understand a few years ago, that would be differnt, but 100% meaning you can save perhaps £10 a month, it simply means that you have to sit it out instead of 1 year it will be 3 years and that is a long time. I know it is the law but I question the legality of the matter, if you are discharged from bankrutcy how can you have to pay for another 2 years if for instance you have £10 surplus income, I know it is as it is, but if you look at it from a logical point of view it does not make sense, You are bankrupt, then discharged from bankruptcy but you have to continue paying your creditors, how come? Please, again, it is not about getting an easy way out but I think every human being thrieves for happiness and would like to achieve things in life, therefore everybody would like to make the time of suffering as short as possible. Also, if you are not that young any longer every year counts as it is more difficult to make a complete new start the older you get, simply as well because it becomes harder to find employment. Three years can therefore be a long time to wait for rebuilding your life, thus the worry about an IPO. :cry:
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By Hayden
Hi there Casey

The point you make about wouldn't an employer put 2 and 2 together after being instructed to change your tax code to 0 is a good one. However you are probably giving most employers too much credit for knowing anything about bankruptcy. Although you have been living and breathing it for what must seem like forever the fact is that very few people know anything about bankruptcy let alone the affects it has. As such I think that if and when employers receive notices from HMRC instructing a tax code change for one of their employers most will probably just do it and not ask any questions....

Your point about whether a three year IPO is right or wrong is one that has been debated long and hard. Many people (generally who are not bankrupt) argue that bankruptcy should involve a longer period of repayment if you can afford it not shorter.....

I do agree that the current situation does act as a disincentive to work for the period you are bankrupt if you have not already got a job though. Who in their right mind would put themselves in a position where they trigger a three year IPA rather than sitting it out for 12 months and then not having to pay anything..... That is a crazy situation but I am not sure that the law will be changed either way in the near future.....
By Casey
Hi Hayden,

Thank you for your reply. I guess the normal employees of a company including the boss would not know about the 0 tax code, but what about the payroll people or an accountant? At my last firm I did all the finance and liaised closely with our accountancy firm who dealt with the tax codes and payroll, so they might not be that ignorant, but then again even if they suspect what would they do, I don't think they would approach the boss of the company...would they be able to find out from the Inland Revenue if they would ask why the tax code has gone to 0? I guess they would not ask because they have better things to do, but it would be good to know.

In terms of the 12 months to 3 years, yes, I have to admit that it would be crazy to voluntarily go into a well paid job and then pay all your excess money for 3 years.....I think, the current regulation is not a very clever one, i think, if it would be even say a third one could keep from the income and two thirds would go to the creditors it would be acceptable, but 100%.....Especially, if you have gone down the difficult route of bankruptcy you do not want to pay any longer once you are discharged because it does not make sense.

Well, the people who wish this period to be longer are as you say the once who have never been bankrupt which is understandable. I think, they are often the people who are very hard on themselves and have strict code of conducts as how people should and should not behave, often they are not really living the life they wish and therefore are quite harsh on others who in their opinion 'would like an easy way out' what they do not see is that it is by no means an easy way out not even if it lasts only for one year, it is not a nice thing and has negative consequences and in my case I have been thinking about it for years before I took this step,

Well, I am almost two months now into bruptcy so time is passing...

Best wishes Casey :)