Council Tax and Insolvency: What Happens to Your Arrears in Bankruptcy or an IVA

Council tax debt and personal insolvency often collide. If you are considering bankruptcy or an Individual Voluntary Arrangement (IVA), or if you are already in one, understanding exactly how council tax arrears are treated is essential. The rules are not straightforward, and getting them wrong can leave you worse off than you expected.

Is Council Tax an Unsecured Debt?

Yes. Council tax is an unsecured debt, not tied to an asset such as your home. In principle, unsecured debts can be included in both bankruptcy and IVAs. However, council tax debt has important quirks that set it apart from credit cards or personal loans.

Council Tax Debt in Bankruptcy

If you go bankrupt, most unsecured debts are dealt with by the Insolvency Service and discharged at the end of your bankruptcy period, usually 12 months. However, there is a critical distinction:

• Pre-petition council tax arrears: Council tax debt that had built up before the date you went bankrupt is an unsecured provable debt. It should be included in your bankruptcy, and the council should prove as a creditor. You should not have to pay this debt after discharge.
• Post-petition council tax: Any council tax that falls due after the date of your bankruptcy petition is not covered. You remain fully liable for council tax during and after your bankruptcy.

This means you must keep paying council tax that falls due during bankruptcy. Falling behind on post-petition council tax can seriously complicate your case.

Can the Council Chase You During Bankruptcy?

Once you are declared bankrupt, creditors — including councils — cannot take enforcement action against you for pre-bankruptcy debts. If the council sends bailiffs or pursues legal action for pre-petition arrears after your bankruptcy date, that action is void.

Notify your local council of your bankruptcy immediately. Provide your case reference number from the Insolvency Service. The council will then prove in your bankruptcy rather than chasing you directly.

Council Tax Debt in an IVA

An IVA is a formal insolvency arrangement where you pay a set monthly amount to a licensed insolvency practitioner (IP), who distributes it among creditors. At the end of the IVA (typically five or six years), remaining unsecured debts are written off.

Council tax arrears built up before your IVA begins can be included as an unsecured creditor. However, in practice:

• Councils are public bodies with a duty to collect council tax. They may not vote in favour of an IVA if they believe they can recover more through enforcement.
• If the council holds a liability order, it has enforcement powers — including attachment of earnings, deductions from benefits, and bailiff action — that it may prefer to use rather than accept IVA terms.
• Some IVA practitioners exclude council tax arrears from the IVA and treat them as a priority debt to be paid separately, because of this enforcement risk.

Always discuss how council tax arrears will be handled with your insolvency practitioner before the IVA proposal is submitted.

Can Council Tax Arrears Be Written Off Outside Insolvency?

In limited circumstances, yes. Councils have discretionary powers under section 13A of the Local Government Finance Act 1992 to reduce or write off a council tax liability where it would be unreasonable to collect it. This is rarely used and requires a formal application, but it is available.

Breathing Space — the Debt Respite Scheme — can also pause council tax enforcement for 60 days, giving you time to arrange a longer-term solution.

Practical Steps If You Have Council Tax Debt and Are Considering Insolvency

1. Get free debt advice before committing to any insolvency solution — from Citizens Advice, StepChange, or a specialist debt adviser.
2. Establish exactly how much pre-petition council tax you owe and whether a liability order has been granted.
3. If going bankrupt, notify your council immediately with your bankruptcy case number.
4. Keep paying ongoing council tax throughout your bankruptcy or IVA.
5. If you are struggling with ongoing council tax alongside an IVA, speak to your IP — adjustments may be possible in genuine hardship cases.

How Council Tax Advisors Can Help

Council tax debt is one of the most legally complex areas of personal debt. Whether you are considering insolvency or simply struggling with arrears, Council Tax Advisors can help you understand your options and the most effective route forward. Contact us for free initial guidance.

• Pre-bankruptcy council tax arrears can be included in bankruptcy and discharged on completion
• Post-bankruptcy council tax is not covered — you must keep paying it
• IVAs can include council tax arrears, but councils may prefer enforcement — get specialist advice first
• Section 13A applications can result in discretionary write-off in exceptional cases
• Breathing Space pauses enforcement for 60 days while you seek advice

What If the Council Continues Chasing You Despite Bankruptcy?

Occasionally, councils fail to update their records and continue issuing demands or referring debts to enforcement agents after being notified of a bankruptcy. If this happens, contact the council in writing immediately with your Insolvency Service case reference number. If unlawful enforcement continues, your Official Receiver or insolvency practitioner can intervene. Document all correspondence carefully, as you may need to seek a court order requiring the council to cease action. This is relatively rare when councils are properly notified, but it does occur and your rights in this situation are clear.