Can I go Bankrupt if I am Self Employed
If you are self employed (also known as a sole trader) and struggling with debt Bankruptcy is one of the options available to you. There is nothing to stop you from continuing to run your business when Bankrupt. Also you can include Tax and VAT debts owed to HMRC.
Having said that there are a number of issues that you need to be aware of. Not least that fact that all of your unsecured debts have to be included. In addition your bank accounts and business name may be affected.
Are Self Employed Business Debts included in Bankruptcy?
If you go bankrupt you have to include all the unsecured debts you are personally liable for. You are not allowed to leave any out. As a self employed person you are liable for any debt you have taken out in the name of your business. As such all of these business debts will be included.
Generally speaking this is not a problem. Bankruptcy will write off any problem debts owed to the bank or HMRC. However there could be an issue in terms of the credit facilities you use for running your business.
Any debt you owe to suppliers will also have to be included in the procedure. They are then likely to withdraw your credit facility. In the same way you will no longer have access to a credit card. This may hinder your ability to run your business.
Can you use your Business Name during Bankruptcy?
For the period you are bankrupt you are not allowed to trade in a different name from that in which you were made bankrupt. The only time when this is allowed is if you first tell those you want to do business with the name in which you were made bankrupt.
If your business is called Easy Cleaning Services you cannot continue to promote it as simply Easy Cleaning Services. You must now make sure you promote the business using your own name. For example John Smith trading as Easy Cleaning Services.
In reality this does not cause a huge problem for most self employed people. And remember this restriction only lasts while you are bankrupt. After it is over you can go back to promoting your business in any name you like.
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How does Bankruptcy affect a Business Credit Rating?
If you are a sole trader your personal and business credit rating is one and the same thing. Bankruptcy negatively affects your credit rating for 6 years. This will stop you from borrowing for your business. You will no longer be able to use a business overdraft facility or credit card.
In addition it may be impossible to get credit with suppliers and you will need to start dealing in cash. If any suppliers are willing to offer you credit you must not borrow more than £500 without first telling them you are bankrupt.
BE Tip: Your credit rating will not remain bad forever. Normally after 12 months you will be discharged and you can start rebuilding it. However it will not be totally clean for 6 years after the date your bankruptcy started.
How does Bankruptcy affect your Self Employed Business Bank Account?
If you go Bankrupt it is likely that you will have to change both your personal and business bank account. The reason for this is that many banks will not want to keep either account open for you. However as a self employed person you do need an account.
The good news is that there are some banks which will allow you to bank with them. These include Barclays, Co-Op and Metro Bank. The advantage of opening an account with one of these banks is that it will be free. Alternatively you could open a managed bank account. However a monthly fee is payable to keep these open.
BE Tip: You may not be allowed to open a specific business account with any bank. If this is the case the best option is to open a second personal account in your own name. You can then use this to run your business.
What happens to your business Tools and Equipment in Bankruptcy?
If you are self-employed you may be worried about what will happen to your business tools and work vehicle. There is no need to be concerned. The Official Receiver (OR) will allow you to keep whatever tools you need to continue your business.
You are also allowed to keep a vehicle you need for work. If you have a vehicle that you specifically use for your business whether it is a van or car you will be able to keep this. This is the case even if it is worth more than £1000.
What if you Rent Business Premises and you go Bankrupt?
If you rent a business premises this should not be affected by bankruptcy. You are allowed to keep paying the rent as part of your regular business expenses. However there may be a clause in your lease which states that if you go bankrupt the landlord is allowed to terminate the agreement.
If this is the case you need to speak to the landlord about your situation before going bankrupt. Most landlords will not want to terminate the lease as long as you continue to pay the rent on time.
BE Tip: If you no longer need your business premises and are looking for a way out of your lease bankruptcy might be the perfect solution. Any liability for ongoing rental payments after leaving the premises is included in the process and written off.
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