If I am Self Employed can I go Bankrupt?

If I am Self Employed can I go Bankrupt?

Self employed people (sole traders) are allowed to go bankrupt and continue to run their business. However there are various implications.

Included in this article:

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Can I still run a business while I am Bankrupt?

The affect of Bankruptcy will depend on the type of business you run. Can you continue to run your business if you are a sole trader? What happens if you are a Company Director? To find out more please visit: http://beatmydebt.com/bankruptcy-frequently-asked-questions/what-is-the-affect-of-bankruptcy-on-my-business

Can you be Self Employed if you are Bankrupt?

As a self employed person or sole trader you are allowed to continue running your business if you go Bankrupt. In practise you will have to start a new set of accounts from the date of your bankruptcy. But for most people this has little affect.

You must only trade under the name in which you went bankrupt. This will normally be your own name. If you have a trading name this can be used in advertising and business correspondence only if your own name is stated first.

In addition all debts in your name are included. You are no longer allowed to directly repay any debts you owe to trade creditors and your business bank. They will become aware of your situation.

Once you are bankrupt your credit rating will become poor. Credit facilities such as a business overdraft and credit card will be taken away. It will also be difficult to open new trade accounts.

What happens to your Work Tools?

Most hand tools that you use personally to continue the running of your business are exempt from Bankruptcy. You are allowed to keep these to enable you to carry on working as long as they are not of excessive value.

As such if you are a plumber you will be able to keep the tools in your van. If you are a web designer you will be able to keep computer equipment.

You can also keep a vehicle which you require to carry out your work even if it is worth more than £1000. Having said that a car that you use to drive to and from an office may be at risk unless it is worth less.

If you own machinery, plant or tools of excessive value you will have to buy these back from the Official Receiver or allow them to be sold if you no longer need them.

Do you have to change your Self Employed Bank Account?

Your business bank will find out that you are bankrupt even if you do not owe them money. Any current account you have with them is likely to be closed.

It is therefore likely that you will need to open a new account to run your business through. However there are very few banks which offer business facilities for bankrupt people.

Generally speaking the way round this is to open a normal current account in your name for business purposes. There should be no issue because you will not be applying for any credit facilities.

You will no longer be able to operate an overdraft facility or credit card. If you have been using these facilities to help with your cash flow then you will have to rethink your business strategy.

What happens to your Premises and Employees?

If you work out of a business premises it is important to understand that your current lease will be terminated on the date of your bankruptcy. You will then have to agree a new lease with your landlord.

Your landlord will therefore be made aware that you have gone bankrupt. As such if you are planning this course of action you should discuss it with your landlord beforehand so you can manage any concerns they may have.

If you have employees you will have to make them redundant on the day you go bankrupt. You can then re-employ them immediately if you need them. However they will be informed of your bankruptcy by the Official Receiver.

If you are self employed and struggling with debt contact us (0800 077 6180) . We can help you decide if bankruptcy is the right solution for you.

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26 thoughts on “If I am Self Employed can I go Bankrupt?

  1. Dan says:

    Hi I’ve recently come to the conclusion that I will have to file for bankruptcy. I am a self employed builder, private renter, I have probably 40k of unsecured debt. Mosty due to developing chronic health problems over the last 6 years and having a child of the same age.

    My only real asset is my work vehicle probably worth 4k which also advertises my business. Would the OR consider letting me keep, or would I have to ask a member of family to buy from OR?

    I am trading healthy albeit slower due to problems and continuing this line of work as I have a fair bit of time off due to physical ill health and allows me to be flexible, could the OR force me to change jobs if he felt my illness could hinder me ? Basically it’s all a big mess which I must tackle.

    1. Hi Dan

      If you are a builder your works vehicle is a tool of your trade. Given it is worth £4k (maybe less on we buy any car….) there is no need to worry. I am sure the OR will consider it exempt and you will be able to keep it.

      The OR can’t dictate what job you do or how much you work. As such they could never suggest you change jobs. If your income has reduced due to working less because of your health they will be perfectly happy with this. At the end of the day it is the reason for the situation you are in.

      From what you have said bankruptcy does seem the right solution for you. If you want to chat things through before going ahead or want assistance with the process please don’t hesitate to give me a call (0800 077 6180).

  2. simon says:

    Hi, I am a self employed plumber. i have an outstanding debt with HMRC of around £11k accrued due to poor turnover , and personal debts of £3k. I have a van which i use for business and no other transport. This van is on hire purchase with 9k still outstanding. Due to the current climate i have lost all work that i had booked in. I am a private renter with no other income or assets.

    Would it be better for me to enter into some form of payment plan when things pick up, or is bankruptcy the base way forward, and could i still continue trading as a self employed installer?

    1. Hi Simon

      If you were to go bankrupt you can continue trading as a self employed plumber no problem at all. Your self employment status is not affected. All the debt you owe (including the £11k to HMRC) would be written off.

      You would need to consider your van quite carefully. As long as the finance outstanding is greater than the value of the vehicle itself then the official receiver would not have any interest and as far as they are concerned you could keep it and continue paying for it. However you would need to check with the finance company that they would still let you keep paying for it if you go BK. Most car finance companies are OK but some say that if you go bankrupt they must take the vehicle back.

      If you still have some kind of income and can afford to pay for the van then it might be possible to agree minimal monthly payments with HMRC for say 3 months. Then when things pick up you can pay them. The only problem with HMRC is that when things get back to normal they will then want their debt to be repaid within 12 months. This would be £1000 which I assume would be a struggle even if you are working again…..

      Given this, if all you are doing by agreeing a temporary payment plan is just delaying the inevitable, it might actually be sensible for you to just go bankrupt now and have done with it. If you would like to discuss this with me please give me a call (0800 077 6180). I would be happy to have a chat with you.

  3. Geoff says:

    Hi
    I have just been declared bankrupt with over £40,000 in unsecured loans credit cards and overdrafts. My limited company has been dissolved since January.

    Am I allowed to start off as self employed, my name, trading as and starting to work for another company?

    1. Hi Geoff

      There is nothing to stop you working on a self employed basis while you are bankrupt. The only rule is you need to trade using your own name. You can use a trading name if you like but you have to refer to yourself as “Geoff Trading As” then the business name. This situation continues until you are discharged (normally after 12 months).

      You can work for another company on a self employed basis or as an employee. You just can act as a director for that company.

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