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:
- Can you be self employed if you are bankrupt?
- What happens to your work tools?
- Do you have to change your bank account
- What happens to your premises and employees?
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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 go bankrupt if you are self employed?
As a self employed person or sole trader you are allowed to go bankrupt and continue running your business.
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 (including any business debts). You are no longer allowed to directly repay any debts you owe to trade creditors.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
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.
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I own a a car repair garage, it’s just under 1 year old. Due to a lease agreement for some equipment that was delivered completely different from what was agreed with the supplier, they are now taking me to court for the total balance (although the equipment has been sat in the corner un-used since delivery). I stated I wanted to cancel under CCA within 14 days but there saying they didn’t receive that letter.
As the value is very high I think I will be forced into bankruptcy. Although my business is plodding along OK. With ally tools and equipment will I be allowed to carry on? I own nearly everything but its all needed to trade.
Hi Jamie
The rule in bankruptcy regarding tools and equipment states that such tools and equipment that you use personally for your business are exempt as long as they are not excessively valuable. As such if it is just you working in your business you should be able to keep your tools as long as you need them. However if you have employees the situation becomes more complicated. As such I suggest discussing this with an adviser before moving forward.
Hi there
I own a beauty salon & currently lease my premises from my local council. I have self employed people also in the premises paying towards the rent.
How would bankrupcy effect my business, as in would I be able to keep trading & keep my equipment (beauty stuff to carry out treatments, computer to make appointments etc).
I have a car on lease, would this be taken off me? How long does bankrupcy stay on your file for? Dont really know where to go or what to do, feel extremely depressed with this.
Thank you
Hi Steph
There is a lot to think about here.
Given you run your business as a sole trader then you are allowed to continue doing this if you go bankrupt. You can carry on paying the rent for your premieres as normal. You can also continue to rent out space or chairs to other self employed people.
You are allowed to keep tools and equipment that you use personally. However things do get more complicated if you have equipment which other people use. You need to consider the 2nd hand value of this equipment. If it is very little then there is nothing to worry about. However if it is worth more then you might have to buy this back from the official receiver. The same goes for any stock you have.
If you have a car on finance you will first need to check with the finance company if they would be OK for you to keep the car once bankrupt. If yes then you should be OK to keep paying for it and keep using it as long as the payments are not too high.
Bankruptcy itself lasts just one year. However the record will remain on your credit file for 6 years from the start date making it hard to get further credit during that time.
Before you make a final decision on what to do I strongly recommend that you speak to an expert. Please do not hesitate to give me a call at Beat My Debt if you would like to have a chat (0800 077 6180).
Hi James
I have been made bankrupt by an old “investor”
I am a street food trader and as such trade from a small trailer with all sorts of ancillary equipment. Is there a rule of thumb as to what value would be deemed as excessive?
Also I take deposits for events I do, so some of the money in my account and some that has already been spent will be for future bookings. Could I “use” this a way to buy the assets back by fullfilling bookings that will not generate any future income?
Thanks
Chris
Hi Chris
The term excessive value must be considered separately in each case. As such in one instance tools of the trade may be considered excessive where as in another they would be acceptable.
The official receiver will normally let you keep the tools and equipment that are necessary for your personal use to keep your business running. The only time this is not the case is if you could sell the tools / equipment and use the money to buy reasonable replacements leaving excess funds that the OR could take. Where it is unlikely there would be excess funds your tools will be safe.