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.
Self employed and considering going bankrupt? Give us a call (0800 077 6180) or complete the form below. The advice is free and confidential.
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Hi James. I own a children’s nursery. I am a sole trader but share the tax bill with my son and daughter. Business has slowed down and I have five employee’s. recently moved into a large expensive farm house and registered a new business to help afford the large rent, but I do share the property with my two sons and my daughter.
This was to be a new venture for all of us and the pooling together to make things more affordable. Downturn in business is now threatening the future. I have no arrears with anyone as yet, but have quite a lot of personal debt taken on to launch the new business in pet minding
Hi Colleen
It sounds as thought yours is a relatively complex situation. Going bankrupt would certainly assist you by writing off your debt and starting your new business with a clean slate. However there are various implications you will need to consider.
The first is the lease on your premises. If you have one then this would have to be cancelled if you go bankrupt and a new one drawn up. As such the landlord will have to be involved. In addition employees would have to be made redundant and then re-employed if you need them in your new business.
If you would like to discuss things in more detail please go get in touch. I would be happy to have a chat with you.
Hi,
I am a self employed childminder unfortunately due to certain circumstances I have incurred a dept with HMRC. Unfortunately I am unable to afford to pay this debt and they are now looking at bankruptcy.
I work from the property that I live in but it isn’t owned by myself and I don’t have any assets I am wondering if the bankruptcy happens can I continue to work and what will happen?
Thank you
Hi Kylie
If you do go bankrupt you do not need to worry about the property where you are living. Given you do not own it, it will remain totally unaffected. In addition you can continue to work on a self employed basis no problem. The people you work for (your clients) will not be told.
Out of interest although they have threatened it would be very unusual for HMRC to make you bankrupt if you are not a home owner. As such you might like to think about initiating the process yourself. As you are a home owner you have nothing to lose and the debt will be written off.
If you would like to speak to me to chat through the options please do not hesitate to give me a call (0800 077 6180). The advice is free, confidential and without obligation.
Hi there. Hope you are able to help.
Over the last few years I have ran up sizeable bit of debt through credits cards etc and including a big tax bill which due to being self employed I just haven’t been making enough money to repay and it’s spiralled out of control. I feel as though going bankrupt is my only chance of getting a fresh start and doing things right.
I work as a personal trainer in the gym so I don’t really have any assets etc. The only thing I have is a car which is in my girlfriends name, would the car be affected in this situation. How long does the process usually take as it is causing me a lot of stress
Hi Ross
Given you have no assets to lose bankruptcy sounds like a sensible solution for you. I have worked with a number of self employed personal trainers who have found themselves in a similar position and this solution has worked out well for them.
The process can be completed very quickly. Once the on-line application form has been completed and the fee paid you can submit. Given the form has been completed correctly you will almost certainly be bankrupt the next working day.