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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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?
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.
Hi I’m a self employed painter and Decorator and my business has failed due to the current pandemic , I have personal debts of £10k , and have debts to private customers totalling £5k , I don’t own a property and have no savings and my van is only worth £850, whats my best solution
Hi Leonard
It sounds like bankruptcy would be a sensible plan. If you have no income then you make no further payments towards your debts and the bankruptcy will be over after 12 months.
You can keep your van so you have the opportunity to pick up work during the year if it comes up.
Hello
I hope you can help here.
I am hoping to enter an IVA in the next few weeks but conscious as I owe over £30k to the HMRC they may reject it.
I then know I will need to consider bankruptcy (other debts of about £20k too)
I have a car which is estimated to be worth £4900 but it is on hire purchase and I have 26 months @ £321 left to pay on this.
I cannot exist without my car, while I do not use it for work as I work from home, I have four children in school and the schools are a 20 minute drive away…I am scared to consider bankruptcy because I cannot lose my vehicle and keep my children in school. Any guidance would be very much appreciated. I am self-employed and will continue to earn approx £30k after tax even if bankrupt as my work is not at risk. Thank you again.
Hi Jenni
Generally speaking, if your car is on finance, it will not be at risk if you go bankrupt. I believe this would be the case with your vehicle because the outstanding amount you owe on the finance is more than the value of the vehicle. As such the official receiver would have no interest in it.
That said, you will also need to check whether or not the finance company you are with will be happy for you to keep paying for the car. As such I would not advise you go bankrupt without speaking to me first.
I would be very happy to have a chat with you on the phone to discuss the option compared to the IVA you are considering in more detail. If you have no property (ie you live in rented accommodation), then in general going bankrupt may well work out a better option for you than paying into an IVA for 5-6 years.
If you would like to speak to me, please give me a call (0800 077 6180). The advice is free and without obligation.