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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Hello, please could you tell me if the official receiver will take a small loan I receive from family to be used as working capital to buy stock after I am declared bankrupt?
Hi Sarah
You don’t have to worry. If you receive assistance from your family to keep your business running after you have gone bankrupt it will not be a major issue. The OR is unlikely to be interested.
Officially you should not take credit while you are bankrupt so the best option would be to think of it as a gift. If you want to repay your family member, my recommendation is that you don’t start to do that until after you are discharged.
My partner is bankrupt but needs to register as a sole trader for a new job, can he do this?
Hi Liz
Yes, your partner can register as a self employed sole trader with HMRC if he is bankrupt. There is no reason he can’t do this. HMRC will issue him with the necessary UTR (Unique Taxpayer Reference) number.
Remember, if he gets to a point where he can draw an income from his business (after business expenses are covered) before he is discharged, he will need to inform the Official Receiver about his change in income.
Hi am i responsible for my business loans if i go bankrupt
Dear Tracyni
If you are a self employed sole trader, you are still personally liable for any business loans you have taken. These debts are therefore included if you go bankrupt.
You can still continue to work and operate as a sole trader if you want while you are bankrupt. However, there are some implicatons.
If you are considering going bankrupt and need further advice, give me a call (0800 077 6180). This is free and confidential.