If you are self employed or a sole trader and are struggling with debt an IVA could be ideal. However there are various implications you need to be aware of.
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- Is an IVA available if you are Self Employed?
- What if you have just started your business?
- Is your Business Bank Account affected?
- Can you continue using any credit?
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Is an IVA available if you are Self Employed?
There is no reason why you cannot start an IVA if you are self employed or a sole trader. Debts owed to trade creditors and HMRC can be included and once the Arrangement is in place you can continue your business as normal.
Having said that in order to propose the Arrangement you will need to be able to show the income you can draw is both sustainable and sufficient to support the required monthly payment.
You will need to back up the income figures with business accounts and a trading forecast for the next 12 months. These must show that the business is viable and can generate the cash you need.
What if you have just started your Sole Trading Business?
If you have recently become self employed you will not have any past accounts or trading history. You can try to forecast what will happen in your first year but this will probably not be very accurate.
In these circumstances it is unlikely you will be able to apply for an IVA straight away. An Insolvency Practitioner will not want to put forward a proposal to your creditors until they are confident your income figures are accurate.
Given this you will have to delay your application. Generally speaking you will need to be trading for 6 months or long enough to prove that your forecasts are accurate.
You may be under pressure from your creditors. If so one option is a start a short term Debt Management Plan. You can stop this and begin an IVA as soon as you can prove your income is sustainable.
Is your Business Bank Account affected by an IVA?
One of the things you need to consider when starting an IVA is your business bank account. As a self employed person you may have opened a business account with the same bank as your personal account.
This will become an issue if you owe money to the bank in either the form of an overdraft, credit card or loan. The bank will then have to be included in your Arrangement as a creditor.
Where this is the case you will no longer be able to use your business account. Any money paid into it could be taken by the bank to set off against the debt you owe them. As such you will need to open a new one.
You will struggle to open a new business bank account if your credit rating is already poor. If this is the case one option is to open a new basic account for your business transactions.
Can you continue using any credit?
Once you start an IVA it will be difficult to use credit to support your business. Any credit facilities included in your IVA which you have been using will be closed.
On top of that any new applications for credit that you make are likely to be rejected. This is because the Arrangement will be recorded on your credit file and as a result your Credit Rating will become very poor.
Not only will this affect applications for things like a bank overdraft or business credit card. It could also prevent you from opening new trade accounts with suppliers. As such you will have to run your business without credit facilities.
It might be possible to maintain a credit card or overdraft for use within your business if the facility is at zero when your IVA starts. However it would have to be unrelated to any creditor included in your IVA.
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