I am self employed and have a debt problem. What can I do?

I am self employed and have a debt problem. What can I do?

When you are self employed you are personally responsible for any debt you borrow to support your business. If it starts to struggle, you are liable to repay the outstanding balances yourself.

Included in this article:

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Using an IVA if you are self employed

An IVA offers significant advantages if you are self employed. You are allowed to continue running your business and your customers or business premises landlord will not find out. It may also be possible to maintain certain lines of credit such as with a trade supplier.

Generally speaking all the debt you owe can be added. In particular this includes tax or VAT arrears owed to HMRC.

However you can only apply for an IVA if you can prove that your income is sustainable. If your business is failing or is unable to generate sufficient income to allow you to make reasonable monthly payments towards your debts, this may not be a suitable option for you.

An IVA can only be used if you can afford to make reasonable monthly payments towards your debts or you can afford to offer a lump sum settlement.

Going Bankrupt if you are self employed

You may think bankruptcy should be avoided at all costs. However for many people it can often be a really good debt solution. This is particularly the case if you are not a home owner. If you live in rented accommodation your home is not affected in any way (your landlord is not told).

One of the main advantages is you only have to make ongoing payments towards your debts if you can afford to. If you have little or no surplus income (or your income is just made up of benefits) you do not have to make further payments. As such it can be an ideal solution if business has reduced and your income has fallen.

You are allowed to continue to run your business if you wish. You will normally be allowed to keep any tools you need to carry out your work and your works vehicle.

Bankruptcy may still be a viable option if you are a home owner. However you will need to take specialist advice before proceeding. Get in touch with us if you want to talk about this.

Is a Debt Management Plan an option?

A Debt Management Plan (DMP) can be useful for self employed people. Firstly, because it is an informal agreement you do not have to prove a sustainable income. This can be helpful if your business income is currently relatively low.

In addition it is more flexible than the other options. You can leave out a creditor such as a credit card that you may need for your business and continue to use and repay this as normal. In addition you can increase the payments or stop the Plan altogether and do something else fairly easily.

The downside if you are self employed is that tax or VAT debt can’t normally be included. If you owe HMRC money you will need to agree a separate time to pay agreement direct with them.

As a self employed person, Step Change will not be able to help you set up a DMP for free. If you want assistance you will need to use a commercial debt management company. Contact us for further help with this.

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