The actress and singer Martine McCutcheon has declared herself bankrupt on the 2nd January 2013 at the County Court in Kingston-Upon-Thames.

The court heard that her largest creditor is HMRC. The exact nature of Ms McCutcheon’s financial situation will not been made public and so it is impossible to comment on exactly what has gone wrong in her case.

However it is clear that despite her success and fame the former East Enders actress’ has been having difficulty with her financial affairs.

Difficulties with tax arrears

In general people who run their financial affairs on a self employed basis are at the highest risk of getting into trouble with tax arrears.

Because their tax is often only fully calculated sometime after the end of the tax year in April and then actually only payable 9 months later the following January, there is a lot of scope for self employed people to underestimate their tax liabilities and not put enough aside to pay the bill when it eventually becomes due.

Problems with tax arrears can also occur when a self employed person understands how much tax they will be liable to pay but delays paying this until the last minute because they have not put enough aside but hope they will be able to earn the required sum in the mean time.

Solutions for dealing with tax problems

If you find yourself in a position where you have tax arrears that you are unable to repay Bankruptcy is not your only option.

Generally the first option to consider would be an Individual Voluntary Arrangement (IVA). This allows you to make an offer to settle your debts (including HMRC tax arrears) by making reasonable payments over 5 years.

At the end of the agreement as long as you have maintained your payment commitments, any outstanding debt is written off.

The Arrangement is especially useful if you are a home owner as it allows you to keep your property and protects it from further legal action by you creditors although you may have to raise equity from it if you can.

Do you want help to go Bankrupt? Give us a call or complete the form below to speak to one of our experts

The Bankruptcy solution

If you do not have a property to protect or your property is in negative equity or you have no income to be able to make an offer of payment then Bankruptcy might well be a sensible debt solution for you.

There is a lot of stigma and mis-information surrounding this option but the reality is certainly not as bad as the word itself sounds.

Bankruptcy normally lasts for 12 months after which you are discharged. You only make payments towards your debts if you can afford to do so and even then only for three years. You are then totally free of all of your unsecured debts including tax arrears.

The major issue with bankruptcy comes if you are a home owner with significant equity in a property. If this were the case then your home would be at risk of forced sale to release the equity for your creditors.

It is impossible to say whether or not the reason Ms McCutcheon decided to use this solution rather than an IVA was due to her not owning any property with equity. However if she was advised about her options correctly this is certainly a possibility.

Either way, as long as Ms McCutcheon co-operates fully with her Trustee she should receive an automatic discharge after 12 months and her tax debts whatever they are will be written off.