If you are self employed it is not unusual to prop up your business with borrowing. However even if the money you borrowed is in the name of your business you are personally liable for the debt. When things go well this is no problem. However if the business starts to struggle, you may no longer be able to draw enough to support the repayments. In this situation you will need to chose the best debt solution to resolve the problem.

Is the best Debt Solution Consolidation when self employed?

If you are still able to draw some funds from your business and your debts are not too large consolidating with a single loan might be the best debt solution for you. The advantage of consolidation is that the single monthly payment you make will generally be lower than the total of the amounts you pay on all of the current debts. This lower payment may be affordable with your reduced budget.

However if your debts are more than £15,000 – £20,000 you may struggle to find a bank willing to lend a loan large enough pay off all of your old debts. If you can get a loan you must make sure that you can keep up the new payments without continuing to borrow. If you will still have to use your credit card consolidation may not be appropriate.

Is the Best Debt Solution a Debt Management Plan?

A Debt Management Plan (DMP) is an informal agreement with all of your creditors to reduce what you pay to fit into the budget you can afford. This could be the best debt solution for you if the majority of your debts are owed to banks and credit card companies. However if you also owe money to suppliers or HMRC they may not be so willing to agree reduced payments and can be very difficult to deal with.

Generally speaking HMRC will be willing to agree a time to pay as long as the debt you owe them is repaid within 12-18 months. However if you cannot pay enough each month to achieve this then they may not be willing to accept the payments you offer. In this situation a DMP will not be the best debt solution for you.

Is an IVA the best Debt Solution if you are self employed?

Where you can afford to pay towards your debts each month an Individual Voluntary Arrangement (IVA) may be the best debt solution to chose. As with a DMP the Arrangement will reduce the monthly debt repayments you make to fit to a manageable budget.

Importantly creditors such as HMRC that cannot be included in a DMP can be included in an IVA as long as the proposal you offer is reasonable. In addition you will not have to repay all the debt you owe. You make 5-6 years of payments. After this any outstanding debt is written off and you are left to continue with your business debt free.

Could Bankruptcy be the best Debt Solution when self employed?

Many people think Bankruptcy is something to be avoided. However if you are self employed it could be the best debt solution for you. First of all if you go bankrupt you can carry on with your business. This is the case even if you have HMRC debt. It is only Company Directors who are affected.

Secondly you only have to make payments towards your debts if you can afford to do so. If you do not have enough income from your business even to make reduced payments then you do not have to make any ongoing payments at all. As such you have the opportunity to continue to earn a living from your business without the burden of paying your debts.

If you are a home owner you may be concerned that bankruptcy will mean you will lose your property. However this does not automatically happen. As such it might be the best debt solution for you even if you own a property.