Bankruptcy When In Self-Employment

Declaring yourself bankrupt is a big decision to take, whatever your employment status. However, it could be said that self-employed people are more at risk of bankruptcy than people who have a job, because they often entangle their personal and business finances.

Bankruptcy self employed

This can make it hard for self-employed people to realise they have a debt problem until things become very serious. For example, if you don’t keep up with your tax obligations, you could end up with a large bill from HMRC that you can’t pay. In some cases, bankruptcy may then be your only option.

So what are the implications of bankruptcy for self-employed people and what might happen to your business if a Bankruptcy Order is made against you? This article gives an overview of some of the key facts you need to know if you’re considering bankruptcy as an option, and you’re self-employed as a sole trader or own a limited company.

I’m a sole trader – what might happen to my business?

Your business might be closed down after you’ve declared yourself bankrupt and any staff you employ would then lose their jobs.

When your Bankruptcy Order has been made, you’ll be asked to hand over details of your accounts to the OR or trustee so they can examine your financial records. However, you’ll still be obliged to file any outstanding tax and VAT returns as normal.

After this, you can usually carry on trading, subject to restrictions. These include not trading under any other company name without telling everyone connected with your bankruptcy and not using the same VAT number as before, if you’re VAT-registered.

What about limited companies?

If you run a limited company, you’ll have to step down as a director when you’re made bankrupt. And you’ll be forbidden from playing any part in forming, promoting or managing a limited company during your bankruptcy period, without the specific permission of the court.

Another important point to note is that if you have shares in the company, these will vest in the Official Receiver (OR) or the Trustee overseeing your bankruptcy from the date that your Bankruptcy Order is made. So the OR or Trustee could end with a significant, and even controlling, interest in your business.

What might happen to my assets?

If your company owns any assets, these may be passed to the OR or your Trustee. Unfortunately, these could potentially include assets that are essential for you to carry on trading, such as a fleet of vehicles if you run a courier business. So this is one area in particular that needs to be handled very carefully.

Are there any specific implications for particular job types?

Yes. The governing bodies of certain professions may require you to stop trading if you’re made bankrupt, or revoke your license or membership so you can’t trade again in the future (although this may not be permanent). These professions include:

  • Any legal profession requiring you to be a Law Society member
  • Insolvency Practitioner
  • Stockbroker
  • Pub licensee
  • Public officer, e.g. MP.

How long will the bankruptcy restrictions last?

Most of the restrictions will be lifted when your bankruptcy is discharged, which is usually 12 months from the date your Bankruptcy Order was made. In some situations, the court may impose a Bankruptcy Restrictions Order (BRO) which extends the terms of your bankruptcy. However, this is quite rare.

Where can I get more information?

Bankruptcy for self-employed people can be complex and there are a number of grey areas. It’s hard to say exactly how you and your business will be affected without knowing all the details of your individual situation.

That’s why it’s so important to get expert advice as early as possible – firstly to find out if bankruptcy really is the best option for dealing with your debts and if it is, to guide you through the process step by step.

Let Bankruptcy Clinic help

As our name suggests, we’re bankruptcy experts. We’re here to give you all the advice, assistance and support you need to identify and implement the best solution to your debt problems. Bankruptcy Clinic works in partnership with one of the UK’s leading debt management firms, and when you contact us, we’ll put you straight in touch with one of their friendly, fully-trained advisers.

Contact us today

Please get in touch today and take your first steps to managing your debts:

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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