With serious personal debt problems on the increase, more and more people are choosing to declare themselves bankrupt as a way of resolving their debt issues. We consider whether bankruptcy is appropriate if you are self employed.

If you owe money that you simply cannot afford to repay, bankruptcy should be one of the options that you consider.

As a result of declaring bankruptcy, all of your unsecured debt will be taken away from you. You will remain bankrupt for twelve months and then be discharged debt free. In addition, if you can afford to pay anything towards your debts, these payments will last a maximum of just three years.

Of course a significant downside to bankruptcy is that if you own a property with equity in it, you may have to sell. However, if there is little or no equity then it is very likely that you will be able to keep your home.

Self employed status

As a self employed person, you can declare bankruptcy and continue to carry out your job. There is no reason why you should not continue running your business if you are bankrupt. You are allowed to keep any tools of your trade including a vehicle to enable you to continue working.

The only time you will have difficulty is if you have started a limited company and in effect, you are the sole owner and director.

As a bankrupt person, you are not allowed to act in the capacity of a limited company director or be involved in the management of such a company.

However, there could be a solution to this in the sense that it may be possible to suspend trading from the limited company and start to trade on a sole trader basis for the time you are bankrupt.

Banking facilities may have to change

One problem you may encounter if you declare bankruptcy as a sole trader is if you owe any money to the bank where you have your business account, they may not want to keep the account open for you to use.

This situation can be overcome by opening another account with an alternative bank. You may not be able to open a specific business account. However, there is nothing to stop you opening a normal current account in your name and using this for business purposes.

Importantly, you will need to recognise that you will no longer be able to operate an overdraft facility or credit card.

If you have been using these facilities to help with your business cash flow then you will have to rethink your business strategy so that you are able to operate without using credit.

You may also find that you have to pay cash for supplies and materials rather than operating a credit account which will require additional planning.

Review all your options

If you are a sole trader and struggling with debt, it is vital that you get advice about your options as soon as possible.

The longer you delay and try and deal with the situation yourself, the more likely it is that the situation will become worse and even more difficult to resolve.

There are a number of different ways to manage a debt problem, but if you really have very little available to make any kind of payments to your creditors, bankruptcy could be for you. 

You can continue running your business even when you are bankrupt but with the benefit that all of your unsecured debts will be taken away from you.

However, bankruptcy should never be undertaken without first speaking to an expert. They will be able to explain all the advantages and disadvantages and exactly how the process will affect you personally.

If you are struggling with debt, visit www.beatmydebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.