Self-Employed and Debt
Tue 10th Mar 09 - 8:08

We have always received many calls and emails from people who are self-employed and are experiencing debt issues.  And now with this ‘credit crunch’ going on, the numbers of people who are self-employed and are asking for assistance seems to have gone up a notch.

When I am speaking with someone who is self-employed one of the first questions I ask them is this: Are you a sole trader or is the business a LTD company?

The answer to this question can have quite an impact on any advice I may give and also what options are available to them.

If they state the company is a LTD, and they are the Director, I would then ask them if they have guaranteed any of the business debts.  I would also ask if any of the debts are suppliers that they are in current need of to continue trading.

If their debts are with suppliers it can be tricky getting a repayment scheme in place as the supplier may want to be paid before selling anything new.

If a Director, or anyone for that matter, guarantees a debt for a LTD company, they are responsible for that debt as well.  It is basically co-signing the loan. So in many instances if a LTD company goes into administration and/or receivership, the person who guaranteed the loans may be forced to go bankrupt as well.

If the business is a sole-trader, things are a bit different in that it can be assumed the debt is probably just in that person’s name.  There may be exclusions to this, but usually the trader has the business debts in his name.

So what to do as a self-employed person with debts you can no longer service?

For a sole-trader the options are the same as they are for an individual.  If you have something to offer towards the debts, you can set up a repayment scheme such as a debt management plan or an IVA.  If you do not have anything to offer to service the debts, bankruptcy is an option.

As a sole-trader in bankruptcy you are still allowed to trade and earn wages.

Winding up a LTD company is a different matter and too complex to get into here.  However, if as a Director you have guaranteed any of the debts, once the business is wound up, then those debts become yours and you are responsible for them.

Your options at that point are the same as before, depending on what you can afford to pay; possible a debt management plan or an IVA, or bankruptcy.

One other possible option is if the business is doing OK, but it just needs to restructure the debts for a period, the company could look at contacting the creditors and suppliers for assistance in setting up the restructure, or possibly do a CVA, Company Voluntary Arrangement, making payments of a reduced amount and receiving a concession on the balances.

Of course if the Director does go bankrupt, they can no longer be a Director of a LTD company whilst in bankruptcy.  Of course many times this is a moot point as the Director may be the company and the company is closing down anyway.

So there you have it, an overview, brief as it is, on debts and being self-employed.

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