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Debt Relief – Insolvency – Bankruptcy Information » Bankruptcy Help » Will Declaring Bankruptcy Stop me From Running my Company?

Will Declaring Bankruptcy Stop me From Running my Company?

For those with a personal debt problem bankruptcy can be a very effective solution. If you run a company either as a director or sole trader this could have implications for you.

The very idea of bankruptcy has overtones that often put people off even considering it. It can however be a very useful debt solution in a number of situations. If you declare yourself bankrupt, all of your unsecured debt will be taken away from you. You are generally bankrupt for 12 months after which you are discharged debt free.

If you are a home owner with equity in the property it is quite likely that the house will be sold. However for business owners or company directors with no equity in property it can seem to be a very good option to solve your personal financial problems.

However, there are other implications for business people that you will need to be aware of:

Company directors who are bankrupt must resign

A bankrupt person cannot act as a limited company director or in the capacity of managing a limited company.

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If you want to declare bankruptcy then you need to find a replacement director who can take over your responsibilities until your bankruptcy is discharged. If that is not possible then it may lead to the business being closed.

An alternative personal debt solution call Individual Voluntary Arrangement (or IVA) exists which will allow you too continue as a director but still resolve personal financial trouble. If you are a director this may well be a better solution for you.

Sole traders may find banking difficult

While there is no prohibition on running a non limited company while being bankrupt, there are other implications you need to consider.

You will be able to continue to operate as a sole trader business without the burden of your personal debt. As such bankruptcy can be a very useful tool for self employed people who have no property to lose.

However, one of the problems with declaring bankruptcy as a sole trader is that you may have to close your business bank account. If your business account is with the same bank as your personal account and you owe money to this bank, the business account may be frozen or closed after you declare bankruptcy.

Once bankrupt, you can open a new personal bank account, but it may not be easy to open a new business account.

There is a way round this issue – open two new personal accounts, one for personal, and one for business activities. However, as your credit rating will be affected, it is unlikely you will be given overdraft or credit card facilities for either of these accounts.

Overall, whether you are a company director or sole trader, declaring bankruptcy may have a significant impact on your business. Bankruptcy can be a very good way of resolving personal debt. However, if you are considering this as a solution, you will need to plan carefully to ensure that any negative impact to your business is minimised.

Derek Cooper is Managing Director of Cooper Matthews – specialists in Business Debt Advice for small to medium sized businesses. http://www.company-debt.co.uk/I-have-personal-debt–What-should-I-do.html

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