Starting up a new business can be very hard, especially in these times of recession. More than 50% of businesses close in their first year and only 20% continue to trade after four years.
If you operate as a sole trader, you will be personally liable for any debts that your business incurs. If your company fails, your assets will be put toward paying back debts that the company has built up which means that you may face bankruptcy. If you are facing bankruptcy you may want to consider an Individual Voluntary Agreement (IVA) with your creditors first as it may be a way that you can pay back your debts without having to go bankrupt.
You should always leave bankruptcy as your last resort and it is important that you get professional legal advice from a commercial bankruptcy lawyer before you embark on the bankruptcy process. If you are sure that bankruptcy is the best option for you, you will have to go to court and convince a judge that you cannot deal with your financial situation any other way. The judge will normally issue bankruptcy for 12 months but it can last as long as 5 years depending on your circumstances and the extent of your debts.
The bankruptcy process begins with all your property and assets being sold off in order to pay off as many of your debts as possible. You will no longer be in control of your finances instead they will be controlled by an Official Receiver who will be assigned to you by the court. Any money that you make will go toward paying off your debts and you will only be given a small allowance out of your income to live on. After the period of bankruptcy set by the court is over, you will no longer be bankrupt and any debts you have left over will be written off.
On top of this when you are bankrupt there are a lot of restrictions that you have to adhere to. These include:
• Not being able to set up another limited company
• Trade as a business under a different name
• Work as an accountant or a lawyer
• Work a as a justice of the peace
• Be a member of parliament
• Work as a member of a local authority
• Get credit over £250 without getting permission from the lender
• Act as a director of a company
On top of this you may have to go through a public examination of your finances in court and lose control of all your assets. Your credit rating will also be affected negatively meaning that even when your bankruptcy is over, it is likely that you will find it very hard to get affordable credit. You should always leave bankruptcy as you final option. There can be other ways of restructuring your debt to mean that you can avoid having to go bankrupt.
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