Trading After Bankruptcy

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Trading after bankruptcy.

When you’re in business for yourself and things go wrong financially it’s crucial to seek professional advice immediately. Any kind of insolvency will have serious implications for the future, and the impact can be ten fold when a financial crisis grips someone’s source of income.

First of all it’s important to understand that bankruptcy only applies in the business world when it comes to sole traders and individuals within partnerships. Larger firms, such as limited companies, must go down an alternative route, namely corporate liquidation. This is despite the fact most people refer to all firms going bust as ‘bankrupting’.

The bankruptcy procedure for sole traders is much the same as it is when an individual files a petition based on their personal finances alone. £750 or more must be owed to one or more creditors, with no ability to pay this back based on current income and expenditure. Once you submit an application the court appoints an Official Receiver to oversee your case. It’s essential that all documentation such as PAYE slips, tax returns, and business invoices are submitted at this time.

From here a judgment will be made as to the details of your bankruptcy order. By assessing your wages and other income against necessary expenses the OR and courts will be able to ascertain how much you can afford to contribute regularly towards any outstanding debts left unsettled after the sale of your estate. In short, this means any money you usually have left over at the end of a month will no longer be there, which in itself can mean an end to some small-scale set ups.

Capital investment in essentials may be reduced to the point where it is no longer practical for you to continue trading. Of course an individual’s livelihood must be taken into account when the terms of any payment plan are drawn up, but depending on your industry there may be insufficient funds left to truly continue competing against market rivals. A difficult predicament to be in, this isn’t the only aspect of business after bankruptcy sole traders should be aware of.

Name changes, for example, are possible after your petition is filed and insolvency declared. However, this can only happen if the Official Receiver, or where appropriate a Trustee, gives their permission. Even then, the law requires you to make the old trading name ‘dominant’ on any paperwork, such as invoices, letterheads, and similar documents that may be sent out to clients and customers. This is designed to warn people their business partner or service provider has previously fallen into extreme financial difficulties, which is useful for obvious reasons.

It’s interesting to note that from the date you file a bankruptcy petition as a self-employed individual you will have a tax holiday until the following April 5th. As such your income will increase significantly over this time, though again any additional wages will be tied up within creditor repayments. Where there is no order to contribute towards the outstanding debt within this first year the Official Receiver will not be able to calculate how much you should pitch in for any arrears over the following two. This means that in many instances, with careful planning, sole traders can avoid this instruction to make regular payments.