Bankruptcy and Your Business – Can I Run a Business While Bankrupt?
There’s no doubt that bankruptcy is a complicated thing to handle. It has a lot of pros and cons associated with it. It not only affects your business, but also lowers your own reputation. Deciding to project yourself as bankrupt will have various consequences.
A number of personal bankruptcy cases arise due to reasons like recession, reduced income, credit debt etc. And, the debtors keep struggling to deal with debt problems. Under such situation, it is would be interesting to know if one can still continue doing business.
Basics of bankruptcy
Dealing with bankruptcy needs some intelligence. You need to know the basics of it to save yourself from the worst consequences. Remember that you own the rights to proclaim yourself bankrupt by failing to pay debts. In such case, even a creditor can claim for your bankruptcy. In this case, if you owe an amount more than £5,000 to the creditor, they can sue you.
Let’s check out the pros and cons of declaring bankruptcy. Here you go!
Advantages of declaring bankruptcy
- The creditors don’t contact you anymore to enquire about the debt
- You are allowed to keep the basics like household goods and an allowance for living
- You won’t be threatened anymore for court actions
- The amount you owe will be written off
Disadvantages of announcing bankruptcy
- You will be made to pay for the debts for in a duration of three years based on your income
- You have to struggle a lot for getting credit while being bankrupt
- After a term of six years, your credit rating gets affected
- It may require to sell off your home and assets such as car or other luxury items to pay the debts
- You won’t get any jobs when you’re bankrupt.
- You may be publicly published as bankrupt, though you can request to keep your personal information preserved
Owning a business in Bankruptcy
Under bankruptcy, you can no more be the director of any company. Legally, you’re not liable to carry out any operations of any limited company without having a permit from a court. If you are already a director of a company, then it will depend on several factors related to you and your company.
You may appoint another director for your firm before declaring your bankruptcy. It will prevent the winding up of your company. But, if the company has more than one director, then you can quit from your position using a TM01 form that terminates a director from his role.
Moreover, if any other director within your company announces bankruptcy without prior information and don’t resign, then you can remove them. If the result gets them less than 50% of voting rights, you can remove them by a motion passed by the other directors. But, you may be required to visit an Official Receiver for legal action, if they achieve more than 50% votes.
Above all, you can stay self-employed as a trader on declaring bankruptcy with certain conditions such as trading under your own name. You can also use the name that was used when you became bankrupt.
Alternatives to Bankruptcy
When you’re a director of a company or own a business, it is always better to find alternatives to bankruptcy. You can also opt for Individual Voluntary Arrangement. It has more flexibility than bankruptcy and will allow you to continue running your company.
Moreover, you can also negotiate with creditors for extended payment terms. And, the moment you sense a financial problem, you can talk to creditors and make efforts for a working solution.