For senior business managers or owners, Bankruptcy is not an option if you want to continue managing your business.
Where you have debts which you have no hope of repaying, bankruptcy can be an extremely useful solution, which over 6000 people a month use to solve their debt problems.
For those people who are not a home owner, or do own your home but have little equity in it then you will not lose your property in bankruptcy. You will also be able to retain reasonable household goods and personal possessions. However for those running a business it is not such good news. If you are running a business as a director of a limited company or as a sole trader, you need to be very careful before deciding to go down the bankruptcy route.
The effect of Bankruptcy on company directors
You cannot declare bankruptcy and continue to act as the director of a company or be involved in its management. This means that if you are a company director and want to remain in this position, bankruptcy is not an option for you.
It is also not an option to simply resign as a director and then to keep on running your business as before. Under the terms of your bankruptcy, this activity is not allowed.
As such unless you are able to introduce a new director or can leave the management of your business to other competent individuals, on declaring bankruptcy you would effectively be required to close your business.
The Individual Voluntary Arrangement was introduced into English law to act as an alternative to bankruptcy for company directors and therefore overcome this problem.
The effect of Bankruptcy on sole traders
As a sole trader, you are not a director of a limited company. Therefore under the terms of the law, if you declare bankruptcy you can continue to run your business.
However, the issue that you will face is that once bankrupt, all of your bank accounts including any business accounts will be closed. This will mean that you will lose your business banking facilities such as your overdraft and credit card.
It will be possible for you to open a new personal bank account after you are declared bankrupt. However, this will be a simple account known as a card cash account. You will not normally be given a debit card or an overdraft facility with this type of account.
If you believe that your business will not be able to operate without credit facilities such as an overdraft, then declaring bankruptcy may make continuing to operate your business impossible.
The effect of Bankruptcy on employees
As with a sole trader the law does not stop you declaring bankruptcy and working for a company even in a senior position If your title within the company is known as director, but you are not registered as such at company's house, then you can still declare bankruptcy.
There are some positions particularly in the finance arena where your contract of employment may may mean that you can be dismissed if you declare bankruptcy. If you believe that this may be the case, it is always sensible to check before declaring bankruptcy.
Bankruptcy is an extremely good way of dealing with a serious debt problem for many people. However, if you are a company director or run a sole trading business , you need to think carefully and take further expert advice before proceeding with this option.