According to experts, 50% of businesses fail in their first year and only 20% survive past the four year mark.
It is a sad fact of life that so many businesses never really make it off the ground. And for new business owners, particularly sole traders, who invested substantially to make their idea work, choosing the path of bankruptcy is an all too real option.
Business bankruptcy or IVA?
In the case of sole traders, the business they own is intrinsically linked to them as an individual, so they are liable for all debts should the company fail. For individual bankruptcy, an Individual Voluntary Agreement (IVA) may be best step forward to getting back on your feet, and there are equivalent schemes for businesses.
Business bankruptcy legal advice
Bankruptcy should always be a last resort, and it’s highly recommended you consult a commercial bankruptcy lawyer for advice before going ahead with anything. In order to be declared bankrupt you need to go to court and convince a judge that given your financial situation bankruptcy is the best course of action. Bankruptcy can last for up to 5 years, but is usually set at 12 months by the court.
When you are declared bankrupt everything you own is sold to pay off your debts. For the duration of the bankruptcy your finances are controlled by a court officer called the Official Receiver. All of your income will be paid into your bankruptcy although you will be given a small allowance to cover your living expenses. Once the period set by the court has passed, you will be discharged from bankruptcy and whatever is left of your debt will be written off.
There are also quite a few penalties and restrictions imposed on individuals in bankruptcy. For example, you cannot:
- Take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
- Trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
- Practice as a Charted Accountant / Lawyer.
- Act as a Justice of the peace (JP).
- Become a member of parliament.
- Become a member of a local authority.
- Obtain credit for over £250 without the permission from the lender.
- Act as a company director.
- You may be publicly examined in court.
- You lose control of your assets.
- Your credit rating will be affected for many years after the annulment.
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