If you are self employed you are responsible for your business debt. As such if your business gets into financial difficulty you will need to take action to protect yourself .
- What does Self Employed mean?
- Who is liable for Self Employed business debt?
- Options for managing self employed debt
- Debt solutions and your Business Bank Account
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Who is liable for Self Employed Business Debt?
If you run a business which is not a limited company you are classed as self employed. If you are working on your own you are normally described as a sole trader. However you may also employ other people. You could also be using a trading name which is different to your own.
As a self employed person you and your business are the same legal entity. The business can take on debts under its trading name. However ultimately you are personally liable for these. In other words if your business gets into trouble you must personally repay any debt it has left outstanding.
If your business has an overdraft, loan or a trade account under its trading name you are personally responsible for the repayment of this debt.
Options for managing Self Employed Debt
Your business may still running but the work has slowed down. As a result you will be struggling to service any debt owed.
The issue you face is that you are personally liable for the debts. As such you cannot just close the business and walk away from them. However this problem can be resolved using a personal debt solution.
If you are still able to draw an income from your business you could use a solution which will help reduce your monthly debt repayments. The two options to consider are a Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA).
What if your Self Employed Business can no longer Trade?
If you have decided to close your business you will no longer be able to draw an income from it. If this leaves you in a position where you have little or no spare cash a DMP or IVA may not be suitable. In these circumstances you could consider the option of Bankruptcy.
Bankruptcy can be an ideal solution if you have little or no income. This is because you are only required to make payments towards your debts if you are able to do so. The solution will mean that your unsecured personal and business debts are written off.
If you go bankrupt you do not have to give up your Self Employed business. You can continue to run the same business or a different one while you are Bankrupt if you want to do so.
Debt Solutions and your Business Bank Account
A problem that you will face when dealing with self employed business debt is your banking facilities. If your business owes money to its bank this debt will almost certainly be included in the debt solution you chose. As a result you will need to move your account.
If your business has no bank debts but you have a personal debt with the same bank it is likely that you will have to close both your business and personal accounts.
If you have missed payments and default notices on either your business or personal debts your credit rating is likely to be poor. As a result opening a new business bank account will be difficult. In these circumstances the best solution is normally to open two new personal accounts. You can then use one for your business transactions and one for your personal affairs.