Can I run my business if I declare bankruptcy?

Bankruptcy is not an option for many business people as this solution will prevent them from continuing to manage their company.

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.

If you are not a home owner or have little or no equity in your home, you will not lose your property in bankruptcy. In addition, you will be able to keep all reasonable household goods and personal possessions. However, 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

There is no legal reason why you cannot declare bankruptcy if you simply work for a limited company, even as a senior manager. 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.

As an employee, you must check your contract of employment before making the decision to declare bankruptcy. There are some positions, particularly in the area of finance where to be declared bankrupt could mean that you will be dismissed from your job. 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.