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Bankruptcy is a traumatic event which can have significant implications for the future. What happens to your business if you’re bankrupt, and what can you do afterwards? We explain what personal bankruptcy is, the difference between bankruptcy and liquidation, and what it means for the future.

Is bankruptcy different to liquidation?

In the UK the term bankruptcy only applies to a person. A limited company can’t be made bankrupt, but will enter liquidation.

How is someone made bankrupt?

If you’re struggling to pay debts then you can apply to become bankrupt.

Your creditors (that you owe money to) can also apply for your bankruptcy after exhausting other methods for recovering the debt.

How long does bankruptcy last?

Declaring yourself bankrupt is not a permanent thing. Bankruptcy typically lasts one year, after which you’ll ‘discharge’ the bankruptcy.

You won’t have to repay your old debts, but you may have to cover fees such as court fines or student loans.

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What happens if a sole trader is made bankrupt?

As a sole trader you are your business, with no legal differentiation between the two. You might have to close your business, and sell off any assets to help pay your debts.

Sometimes sole traders can continue operating during the bankruptcy period, under strict regulation.

You will need to trade under your own name, or the name you were using to trade under when you became bankrupt. You can’t start trading under a different name while you’re bankrupt.

What happens if a company director is bankrupt?

Someone who is bankrupt must not manage, form or promote company, so a bankrupt director must resign from their position. The problem is that companies must have a least one director, which means the company will close if you’re a sole director.

You can continue to be a shareholder, though your assets can be sold off to pay debts during the bankruptcy process.

Once you discharge the bankruptcy you can become a director, though this might make it difficult to access finance.

What alternatives are there to bankruptcy?

An Individual Voluntary Arrangement (IVA) is a formal binding agreement with an insolvency practitioner who divides payments between creditors.

This agreement is a lot more flexible than bankruptcy, and it will still allow you to continue trading.

An IVA also enables you to negotiate repayments if they become unmanageable, though the driving force here is repayment according to agreed terms.

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About The Author

Christopher Jones

Forensics graduate-turned copywriter and blogger. I love turning complex topics into easy to understand, yet engaging pieces of content.

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