Bankcruptcy while self employed

[herbie]

Hi
We entered into an IVA 6 months ago but they just want EVERY spare bit of cash that we have,now my husband has a tax rebate due which as he is self employed he normally uses to buy his tools and work clothes for the year coming and they want half of this we owed �45000 which was owed to 2 banks we dont own our own property and our car is 8 years old.When talking to our iva superviser she said we may have been better off going bankcrupt as the iva runs for 5 years and we pay �540 per month,she said bankcrupty lasts for 3 years and the payments would be less we are struggling to pay as it is.Thanks in advance

[themas]

It sounds as if you may have been "sold" an IVA when it was not the most appropriate solution for you (& quite possibly all the money you have paid so far has gone to the supervisor's firm & not to the creditors).

In principle there is nothing to stop someone who is self-employed going bankrupt. However, if the debts are joint (i.e. in both your name & your husband's) both of you would have to go bankrupt, as it is an individual process. There is a fee involved - normally �495.

There may be bank account problems, as bankrupts cannot get a full bank account and there are only a very few banks who will give them a basic account - & these are normally for personal use & not business accounts.

You could talk to Business Debtline (see website) about this & any other business related issues, one of which is that your self-employed husband would not be able to get any credit more than �500 (e.g. from any suppliers he buys goods from for his business) without telling them he is bankrupt.

The actual bankruptcy lasts 1 year, but if you have to make payments to the creditors (this depends on income & expenditure & is generally assessed more generously than in an IVA) then the liability to do so lasts 3 years.

Go to the Insolvency Service website & download their booklets on the implications.

If you need to, get advice from a free service (do not go to any fee paying one) such as your local CAB or CCCS.

If you do decide on bankruptcy, then don't pay over the tax rebate to the IVA, & stop your monthly payments to them. Hopefully, you would then have the money for the bankruptcy fee.

[herbie]

Thanks for you answer my husband is self employed but works for a company.If we had an exsisting account (not with are creditors) would they close it ?, we have no overdraft facilitys or credit with them.We would need an account as we both get paid by bacs

[themas]

If it is only your husband going bankrupt then an account solely in your name would be safe - there is nothing to stop his income being paid into it. It may be that you would be able to set it up so that it could act as his business account (if he needs one - I am not sure from your answer whether he does) as well as a personal one.

If you are both going bankrupt then either of you could open a basic account for personal use in your sole name, or you could open a joint account.. There are only 2 banks that do these for bankrupts; Co-op and Barclays. You would need to open the account with whichever you do not owe any money to. You could open the account before going bankrupt but make it totally clear that you intend to go bankrupt and want a basic account that you can go on using while bankrupt. (The account will be frozen for a short while immediately after you become bankrupt but should be rapidly unfrozen. It is best to take out virtually all the money in it just before going bankrupt.)

These basic accounts are for personal use - not business - but if your husband is just working for one company that makes payments into the account for him this is unlikely to appear to be anything other than employment so far as the bank is concerned.

[herbie]

Themes thanks for taking the time to reply, when we took the iva we thought that we would just pay the �540 per month for 5 years,but they are very demanding somebody told me that as a bankrupt you are only allowed �500 per week? does the rest go to creditors?also do you know how long this lasts?

[themas]

You have been misinformed. Whether you make any payments at all to creditors depends on the assessment of your income and expenditure by the Official Receiver. This assessment is based on figures you provide on the bankruptcy form. The OR then considers these and questions you on them if necessary - he/she may reduce or eliminate some of your expenditure if it is considered too generous (for example, if you put down that you spend �1000 per month on food for two people it would not be accepted & a reduced figure would be used).

It is quite incorrect to say you are only allowed a fixed amount. In fact, it is generally accepted that the expenditure the OR allows is more generous than that allowed in an IVA.

If the OR's assessment of your income & expenditure results in the surplus of income being less than �100 per month then you do not pay anything at all into the bankruptcy. In that case, you would be discharged after at most a year, and probably after 6 - 9 months. However, if your finances improve before you are discharged you have to notify the OR and will have to start making payments if the surplus income then becomes �100 p mth or more.

If the surplus income is �100 per month or more then a % of it is taken. The % increases with the size of the surplus, & with a small one (i.e. just over �100 p mth) only 50% is taken. If you have to make payments of this kind the liability to do so goes on for 3 years, but you are still discharged from bankruptcy after 1 year. If your finances change, the amount you have to pay can go up or down.

It may well be in your interest to get independent advice (NOT from your IVA provider) to help you with preparing a realistic income & expenditure statement, if you decide to go bankrupt. This is one of the areas where the CAB or CCCS could possibly help you.