Will Bankruptcy Damage my new Business?

GRiFF

Hello Everyone,

I should have written a clearer question I think so this is a dramatically edited version my other more boring one...

About to run out of money
Have been running up debts on credit cards investing in a new business - hoped the new business would give me the revenue stream I need.
Worried now though.

I guess the big question would be if I went bankrupt whats the chances I'll lose the equipment I bought recently on the credit cards?

I have no mortgage, run 20 year old car, the goods I bought were largely materials for the new work space such as paint, flooring, sound treatment but also a few musical instruments - I'd say a combined value of about £4K on instruments and about 3K on other kit that I consider to be essential to my line of work.

Its hard to know what the rulings are here, so far I've been told one of three things might happen...

1) Nothing, I will go bankrupt and its very unlikely that anything I have is sufficiently valuable to bother re-possessing
2) I could keep goods that would be considered to be tools of my trade.
3) I could lose it all if I landed a particularly shrewd official receiver/liquidator.

Whats the real world, street level view on this?

caffsean

There's a lot of things there that need considering but in my own opinion i'd have thought yes the business probably would be damaged, the Official receiver might view it as you've deliberately ran up all the debt to then go bankrupt as the debts seem to be recent, but ulimately all that you have bought would be considered as your assets and would be recoverable by the OR.

Also they'll look at whether or not you own the business premises as that would be considered an asset and may have to be sold to go to the creditors. Also im not 100% sure (dependant on the type of business) but i didn't think you were allowed to be a director of a company whilst bankrupt?

Might be worth speaking to an OR if you can or potentially the CAB if you can before making any decisions. xx

mattannar

Don't want to be hard, but what sort of business plan did you have?
How long ago did you start and have you made any income?

GRiFF

I had a business before this one that was never wrapped up but just sort of transformed from a recording studio into buying and selling studio equipment.

Up to 2010 my trading business was going well but was hit hard by the recession. All my capital was eroded by rent and holding stock that wasn't selling.

Since the start of 2012 I found myself revisiting studio production again, started getting a few sessions in since I found myself with time on my hands.
I had a credit card with a fair load of cash on it and started upgrading my system and adding some instruments since I had got rid of most of my studio gear in the past.

I didn't mean for things to go the way they did, I got carried away and excited by the prospect of making this 'new' business work and wanted to draw a line under the old.

Then, partner gets pregnant so we lose the spare room I was working out of, she bought a portacabin and I've been using what finance I had to fix it up and prepare it.
What also contributed was that because my time is technically more flexible than my partner I ended up doing alot of child care and have not been able to sink the time into hustling for work, its been frustrating.

Now its getting to the point where any capital I had left has been used, and any stock that was still bringing in a bit of income has now dried up.

I'm a sole trader rather than a company director by the way.

If I lose the studio gear, I've basically lost any decent chance of creating an income for myself with the flexibility we need as a family for the child care.

maxmycardagain

did you buy gear on a card or with cash off a card?

if the gear is classed as "tools of a trade" its unlikely to be seized

GRiFF

Hi,

I used credit cards.

I was originally paying off my last credit card, had about 3K to go on my Halifax and was bunging £350 a month at it, all was set to be cleared by the time I was 40.
Then the recession hit my business.

I started running up the card again, now I've filled two - both 7K each since I'd say late 2011 to recently. Everything I have bought has been with a view to being able to provide a service I could advertise.

New business is going to take time to build up, but I have done a number of sessions and I have a couple of regulars.
Its probably worth about £500 a month at the present time.

I'm wondering if its going to be at all possible to do an IVA - if I lost the studio now I would be completely and utterly devastated.

aleenajoe

the business apparently would be damaged, the Official receiver ability appearance it as you've advisedly ran up all the debt to again go broke as the debts assume to be recent,

GRiFF

I guess I have three questions...

1) How long should there be between the last use of a credit card and bankruptcy if I wanted to avoid the accusation that I had ran up the debt?

2) Can I speak with an official receiver to find out what the street level practice is actually like?

3) Are they likely to take everything? I mean all my guitars, instruments, studio monitors, hardware all of which I use for making music and is currently an income stream?

In respect of the last question alot of kit is over 5 years old, and computer based. I could still do what I need to do with less equipment, but there are core essentials I need for a skeleton system - would they draw the line anywhere?

My biggest concerns would be 5 guitars that have a value of between 500 / 600 each, a console worth about £1500 on the used market and a guitar amplifier probably worth about £650.

I thought they only tended to take individual items worth significantly more than this, ie around the 5K mark.
Is that wrong?

September_2012

A Bankruptcy Restriction Order - or BRO - is an order that the courts will make in a bankruptcy case if they feel that the person who filed for bankruptcy has engaged in culpable or dishonest conduct. The debtor who is given a BRO will find themselves under certain restrictions for a period that is set between two and fifteen years, and they are the same restrictions that every person who goes bankrupt is under during a normal bankruptcy period except for a longer period of time. A normal bankruptcy case will see the restrictions lifted when the bankruptcy is discharged. A BRO is not lifted when the bankruptcy is discharged



What are the normal restrictions on a bankruptcy case? They include but are not limited to:

• Declaring your bankruptcy to a potential lender if you are attempting to borrow more than £500 in credit
• If you are self-employed or part of a business, you must tell your business colleagues and associates that you are bankrupt and the style under which your bankruptcy was granted
• You become restricted from being a company director or taking part in the promotion, formation, or management of a company without prior approval from the courts
• You cannot act as an insolvency practitioner, receiver, or manager of the property of a company on behalf of debenture holders
• You cannot be a member of parlament in England or Wales
• You cannot hold certain public offices

So the next question that should be answered here is what are some of the actions that could cause a Bankruptcy Restriction Order to be issued? Here is a list of some of the reasons the courts could issue this against you.

• You purposefully incurred debts that you know you could not repay
  
• You sell assets for less than their market value or give them away for free
• You showed priority to certain creditors such as family and friends than to others
• Your spending was unreasonably extravagant
  
• You partook in gambling or making bad speculations
• You increased your debts by neglecting your business affairs and responsibilities
  
• You engaged in fraudulent activities or breach of trust
  
  
• You carried on with your business when you should have filed for insolvency
  

How long the BRO is in effect will be determined by the court and the amount of financial harm you have caused your creditors. It is a criminal offence to breech a BRO so it is advisable that you pay attention to the order. If you engage in any of the restricted activities and are caught, you are looking at fines and even possible jail time.

A BRO is not something to take lightly, and if you engage in any of the activities that could cause you to be placed under this order you are looking at serious financial ramifications. It will take longer for you to get back on your feet, and your ability to get a credit line after your bankruptcy is discharged will be severely limited.

September_2012

A self-employed trader using no valuable assets in his occupation would be allowed to continue, so long as he continued to trade in the same name and style as that in which he was adjudged bankrupt.

September_2012

I know the above is not what you want to hear, I just wanted to make you aware of these things because the likely outcome is you lose your business and get a 15 year BRO.

The OR usually looks back 5 years, I dont think you will be able to hide the fact your business wasn't making money at the time the debts were incurred, the OR will probably want a face to face interview and want to see your books and bank statements.

I dont think BR is the best option for you but there is more then one way to skin a cat.

Have you considered offering your creditors token payments ?

If they agree to token payments they usually freeze the interest and give you a 6 month affordable monthly payment scheme, this could buy you enough time to get the business of the ground.