Sole Trader and Bankruptcy -

debtinfo

At the date of the bankruptcy you cease trading, that business is dead, it is gone, it is an ex business, even if you think it is profitable, i cant stress that enough. Therefore if you have contracts they cease as well.so if you have a rental agreement then that ceases. Of course that does not stop you starting a new business the next day and you can rent the same premises and as dennis says you can use the same trading name. But this is a new business and you have to think of it like that. For instance if your old business did some work and was owed some money at the date of bankruptcy then you cant collect that money as that business doesent exist any more. those monies would be due to the OR. If your old business had a contract to supply a customer that contract would be dead as well although your free to negotaiate a new contract with a customer.

You would be allowed to keep tools of trade but stock would be an asset in the bankruptcy.

As regards profit. your income from your "new" business is the profit not the revenue and so it is the profit that is used in the IPA calculation. The OR will allow you to run your own business more or less as you see fit and will normally expect you to produce accounts to show the profit.This includes buying stock and tools etc. The OR would only interfere if what you were doing was unreasonable and designed to avoid showing a profit for the IPA.

thinkpositive1

debtinfo wrote: »

At the date of the bankruptcy you cease trading, that business is dead, it is gone, it is an ex business, even if you think it is profitable, i cant stress that enough. Therefore if you have contracts they cease as well.so if you have a rental agreement then that ceases. Of course that does not stop you starting a new business the next day and you can rent the same premises and as dennis says you can use the same trading name. But this is a new business and you have to think of it like that. For instance if your old business did some work and was owed some money at the date of bankruptcy then you cant collect that money as that business doesent exist any more. those monies would be due to the OR. If your old business had a contract to supply a customer that contract would be dead as well although your free to negotaiate a new contract with a customer.

You would be allowed to keep tools of trade but stock would be an asset in the bankruptcy.

As regards profit. your income from your "new" business is the profit not the revenue and so it is the profit that is used in the IPA calculation. The OR will allow you to run your own business more or less as you see fit and will normally expect you to produce accounts to show the profit.This includes buying stock and tools etc. The OR would only interfere if what you were doing was unreasonable and designed to avoid showing a profit for the IPA.

Not true in all cases is it DebtInfo?


I am a sole trader - recently BR - and I had a contract I was delivering for a client that straddled by BR date. Most of the work was done before BR but 80% of the fees agreed for my work came through into my bank after BR. That money falls into my income not the OR's. It was for me to live on / pay bills etc. and not knowing when the "next pay cheque" might come in, that fee might have to be eked out for 2-3 months.


The OR appreciates that self employed may have irregular income patterns and recognise that over the year it will be tallied up, as part of Inc and Exp to see if any IPA might be due. Surely?

debtinfo

If you have received the money at the date of the bankruptcy order then it would be income and the OR can allow you to keep that money for ordinary household expenses. If it owed at the date of the bankruptcy order then it is a book debt and falls into a different category, it is an asset of the bankruptcy and not your income and so there is no provision for you to be able to keep this.

I take it that in your case think you specifically declared this in the assets section of your SOA as monies owed to you.

thinkpositive1

Debtinfo - thanks. You have got me quite worried now as this was never mentioned to me by any of the advisors I had (CAB, BDL and some legal advice) at the time.

I have checked back on my BR forms and no I didn't have this listed down as "assets" and it never came up in conversation with the OR at interview aside from her asking me if I was looking to continue trading and what my business prospects were looking like.

As a sole trader you are almost always paid retrospectively so what you are saying is any work done (and the monies due on it) forms an asset for the BR estate rather than income for the individual. I don't get this. If I had known this at the time, then wouldn't I basically be letting the OR take my next 3 months of income off me? What would I have lived on? That is the only fee paying piece of work I have had for the last 3-4 months so I needed it to cover my costs over that period. Following through on what you are saying, if I were an employee then effectively the OR would be stopping my next 3 months of salary after BR for the OR to claim as an asset.... which wouldn't be right would it?

woodformoretrees

If it helps the money I had coming in the OR asked me if I needed it to live on and carry on being SE, I said yes. He said okay. Never asked for a penny of it.
If you need it for your agreed income, and to keep your employment going then it would seem reasonable that it isn't an asset????

thinkpositive1

woodformoretrees wrote: »

If it helps the money I had coming in the OR asked me if I needed it to live on and carry on being SE, I said yes. He said okay. Never asked for a penny of it.
If you need it for your agreed income, and to keep your employment going then it would seem reasonable that it isn't an asset????

Cheers. It never crossed my mind this issue. I saw it purely as income coming in, in the normal way (my endeavours to find and get assignments).

I can't back-track now and the money has almost been fully used on expenses since BR.

jcarver007

debtinfo wrote: »

At the date of the bankruptcy you cease trading, that business is dead, it is gone, it is an ex business, even if you think it is profitable, i cant stress that enough. Therefore if you have contracts they cease as well.so if you have a rental agreement then that ceases. Of course that does not stop you starting a new business the next day and you can rent the same premises and as dennis says you can use the same trading name. But this is a new business and you have to think of it like that. For instance if your old business did some work and was owed some money at the date of bankruptcy then you cant collect that money as that business doesent exist any more. those monies would be due to the OR. If your old business had a contract to supply a customer that contract would be dead as well although your free to negotaiate a new contract with a customer.

You would be allowed to keep tools of trade but stock would be an asset in the bankruptcy.

As regards profit. your income from your "new" business is the profit not the revenue and so it is the profit that is used in the IPA calculation. The OR will allow you to run your own business more or less as you see fit and will normally expect you to produce accounts to show the profit.This includes buying stock and tools etc. The OR would only interfere if what you were doing was unreasonable and designed to avoid showing a profit for the IPA.

So who tells the client who has a booking with me but has not paid any money, that the contract is dead? Me or the OR?

If a client has paid a deposit, can the booking still go ahead? Or do i have to contact the client and say the booking is void...but can still go ahead and do the job????

When you say the old business is dead...you mean basically any agreements etc....but technically the business name can carry on with tools associated with it, there is nothing to stop me using the name ongoing??/

debtinfo

If they haven't paid any money then there is no need to tell them just reconfirm the booking when you start your trading again.

If they have paid a deposit then technically they have lost that money but the easiest away around this is to simply not take any deposits for work you will be doing after the bankruptcy date. This should be possible if you are booking your own bankruptcy date.

The same applies for work you are doing before the bankruptcy, if you arrange it so that you only do work before the bankruptcy that you can collect before the bankruptcy then that money is all yours to keep. if it has been collected then it is income rather than than a book debt. As others have posted the OR may at their discretion allow you to keep some money collected after the bankruptcy but they do not have to and so you cannot rely on this, so try to arrange your bookings so you can collect before the bankruptcy order date.

You can use the same name for your new business as you used before, this is not prohibited for a sole trader. in fact you have to declare either your own name or the trading name you were using before to people you do business with during your bankruptcy and so the easiest way to do this is to use the same trading name. You dont have to tell them your bankrupt but if they so wished too they could find this information for themselves.

woodformoretrees

""So who tells the client who has a booking with me but has not paid any money, that the contract is dead? Me or the OR?

If a client has paid a deposit, can the booking still go ahead? Or do i have to contact the client and say the booking is void...but can still go ahead and do the job????""



Is there a reason you can't honour the work? I think from your client's point of view the whole transaction can be seamless. There's no reason why your bankruptcy should impact them if you don't want it to or even why they should be informed of it by you or OR.

keen_kat

Sole traders business does not cease on the date of bankruptcy. Only partnership businesses become non existent and dissolved on date of bankruptcy. As a sole trader you are free to continue on (with some rules and obligations as beloq).

As a sole trader you are free to carry on trading, just as you were before, with same clients, same contracts, same everything. The only requirement you have to adhere to when you are made bankrupt is that your trading name, must include your full personal name that you were made bankrupt with. Ie Joe blogs trading as meal deals for you. Using your name is showing that if people want to search your name they can and find out you are bankrupt.

As for profits, as it is a sole trader account, they would only take surplus of whatever your income is,less your expenses.

My experience: I work in an insolvency firm