I am self employed and have a debt problem - what can I do?

When times are tough, self employed people get in to personal debt because they borrow in their own name to support their business. There are different solutions which can be used to overcome these problems.

When you are self employed and borrow to support your business, you are personally responsible for the repayment of the debt. If your debts then get out of hand, you may find that you start to struggle to maintain the repayments.

In this situation, do not be afraid to employ a debt management solution to resolve the problem. However, it is important to be aware of some of the implications and how these will affect your business.

Using Debt management Plans

A debt management plan (DMP) is an informal agreement with creditors to reduce monthly debt repayments to an affordable amount. These types of plans can be useful for self employed people as you are not formally declared insolvent and our name does not appear on the insolvency register.

A DMP is also a flexible solution meaning that a creditor such as a credit card that you may need for your business could be left out of the plan so you can continue to use it.

Self employed people also find debt management plans useful because you do not have to prove a sustainable income to carry out the plan. The plan will involve making a monthly payment to your creditors which you can afford. This payment can be increased or reduced if you find that your estimation of what you are able to repay is incorrect.

Using an Individual Voluntary Arrangement

An individual voluntary arrangement (IVA) is a more formal debt solution. It gives significant advantages particularly that it is not unusual for up to 50% of your total debt to be written off completely.

However, if you are self employed, you will only be able to apply for an IVA if you can prove that your income is sustainable. You will be required to forecast your business revenue and expenditure normally for a 12-24 month period.

If you cannot show (at least on paper) that your income and the payment you propose to make into your IVA is sustainable, it will be unlikely that you will be allowed to proceed. If this is the case, you may still be able to carry out an IVA, but only if you can make available a lump sum to offer a full and final settlement.

Declaring Bankruptcy

Bankruptcy is generally the last option to be considered when dealing with a personal debt problem. Home owners may be at risk of losing their property if they are declared bankrupt. However, if you are not a homeowner or have little or no equity in your property, it can be a very useful solution as under normal circumstances 100% of your debt will be written off.

As a self employed person, one of the down sides to bankruptcy is that it will be advertised in the local news paper. However many business people no longer really see this as a problem. You will be able to keep the tools of your trade. This includes a vehicle worth over £1500 if it is required to maintain your business.

If you are self employed and find that you are struggling with personal debts, it is very important not to ignore the problem. Being self employed will not prevent you from using a debt management solution. Nevertheless, as a self employed person, you need to be very careful and get the correct professional advice before implementing any kind of debt management plan.