Who is liable for debt?
Limited Company Directors
I gave a Personal Guarantee
What happens when I can't afford the debt?
Personal Debt Advice for Business Owners
Information and solutions to help Directors, Sole Traders and the Self Employed resolve personal debt problems.
If you run your own business whether you are an owner director of a limited company or a self employed sole trader, it is likely that at one time or another, you have borrowed money in your own name to support cash flow.
When your business is doing well money is available to pay the debts you have taken in your own name and there is no problem. However, if the business starts to struggle you may find that money is no longer available and subsequently you are unable to maintain repayments to loans or credit card debt which you have taken on behalf of the business.
Who is liable for debt if the business fails?
I am a Limited Company Director:
If a limited company borrows money from its bank in the company's name (for example a bank loan, overdraft or credit card), then company is liable for the repayment of the debt. Generally, if the company fails, the directors are not liable for any outstanding debts taken in the company's name.
I gave a Personal Guarantee:
Over the past 10 years, it has become normal for banks to ask the directors of small to medium sized limited companies to give personal guarantees that debts will be repaid if the company itself is not in a position to do so. If you have personally guaranteed a credit facility in a business' name and the business is unable to repay the loan, then the lender will hold you personally liable for repaying the debt.
I took debt in my name but put the money into the business:
If you have taken debt in your own name and the business can no longer afford to pay for this, then you will be personally liable for the debt.
I am a self employed Sole Trader:
If your business is not a limited company, then you are classed as self employed. You may be a sole trader which is generally the term used for a single person carrying on a business for example a plumber or and electrician. However you can be a sole trader business which grows in size and employs a number of people.
If the business is not limited, then any borrowing that it has taken on will normally be in the personal name of the business owner who agreed that the business would take the loan. If the business can no longer afford to fund the repayment of the debt, then the person whose name they are in will be personally liable for the debt.
What happens if I am personally liable for a debt but cannot afford to pay it?
If an owner director or self employed sole trader finds them self in a position where their business can no longer afford to pay for the debts for which they are personally liable, then they will have to maintain the necessary repayments themselves.
The problem is that normally, individual owner directors or sole traders rely on their business for their own income. If the business fails, then so too does the individual's personal income and in turn the required debt payments cannot be met.
If you are an owner director or sole trader and find yourself in this position, there are a number of solutions available to help you. These include:
The most appropriate solution will depend very much on your personal circumstances and to what extend the on-going business is viable.
Why not call Cooper Matthews today for an informal discussion ?