If you are self-employed as a business owner which may be a partnership or sole trader, you may be concerned about how problem debt can affect your business or whether you are eligible for certain debt solutions, such as an Individual Voluntary Arrangement (IVA). The short answer is yes, you are eligible for an IVA and you will be able to include your personal debts as well as the debts incurred in the name of your business as a sole trader. Your creditors will receive more money back than if you declared bankruptcy, and you will come out of an IVA with any remaining debt written off.
Originally, IVAs were created with self employed individuals in mind. They were a way to enable businesses to get in control of their debt without having to declare bankruptcy. This means that even when sole trader businesses are struggling, they can be given a second chance to thrive.
Enquiring about a Self-Employed IVA
The most important thing to do when considering a self-employed IVA is to ensure that you fully understand the process and any effects it can have on the way you run your business. Each situation is unique, so the Debt Movement team can help you to understand the process and decide whether it would benefit you.
Self-employed IVAs are suitable for a range of needs, and here we will cover each of these, as well as what to do if you are already in an IVA but are considering becoming self-employed. If you are self-employed and would like to understand more about IVAs, contact Debt Movement — our team is ready and willing to answer all of your questions.
Once you begin your IVA process, your Insolvency Practitioner (IP) will look at the various methods of payment for self-employed IVAs based upon your circumstances, such as contribution-based arrangements or lump sum settlement-based arrangements. We will look at these in more detail later on.
The Differences for a Self-Employed IVA
When you are self-employed or a sole trader, you will know that your income can vary month to month, so it can be difficult to estimate your earnings to set up regular payments. For this reason, it’s important to understand your business and make sure that your proposed payments are affordable all year round, so your Insolvency Practitioner will need a cash-flow forecast from you to determine how much your income fluctuates and reasonably predict your affordability.
One of the major drawbacks people see with IVAs is the restrictions on any further borrowing or credit applications. However, with a self-employed IVA, it is a little more flexible. You will still need to discuss borrowing anything over £500 with your IP, but you may be able to keep certain lines of business-related credit open to continue with trading as usual.
Can You Start a Business While in an IVA?
There is no rule against starting a business while in an IVA, and you can do so if it is the right decision financially. However, it should be noted that if your new business requires any financial outlay, this will have to be carefully considered and must be discussed with your IP. You should also take into consideration that your credit rating and ability to borrow money will be heavily restricted, so it may be better to put new business plans on hold until you have completed your IVA and rebuild your credit score.
Business and Personal Assets in a Self-Employed IVA
One of the reasons why many sole traders choose an IVA over bankruptcy is that with an IVA, you can retain your assets. The majority of your assets, including your home, will be safe, but there are some exceptions — for example, if you have a vehicle that is extremely valuable but not deemed as a necessity to keep your business running, you may be required to downgrade it to pay some funds into your IVA. The most important thing to remember is that for your IVA to work, your business needs to work so any essential assets (such as tools etc) to keep your business functioning should be excluded from your IVA
Similarly to a regular IVA, if you have more than £5,000 of equity in your home, you may be required to remortgage to release some of this and pay it into your IVA or to pay for a 72 month payment term instead of 60, in lieu of the equity in your property.. Unlike bankruptcy, if you have equity in your property you will not be expected to sell your home to repay creditors.
How Do Self-Employed IVA Repayments Work?
Contribution-based repayments are the most common setup for a self-employed IVA. As mentioned above, your payments will be calculated based on the cash-flow statements provided and can be adjusted based upon your income.
Full and final settlements can be offered to creditors to pay off a portion of your debt and write the remainder off. This is a good option for those who have an asset or assets that they can sell to raise a lump sum. Whether the creditor accepts the offer or not is their choice, but they will consider all reasonable offers.
How Will a Self-Employed IVA Affect Your Credit Score?
A self-employed IVA will impact your credit score as it will remain on your credit record for six years – but once that time is up, you can rebuild your credit rating again.
If you are self-employed and are considering an IVA to resolve problem debt, contact Debt Movement today to speak with our team about how we can help you to begin your journey to financial freedom.
