What to do if you've gone bankrupt amid coronavirus
Each week another company closes its doors as the fallout from the coronavirus pandemic continues to have a huge impact on our money.
Despite massive government bailouts to the tune of £360billion via the Small Business Grant Fund and Leisure Grant Fund, many firms are struggling to stay afloat and sinking into debt.
For the small business owner this can lead to personal bankruptcy, which can have devastating repercussions, financially and emotionally.
What is bankruptcy?
Insolvency is a financial state in which a company or individual cannot pay its debts. The process by which the indebted can be paid back is via liquidation, bankruptcy or administration.
Bankruptcy is the process for individuals, including business owners or directors, to deal with debts they are unable to pay. It is not the only insolvency option; other solutions include a debt management plan, debt relief order or individual voluntary arrangement.
Bankruptcy, which costs £680, writes off all debts but if the individual has any assets, such as a house, they can be used to pay the money owed.
Once a bankruptcy is discharged, normally after a year, the individual will only have to pay debts like court fines and students loans, but not the debts covered by the bankruptcy.
The advantage of going bankrupt is the individual can make a fresh start. This means not having to deal with creditors or further court action meaning the pressure is immediately removed.
Bankrupt individuals are allowed to keep certain things such as a car if it is needed to get to work, and a reasonable amount to live on.
Feelings of failure and guilt can prevail following bankruptcy but it is important not to apportion blame.
‘Emotions and feelings can include a sense of failure, letting people down, and anger at the situation and circumstances that led to the bankruptcy,’ says Mahmood Reza of accountancy firm Pro Active Resolutions.
Stephanie Buckley, who set up The Insolvency Company in Taunton Somerset, after going bankrupt herself, knows how easy it is to blame yourself.
‘No-one sets out to end up financially bankrupt. These things happen to good people. People need to know there is no stigma associated with bankruptcy and debt any more, so they shouldn’t feel ashamed or embarrassed,’ says Stephanie.
Seeking support from family and gaining advice from a trustworthy professional is the best way to proceed rather than ignoring the problem.
‘Take action now, get a good understanding of your situation and find out what your options are. You don’t have to go it alone,’ says Stephanie. Organisations such as mind.org.uk have a range of resources to support people struggling with money and mental health.
‘Once you know your options and you feel supported to make a decision about your future, at that point it comes down to how you choose to respond. Some people will innovate and come up with other products and services and come out fighting, and others may need to accept defeat — but this doesn’t stop them from coming back fighting at a later date,’ adds Stephanie.
When an individual has been completely discharged, their details will automatically be removed from the Insolvency Register three months after the discharge.
It is important to get a certificate of discharge from the court that dealt with the bankruptcy, to send to the main credit reference agencies: Equifax, Experian and TransUnion. This incurs a £70 fee and £10 charge for each extra copy.
A bankruptcy may still be visible on credit files for six years after a discharge date, but it is possible to build credit ratings as soon as the discharge is issued. There is no legal limit on the amount someone can borrow following bankruptcy discharge but it may be difficult to get credit, loans or a mortgage for at least six years and interest rates on offer may be higher.
‘It’s a waste of time applying for credit cards to the usual providers such as Barclaycard and Mastercard,’ says Mahmood. ‘You will be seen as high risk, and too many applications can adversely affect your score. But there are companies that provide specialised products to those who have been bankrupt. Borrowing from these sources means you are more likely to be accepted.’
‘I had some really dark times’
Leaving a high-flying corporate job to set up a series of cupcake shops in Sheffield was initially a dream come true for trained pastry chef Amanda Perry.
Within a few years she had 150 staff and seven popular Fancie shops across the city.
‘In our best year, we made £1million and we were in Vogue and on the television. But then the wheels fell off,’ says Amanda.
The pressure of running the business led to her taking medication which she believes was the ‘perfect storm’, causing her to take her ‘eye off the ball’.
The final nail in the coffin came when she took on a shopping centre unit and followed bad advice.
‘It was a unit under the staircase and I was told I didn’t have to pay business rates. But then after 18 months we received a backdated rates bill for £50,000. We couldn’t keep up with the payments. We liquidated the company to try and keep the bits that were working but it didn’t work and we ended up trading insolvently. I had a personal guarantee on some loans and I had to declare myself bankrupt and fully liquidate in 2014.’
Amanda not only lost her home, but also many family relationships as a number of relatives had invested their savings in her business.
‘I had some really dark times. I was on strong antidepressants and the ripples went far and wide with my family,’ she adds. But, over time, Amanda began to pick herself up and she eventually launched the e-commerce marketing firm Soup Agency last year.
‘I felt like a bad person for a long time but now it feels like I am giving back by having a huge impact on people’s lives.’
She believes her experience of bankruptcy and ‘failure’ has helped her to stay ‘incredibly calm’ during the pandemic.
‘I am able to be a source of motivation to others who are going through a tough time as I know that whatever you go through, there are better days on the other side.’
‘I’ve realised my life will return’
At the age of 20, Daniel Summerfield had a global video game distribution company with £1million of sales a year.
The young entrepreneur (above) set up Mass Entertainment Limited in Bedfordshire in 2017 with £50, after working as a sales manager in the sector.
By his third year of trading, he had £4.2million worth of annual sales.
But then he made an irreversible mistake and everything went ‘crashing down’.
‘I made a deal with a video game publisher for exclusive distribution of a game. I got £400,000 from an investor. It was a bad contract because I was a personal guarantee and he had 50 per cent on net profit returns. It was all on his terms and the whole thing was rushed. But I thought it wouldn’t go wrong.’
Unfortunately, on launch day the game didn’t work and the error took ten days to fix. This left Daniel with tens of thousands of units that no one wanted to buy and he ended up selling the stock at a massive loss, a move that cost him a staggering £250,000.
At the end of 2019 Daniel decided to liquidate the company, laying off 25 employees, and declaring himself bankrupt because he had a £1million personal guarantee on the investment.
As he didn’t own a property he lost no personal assets but the conditions of his bankruptcy mean he cannot be a company director for 12 months or apply for any credit or finance.
He is paying off the £680 bankruptcy fee through his monthly pay, while he works as a consultant for his previous suppliers.
‘The bankruptcy process is OK, the hardest part is the period of grief you feel afterwards. It was a really tough self-acceptance process. Now, I feel like I have failed, but what I have realised is it is not the end of the world. After 12 months my life will return.’
Where to turn for help
Government website, gov.uk/bankruptcy
The Money Advice Service, moneyadviceservice.org.uk/en/articles/options-for-clearing-your-debts-england-and-wales
National debtline, nationaldebtline.org
Step Change Debt Charity, stepchange.org
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