The Scenario
Bob is a self-employed builder, who trades under his own name. He is well respected and has a steady flow of income. Bob's money worries began when he first went self employed. He used to work for a big construction company but left 3 years ago to start his own business. For the first year, Bob had an erratic income and over the Christmas period hardly worked at all. He really struggled to pay his bills, so used credit cards to live off. Over time these built up and although he did try to pay off the credit when he did get paid, it soon became un-manageable.
Over the 16 month period Bob managed to rack up about £60,000 in credit and also had a loan for £15,000 for his mobile home (this was a personal loan and is not secured against his mobile). The land he has was purchased by Bob about 10 years ago. Bob has now managed to secure a contract with a large firm to build new houses, which lasts for 5 years. He also has a lot of work from the local community as he is highly regarded as a builder. Because of this, he really doesn't want to go bankrupt as all the people in his community will find out.
How we could help
This is actually a relatively straightforward case as Bob has informed us that he doesn't want to go bankrupt and given a valid reason why (it will affect his business).
Here are the options available to him:
- IVA – This would be the first choice due to his level of debt and the fact that he doesn't want to go bankrupt. He pretty much has a guarantee of income over the period as well.
- Bankruptcy - Although Bob has said that he doesn't want to go bankrupt, it is still an option. It would not stop him trading, as he is not a Director. It is always preferable to run through all the options anyway.
A Debt Management Plan is probably not an option due to the level of debt (£75,000); it would take tens of years to pay it off.
To Trade or Not to Trade?
For the creditors to accept the IVA, the debtor must prove that the business (or trading as) can sustain a level of income that will support the debtor and allow them to make payments to the IVA. If the business in not making money or very little money and projections show that this is not going to increase then the best option for the debtor would be to wind up the business or stop trading and work for someone else.
Often, however, the debt has been run up starting the business, because of a period of bad trading or due to illness. In these cases the business is usually profitable and if it can continue to be so, an IVA is usually a good option (IVAs are specifically designed for traders / self employed).
* Please note that all characters and scenarios described are fictional, and are purely for illustration purposes
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