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Starting your own business after debt?
09
JUL
2014

Starting your own business after debt?

An increasing number of Britons are striking out on their own by starting a business. Since the financial crisis of 2008 the number of people in self-employment has grown by 650,000 to reach 4.5 million, which is roughly 15 per cent of all workers. Over the last year, 43 per cent of the growth in UK jobs was self-employment.

Entering the self-employed sector has lots of benefits. You get to be your own boss, decide when you work and even set your own pay.

But debts can get in the way. Setting up a business is hard enough without being stopped at every turn by your poor crediting rating. It can be tough to obtain funds for vital business equipment, for example, which could make it trickier to get up and running. That’s why tackling problem debt immediately is so important.

Moreover, if you've been subject to a bankruptcy order in the last year you will find there are tight restrictions as to what you can do.

Anyone made bankrupt by the court may not borrow more than £500 without telling the lender they’re bankrupt, nor act as a director of a company. They also cannot create, manage or promote a company without the court’s permission, or manage a business with a different name without telling people you do business with that they are bankrupt.

The good news is that these restrictions now last only a year, unless there is some other issue at stake such as failing to carry out your duties under the bankruptcy proceedings or if you’re found to have acted carelessly or dishonestly.

But generally after the 12 months is up you should be free to create your own business, though it’s always worth seeking bankruptcy advice about the details. Often a bankruptcy may last for less than the 12 months and a common timescale is around eight to nine months. Once you are discharged from bankruptcy you are then back to normal – unless you have had a payment order or a bankruptcy restriction order applied.

Record of your bankruptcy may stay on your credit reference file for six years after the order is made, which again could affect your ability to raise capital for a business.

But whether you've had historic problem debt or are currently taking steps to tackle existing debt, you shouldn't let it put you off going self-employed. In fact, we are seeing a big rise in people mixing having a job with self-employment. A recent report from the Resolution Foundation shows 320,000 employees claim they are self-employed as a second job.

Self-employment as a second job can be a way to raise extra income quickly to help pay off debt. But it can also be a way to start earning again if you’ve been made redundant or lost your job, which is the cause of a lot of people’s debt problems.

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