Being a tradie offers a lot of positives, and working either as a sole trader or a business owner/director can prove to be an incredibly lucrative and fulfilling career. However, things don’t always go to plan, and it can be especially difficult for tradies to find their footing after serious financial hardship. In the extreme, a tradie may find themselves facing insolvency and/or bankruptcy. So, if you’re a tradie, what does it mean for you during and after insolvency or bankruptcy?
The difference between insolvency and bankruptcy
It can be confusing to understand the difference between the two, but it’s important to define them accurately so that you are clear about your options.
Insolvency is the term used to describe the process of a company or person who can not pay outstanding debts and requires a plan to work through each debt. This means consulting professionals in the insolvency industry to help you restructure your debt, liquidate assets if required, enter into voluntary administration or receivership and create payment plans with debtors.
Bankruptcy, on the other hand, is a legal process where you declare that you are not able to pay your debts. It can release you from most debts, provide financial relief and help you to make a fresh start. A person can enter bankruptcy voluntarily by submitting paperwork, or a creditor can make them go bankrupt through a court process.
How bankruptcy affects tradies
While in the bankruptcy period, you are not allowed to be the director of a company and, if you are a sole trader, your business name should contain your full name. This is to ensure there is always total transparency. It is best to consult professionals on the finer details of your trade to avoid getting into legal hot water.
Impact on the business and operations and insurance
If you were previously the director of a company, even if there were several directors, you will have to stand down from that role until the end of your bankruptcy period. In some cases, your company may need restructuring in that case. If you were the sole director of the company, it is likely the company will be liquidated. However, you may have had it change hands prior. In this case, you will not be able to hold any directorial position in the company (or any new ones) until the end of your bankruptcy period.
Are there ways around insolvency/bankruptcy?
Yes: make sure your debts are paid on time. This is really the only way around bypassing insolvency and then bankruptcy. Having debts is not the issue, but, instead, it is having unpayable debts. However, you should avoid associating insolvency with doom and gloom. While it can hinder your life in small ways for a relatively short term, it is a solution. Insolvency is a way to work through your finances and to assist you in navigating towards the most favourable outcome. While this may end up being bankruptcy, there can also be a way to resolve your debts with creditors before it gets to that point.
You can also exit your bankruptcy period early through the paying of outstanding debts. [hyperlink to bankruptcy blog].
If you’re a tradie and feel like your debts are out of control, call Shaw Gidley today for a free 15 minute consultation to get you back on the worksite without the weight of seemingly unmanageable financial stress.