As a sole trader, balancing your finances can be tricky when things aren’t going well. With sole trader status offering none of the protection of a limited company, your personal finances can suffer as a result of a struggling business.
Managing debt can be stressful and complicated. Proceeding in an individual voluntary arrangement (IVA) with your creditors could make a real difference to you, writing off debt you cannot afford to pay.
Is a sole trader IVA right for you?
An individual voluntary arrangement (IVA) could be the right solution for you if you are struggling to keep up repayments on your unsecured debts. If you have debts greater than £15,000 you may qualify for an IVA. An IVA is a formal arrangement between you and your creditors, agreeing to pay reduced monthly payments over a set period. In an IVA you are permitted to carry on your business, allowing you to keep your income and trade throughout the IVA period.
On top of debt worries, sole traders have the added concern of the loss of their income should they be forced to stop trading due to unmanageable debt. If you have a sole trader business, your trade debt is treated as your personal debt and therefore you could qualify for a Sole Trader Individual Voluntary Arrangement (IVA).
- Interests on debts will be frozen
- You may be able to retain assets such as your home
- At the end of an IVA any remaining debts are written off
- You will need to stick to the budget for the IVA period
- You may be asked to release some equity within your property
- IVAs are likely to appear on your credit file
- If you fail to maintain your agreed repayments, you could be made bankrupt
Is an IVA right for you?
An IVA could be the right path for you if you are struggling to keep up repayments on your unsecured debt*. As a rule, your debts would need to be £15,000 or more in order for you to qualify for an sole trader individual voluntary arrangement (IVA). As a sole trader, this sum would include your business-related debt and any unsecured personal debt. The total debt of a sole trader entering into an IVA arrangement is often much higher than the £15,000 minimum qualifying amount and there is no maximum amount threshold.
Historically, many sole traders would have filed for bankruptcy if they could not repay their debts. Bankruptcy, although writing off the debt, would mean the end to trading for most sole traders, but this is not the case with an IVA. A sole trader individual voluntary arrangement (IVA) allows you to continue your business, allowing you to trade out of your debt and avoid the extra worry of the loss of income.
If you own your own home, this, and other valuable assets are better protected in an IVA arrangement.
*Unsecured debt is any debt not secured on an asset such as a house. Typically it is credit card debt, loans, HP agreements etc.
How much will I repay?
In an IVA, you repay only what you can afford to, for a fixed period – usually 5 years. Once the IVA period is complete, any remaining debt is written off.