Personal debt or business debt: know which insolvency problem you have

Separate your personal debts from company debts

Bankruptcy applies to individuals, including sole traders, partners, or individuals applying jointly. If you operate through a company, the company itself can be liquidated, but you cannot make the company bankrupt. Confusing these processes creates delay when you need clear next steps quickly.

Start with a single page. On one side, write every debt in your own name: personal credit cards, loans, tax debts and guarantees you have signed. On the other, list debts owed by your company. Note which creditors are chasing you personally and which are demanding payment from the company. That distinction determines the process and protections available.

List every guarantee you have signed

A personal guarantee makes you liable for a company debt even after the company stops trading. Suppliers, landlords and lenders commonly require guarantees, sometimes buried in standard terms accepted years earlier. Review loan agreements, trade accounts and leases to identify every guarantee still in force.

Write the creditor's name, the guaranteed amount and whether the debt remains current. If the company cannot pay, the creditor can pursue you personally under that guarantee. That exposure may trigger personal insolvency even if your own business income has stopped. Overlooking a guarantee when assessing your position can leave you exposed to sudden demands.

Source: Official guidance

Consider alternatives before choosing bankruptcy

Personal insolvency agreements and debt agreements are formal alternatives that can settle debts without entering bankruptcy. Debt agreements have income, debt and asset limits, while personal insolvency agreements have no such thresholds. Each option has different costs, durations and consequences for directors and professional licences.

Bankruptcy normally lasts three years and one day, but once an application is accepted it cannot be withdrawn if you change your mind. Before applying, obtain independent advice about which formal option suits your debts, income and asset position. Guessing can lock you into a path that does not fit your circumstances or may cost more than necessary.

Do not move or sell assets in a panic

A bankruptcy trustee can undo certain transactions that occurred before bankruptcy, including undervalued sales, transfers to defeat creditors and payments that prefer one creditor over others. Transfers made up to five years before bankruptcy may be void if given for less than market value, and the transferor's main purpose can be inferred from insolvency at the time.

Transferring your house to a family member, gifting a vehicle or paying one creditor while ignoring others can be reversed after bankruptcy, leaving you worse off and exposing recipients to demands for return. Keep all assets in your name, continue meeting obligations where possible and obtain advice before making any significant payment or disposal. Panic decisions often create new problems the trustee will investigate.

Take the first practical step today

Gather your latest bank statements, loan agreements, tax notices, guarantees and a list of all creditors. Separate personal liabilities from company debts on a single page, note which debts are secured and confirm who is pursuing payment. Do not assume the next phone call or letter will give you more time to decide.

If personal debts are piling up and bankruptcy feels close, contact CRP today about insolvency services. CRP coordinates access to appropriately qualified professionals who can explain formal options, assess alternatives and help you understand the next steps without guessing. Waiting rarely improves the position; early advice identifies what can still be protected and which process applies to your actual debts.