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How to protect your home if you have business debts

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How to avoid property repossession if your company owes money

Your property could be at risk of being repossessed if you took out a secured loan or signed a personal guarantee and can't keep up with loan repayments - avoid this by entering a formal insolvency procedure, such as a Company Voluntary Arrangement (CVA).

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Tips on avoiding the loss of your property and other properties due to business debts

When creditors are threatening to wind up your company and bring a permanent end to your business it is understandable that you may have some fears and concerns, especially if you've used property as collateral to obtain a secured loan or line of credit.

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Normally the directors of a limited company are not held liable for the debts of the business, so a creditor would not be allowed to seize your house for example just because your company owes them £10,000. If you're concerned abut losing property to a creditor due to company debt issues consider the following 4 tips:

  • Avoid Secured Loans and Never Use Your Property As Collateral
  • Avoid Making Personal Guarantees
  • Consider a CVA Early if You Have Secured Debts
  • Cease Trading and Contact an Insolvency Practitioner
 

1. Avoid Secured Loans and Never Use Your Property As Collateral

If you've already taken out a secured loan and used your house as the security then it is a bit to late for you to follow this first bit of advice. However, if you have not yet obtained a secured loan but you're considering doing so we advise that you only resort to this method of financing if there is no other option left and the need for cash flow is imperative. If you do resort to taking out a secured loan we would recommend that you use an expendable asset class (i.e. excess inventory, equipment, appliances, future invoice payments, etc.) 

2. Avoid Making Personal Guarantees

Sometimes when a business has poor credit one of the directors will resort to giving a personal guarantee in order to obtain approval for a loan. This guarantee essentially states that the director will assume personal liability for the debt in the event that the company lacks the cash needed to make repayments. If your company becomes insolvent and is taken to Court by a creditor a personal guarantee could put you in a predicament in which you would be held liable for some of the company's debts. If these debts are excessive and you don't have the funds to repay them then the risk of having property seized arises.

3. Consider a CVA Early if You Have Secured Debts

If you already have secured debts and have been unable to keep up with them you may want to consider attempting a company voluntary arrangement (CVA). This leniency could be all that is needed to put you on the road to recovery. A CVA offers a higher chance of creditor approval than standard negotiations because it is formal procedure that is mediated by a licensed insolvency practitioner.

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4. Cease Trading and Contact an Insolvency Practitioner

Finally, the best way to protect yourself from being held personally liable for any company debts is to avoid accusations of wrongful or fraudulent trading, which could put you at risk of losing property. To minimise the chances of being perused in respect of such allegations it is best to cease trading as soon as you've become aware of the fact the business is operating insolvent (unable to pay its bills and having debts that exceed the combined value of all assets) and has no prospect of recovery. Once you've ceased trading contact an insolvency practitioner and discuss your case and how to go about notifying HMRC and your creditors that you intend on closing down the business. 

We know you've worked hard to acquire any property you have and the prospect of losing it may therefore be very intimidating. We can guide you through the process of protecting your assets from being seized due to issues related to business insolvency. Call us or send us an email message for a free consultation. 

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