I originally published this article in 2010 during the last recession, when people had been finding the blog on search terms along the lines of “can I go bankrupt as an ADI”, and “can I become an ADI if I’m bankrupt”.
The present Coronavirus crisis is probably the reason for there being a sudden spike in hits to it right now.
Bankruptcy is a legal process involving a person or business which is unable to repay outstanding debts. So, in short, if you can’t pay your bills then yes, you can easily become bankrupt as an ADI. If you are relying on self-employment to earn money the responsibility for success (and failure) lies entirely with you.
Technically, bankruptcy is intended to help both the debtor and the creditors. It takes away the debtor’s debts, and attempts to recoup at least some of the creditors’ outstanding money. However, by having been declared bankrupt, the debtor may find that life is harder in future. They will find it extremely hard to get any sort of credit, for example, and even opening a bank account might prove troublesome.
Unfortunately, it is usually the debtor who comes off worse. In the case of driving instructors, their business probably has very few assets with which to offset their debts (no buildings, factories, machinery, etc.) apart from their car. However, if they own a house, that is worth much more and might be at risk if things go that far.
There is no barrier to being self-employed (which 99.9% of ADIs are) whilst bankrupt, but you can’t be a director of a limited company. As a sole trader you won’t have any trouble though – but make sure you fulfil your duties to HMRC (the taxman) in accordance with your bankruptcy terms. Read up on this carefully.
For prospective ADIs, I would doubt that previous or current bankruptcy would affect your chances of being accepted on to the register of ADIs. In some cases, if your bankruptcy was a result of unscrupulous or even criminal activities, then it might. It is whether you are a fit and proper person that counts, and only DVSA can decide on that. I can’t tell you, and certainly none of the comedians on social media can, though they’ll have a fine old time trying to.
The short answer is yes, you can be an ADI if you are bankrupt – but it isn’t definite.
Now we come to the present situation. Once again, no one can tell you what is going to happen – there are still idiots claiming that this is ‘just flu’ and saying it will all blow over. To anyone who isn’t still swinging through trees and eating bananas as a career, though, it is clearly very serious, and there is every likelihood it will last for some time.
Most ADIs will be extremely concerned, and worrying how they are going to manage.
The most important thing is not to sit back and do nothing. You need to contact your creditors – whoever they are – and ask for help and advice. Do that as soon as possible. Remember that they are fully aware of the situation, and contrary to what those swinging through the trees will tell you on social media they are not trying to destroy you or your business. Frankly, and I’m thinking well ahead now, if any do refuse to help, just plan for when all this does end so that you can sue them into oblivion (or at least have the satisfaction of telling people what they were like on social media and review sites)!
Every conversation you have will be different. Don’t be confrontational, and work to a mutually acceptable payment plan. If you can do that, you’ll stave off bankruptcy. It’s when you can’t pay anything at all that the likelihood of it happening increases. Propose a suggested payment scheme, and bear in mind that they all know what the situation is right now and will probably surprise you with how accommodating they are. So don’t panic.
Another option is to use a debt management company, who can handle all of this for you. Ignore people on social media who tell you to avoid them – this is bankruptcy we’re talking about, which is never to be taken lightly, and you need all the help you can get. When I lost my previous job all those years ago I had a lot of debts (almost £30,000), and it was such a company who got me through it without declaring bankruptcy (and this is just the one I used, so there are others you could consider). It is also worth nothing that at the time, my credit rating was almost zero, whereas now it is as high as it could possibly be. You can survive, and you can recover. But not if you listen to people on social media. Remember that the clue is the word ‘social’ – you’ll be getting a collective opinion, most of which is wrong in the first place.
A word for the future. Being self-employed is always high-risk when situations like this arise. It’s not just when epidemics, the like of which no one has ever experienced before come along, but personal illness and injury. The cash flow can stop in an instant, putting your home and other assets at risk.
I’ve written about this elsewhere, but far too many instructors assume that every penny of their lesson fee is theirs once they take fuel costs off it. It isn’t. For every £25 an ADI takes (assuming a 30 lesson week), probably only around half of that is his once his business overheads are covered. And then, about 20% of what’s left belongs to the tax man. But far too many spend that £25 as if it’s all theirs.
In future – if you can – save. Don’t spend.