If a Ltd company, the debts are against the company. So the company either pays up or is declared insolvent and the creditors can go after anything the company has.
If sole trader, you have to pay the debts. If you can't, you declare yourself insolvent. This has long term implications (min 5 years), and doesn't mean the debt is written off.
Best source of info for both, find an account and have a meeting to discuss your situation and what is the optimal solution for you. They will also cover the risks. Often accountants will offer the first consultation free, on the presumption you will use their services. If they charge, pay up and listen to the advice.
Depending on how you get work, in the UK there is also IR35 to consider - you can google that. Again an accountant will know the gory details.