Is there life after bankruptcy? It is a question that is often asked whether an individual or business files for chapter 7 bankruptcy or chapter 13 bankruptcy. If you want to restart this business in the future or start a new business, is it possible after you've received a bankruptcy discharge?
The short answer is yes, there is life after bankruptcy. You can get a fresh start, rebuild your credit, and start a new business after you’ve completed your repayment plan and credit counseling.
Bankruptcy Provides a Fresh Start
Although both chapter 7 bankruptcy and chapter 13 bankruptcy can stay on your credit report for 10 years, they also provide you with the opportunity to rebuild your credit score. Whether you're an individual or a business, a good credit history is important.
If you're considering bankruptcy, it's possible that your credit may already be damaged. Filing for bankruptcy may not impact your existing credit report as much as you may fear. Instead, it may actually be the fresh start that you need to take control of your personal finances or to build good credit so that you can start a business.
Bankruptcy should be looked at as a possible tool to rebuild your credit.
According to Beyond Bankruptcy: Does the Bankruptcy Code Provide a Fresh Start To Entrepreneurs published by the SBA, businesses that file for bankruptcy do not have any more issues with maintaining future profitability, cash flow, or taxes, than other businesses who do not file for bankruptcy.
The only issue that businesses with a bankruptcy face that is different than non-filing businesses in accessing credit. You'll learn more about that soon.
Life After Bankruptcy: Setting Yourself Up for Success
Whether you're an individual or a business who filed for chapter 7 bankruptcy or chapter 13 bankruptcy, it is important to recognize that there is still work to be done once you receive the bankruptcy discharge. There are several things you can do post-bankruptcy to set yourself up for success both from a personal finance standpoint and to rebuild your credit.
Establish an Emergency Fund
An emergency fund is used to pay for financial emergencies that occur. From a business perspective, it could be an unexpected business need, legal expense, or to pay for the repair of the business facility. An emergency fund is not meant to pay your bills. It is meant only to act as a safety net. Determine in advance what qualifies as an emergency. Then, determine what you can do to minimize the likelihood that an emergency will take place.
From a personal finance perspective, an emergency fund is used to pay for actual emergencies. Examples include unexpected car repairs, medical expenses, or being laid off from work. Keep in mind that this is separate from a traditional savings account.
Pay Your Bills on Time
Before and after you file for bankruptcy, you'll see a lot of information about credit repair. Credit is an important factor in your personal life as well as when it comes to running a business. Bankruptcy stays on your credit report for 10 years. The concept of credit repair does not remove bankruptcy before it is time for it to be removed from your credit.
Instead of credit repair services, make sure that you pay your bills on time. This will help you rebuild your credit.
When you file for chapter 7 or chapter 13 bankruptcy, you may have certain secured accounts, such as a vehicle or home, that you want to keep. As you continue to make on-time payments, this will be reported to the credit bureaus. As you move forward after your bankruptcy discharge, you will have other opportunities to establish personal and business credit. Remember to always pay your bills on time to continue to establish good credit.
Be Strategic About Applying for Credit Lines
When you're ready to start your business, be strategic about applying for credit. Yes, a past bankruptcy can make obtaining credit more difficult regardless of whether you filed as an individual or as a business. However, that doesn't make it impossible. You could be presented with various types of business or even personal credit lines, but you must be strategic.
Mainstream lenders may be willing to accept your application for credit either as a business or as an individual, but it may come at a higher interest rate.
Peer to peer lending involves getting a loan directly from another person. This does not necessarily remove interest completely from the equation.
The SBA's microloan program offers loans of up to $50,000 to qualified small businesses. The loans can be used for working capital, inventory or supplies, furniture or fixtures, or machinery or equipment. It cannot be used to pay debts or buy real estate.
Negotiating Vendor Contracts
If you are re-establishing a business after receiving a bankruptcy discharge, you may decide to approach previous vendors that you had a good relationship with in the past. These vendors may be willing to work with you again because of the previous history of on-time payment history as well as the positive working relationship.
If this is your very first business, you may discover that it is best to start with smaller vendors first. Even if they run a credit check and learn about the bankruptcy, they could be more likely to decide to work with you. Many small vendors understand what it is like to be a small (and new) business as well as what it's like to need to rebuild credit.
Regardless of whether this is your first business, be prepared to pay a deposit or a prepayment for services. This is a normal risk mitigation measure for businesses to help ensure they get paid. As you work to build a solid relationship with your vendors, you'll likely see that this requirement disappears. You can also ask vendors to report your payments and good standing to Dun & Bradstreet.
Learn More About Life After Bankruptcy
If you're an Oklahoma business owner and you're wondering about what life after bankruptcy might be like, schedule your free consultation with the Law Offices of B. David Sisson. Each situation is different. To learn more about how to improve your financial future, schedule your free consultation now!