It’s time to get credit and start a new business after filing for bankruptcy. Nothing can stop you from doing so. However, it is crucial to note that acquiring credit by establishing a new business may be difficult if you do not spend the necessary time replenishing your credit rating. There is a big chance of facing legal impediments if you just closed a similar business before constructing the new one.
At first, you may find these terminologies confusing. A bankruptcy filing does not automatically destroy your entrepreneurial goals of starting or running a business. With the help of an experienced bankruptcy lawyer, everything can be achievable to get a fresh start.
Hammerschmidt Stickradt & Associates is a reputable bankruptcy firm in Michigan that has helped individuals for numerous years file for bankruptcy under Chapter 13 and Chapter 7. Our extensive experience and expertise for over a decade will enable us to stop your financial hardships effectively as a debtor. Consult with our bankruptcy attorney now for free!
Seeking Financial Freedom?
How would you like to wake up not worrying about your creditors or loan balances? Our Michigan Bankruptcy Attorneys can help you attain new financial freedom! Worried about the cost? We offer payment plans for all budgets and a free credit rebuilding program!
It is not uncommon for you to declare bankruptcy after your business fails. Most bankruptcy attorneys will give you the same legal advice because filing bankruptcy is an effective way to discharge your obligation to pay business debts while eliminating medical bills, credit card bills, and other types of debt.
For example, after closing businesses, many previous owners eliminate “personal guarantees” or legally binding promises to make payments on debts. They wipe these out by filing for bankruptcy. Many companies will require business owners or people interested in the business to commit to being financially responsible for any debts incurred by the enterprise resulting from its persistence in going out of business. A personal guarantee is another name for the contract.
Your credit will suffer from your bankruptcy filing, and you will likely have fewer assets and income. Thus, if you plan to establish a new business that necessitates hefty capital, you will need meticulous and strategic financial planning. Learn more by consulting with a skilled bankruptcy attorney and understanding the complexity of bankruptcy laws.
Starting Up A Similar Business
It is not advisable to start a similar business after closing the previous one and declaring bankruptcy. When a company is not performing well, and the unsecured debts are significantly increasing, it is tempting to close it by filing for business bankruptcy under Chapter 7 of bankruptcy law.
However, such strategies might do more harm than good. Below are the reasons why:
A business cannot wipe out or have its debt discharged when you file bankruptcy under Chapter 7.
If they are the same business, an old lender can do collection activities in the new enterprise.
Avoiding paying the creditor through maneuvering may be deemed fraudulent.
Utilizing corporate structures will not be beneficial because the bankruptcy court undermines business structures when fraud is present.
You might be aware that lenders and banks will ask you about your credit history when determining whether or not to give business financing. You can increase your chances of getting approved by:
Crafting a comprehensive and reliable business plan
Establishing a partnership with a business partner with positive credit history
Looking for investors to solicit your business
Applying for financing from a simple community bank
Looking for financing or grants given as incentives to companies by the local communities
You may have thoughts of shifting to small business administration because of funding. If so, you need to act diligently. In most cases, small business administration necessitates personal assets and a personal guarantee to secure your business debts – typically, your home.
If Financing Is Not An Option
Just because you cannot get financial support does not necessarily mean you should forget your goal of working for yourself. You may still consider the following:
Establish a personal service business, such as being a personal shopper, wedding planner, and house-sitting. These business types require little to no capital.
Work as a subcontractor for a stable business to lessen your capital needs.
Take advantage of some independent contractor vacancies funded by the gig economy.
Other Salient Considerations
Here are some wise things you would want to choose before establishing a new business after your bankruptcy filings:
Employer or tax identification numbers – If you shut down your previous company, you may not be able to begin a new one with similar employers or tax identification numbers. Therefore, obtaining new numbers is required.
Paying business taxes – Generally, all business owners should uphold their responsibility for business taxes. You can, however, avoid getting locked with an enormous bill by paying off trust fund taxes and business debt. The trust fund tax is collected from other businesses, such as sales tax and payroll withholding tax.
Stretching payment terms – Since financing is usually strict initially, you need to ensure your new business will get paid for all its work. Giving favorable terms such as extending might result in getting unpaid at all.
Keeping desirable business records – If you can secure financing, there is a great chance it will be on a short-term basis. Always maintain clean records so that if the loan is for renewal, you can give the correct numbers to prove that your new business is progressing.
Always Take Into Account Your History
All types of bankruptcies may directly affect your ability to have a fresh start along with your assets. To file for bankruptcy, you should analyze the following as well:
The reason why you filed the bankruptcy petition
The present condition of the economy
The level of your knowledge in the industry
Options for mentorship (Credit Counseling, Debtor Education Courses, etc.)
Past mismanagement of your finances, if applicable
Getting familiar with these factors will help you in your next business journey.
If You Filed Chapter 7 Bankruptcy
The business did not receive the debt discharge; thus, liabilities may emanate in the future.
You are regarded as debt-free and cannot personally be sued.
You might have a negative credit background for seven to ten years.
If You Filed Chapter 13 Bankruptcy
Always ensure that your repayment plan suits your financial situation and personality while you fund a new business.
If You Filed Chapter 11 Bankruptcy
You are more likely to recover from the costly filing under this bankruptcy chapter.
Consider whether you obtained loans to complete the bankruptcy process.
You might have a negative credit background for 10 years.
Looking for a new set of investors can be difficult.
Call our Bankruptcy Attorney Now!
The complexity of the bankruptcy process, as well as the bankruptcy code, does not end once you have declared bankruptcy. It will have a significant impact on your life in a variety of ways. Even if you have filed for bankruptcy, if you are thinking about starting a new business, you should seek legal help from an experienced bankruptcy attorney.
If you are looking for bankruptcy experts in Michigan, Hammerschmidt Stickradt & Associates is available. We will take time to understand your situation and help you prevent predicaments when starting a new business after bankruptcy. Our expertise makes us unique from the rest, as we have more than a decade of experience resolving complicated matters for clients. We handle Chapter 13 and Chapter 7 bankruptcy cases. We also tackle concerns about abusive creditors. If you need assistance, don’t hesitate to consult us for free!