How To Do Business with Creditors After Going Bankrupt and Discharging Debts
Your assets, including your business, are wiped out before your debts are discharged in a Chapter 7 bankruptcy.If you were a small business owner, the business you worked to build is essentially gone.This doesn't mean that you cannot start over again.An opportunity for Americans to have a fresh start is what a Chapter 7 bankruptcy is all about.To rebuild your credit and get back in the game after going bankrupt, you have to be patient and methodical.
Step 1: Your credit report should be monitored.
You shouldn't worry about anything else, even though filing for bankruptcy is a big blemish on your credit report.If there are errors in your report, act quickly to have them corrected.If you do everything you can to rebuild your credit, you will find it easier to do business with your creditor.It can take several years to rebuild after a bankruptcy.If you request a new employer identification number from the IRS, your small business will have its own credit report.It can take several years to establish a business credit report that will help you, because your business won't have any credit history.Because of your business's lack of credit history, any traditional lenders or investors are going to want to look at your finances and credit report as well.Both are essential if you want to start a new business.
Step 2: Put together a budget and stick to it.
You can build a realistic budget by looking at your regular household spending over the course of several months.To account for possible changes, estimate your income conservatively.If your hours at work change, budget your income based on how much you have earned in the past.It's okay to ignore an outlier such as a week where you missed work due to an illness.If you are looking at your expenses, list the non-discretionary expenses first.You have to pay these things every month.You should include a reasonable amount for groceries and personal needs.Take a look at how much you have left.This amount can be used for discretionary expenses such as dining out or going to the movies.It may look very strict when you've finished your budget.You can use the money to have fun.You will not follow a budget if you can't be happy with it.
Step 3: Good spending habits are established.
If you treat your finances the same way you did before you filed for bankruptcy, you'll end up in a similar situation.It can take time and effort, but the improvement is worth it.If you shop around for the best deals, your money can go further.Credit cards can be used for unnecessary items.Pay your bills on time.It is possible to set up automatic payments, but make sure the money is in the bank to cover them.If you don't have enough money to pay your bills, you should sign up for payment reminders.Give yourself a limit on how much you can spend.If you are going to a movie, you may want to leave your credit or debit cards at home so you aren't tempted to spend more.
Step 4: You should build your savings.
The idea of being able to save money is ridiculous if you have just come out of a bankruptcy.It is possible to put a small amount of money away each month.You can open a savings account at the bank.If you set up a regular transfer from checking to savings, you may be able to save on fees.Take a look at your budget and see where you can save.You might be able to set up a regular transfer with your bank if you budget your income conservatively.Suppose you have a budget of $300 a week.Many weeks of the year, you bring home $400 or more.If you make an arrangement with your bank, your pay check over $300 will be automatically transferred to your savings account.It's easier to save because you don't touch the money.You're not tempted to spend it because you never had the money.
Step 5: Start with secured loans.
You may be able to take out a secured loan if you can't get approved for a credit card.If you open a certificate of deposit account, many banks will give you a secured line of credit.If you don't have enough money to put in the deposit account, you have to maintain a high minimum balance.Credit cards that are secured are another option.Some credit card companies will give you more credit than others, but only if you keep a certain amount of money on deposit.You can get a higher credit limit when you deposit more money.You may be able to take out loans for your business using personal assets such as your home.Make sure you don't over-extend yourself to the point that you risk losing the property you've pledged.If you want to rebuild your credit, you need to make sure the creditor reports to the credit bureaus before you take on the loan.
Step 6: You can use a different business name.
A new name can help you avoid confusion with your old business.This will allow you to work with your customers without carrying the baggage of the old business.If you had an emotional attachment to your original business name, going with a different name can be difficult.It can be helpful to think of a new name as a fresh start.Check the business name registry with your state's secretary of state to make sure the name is available.You should make sure that your new name doesn't violate anyone's trademark.You can run a search for your business name on the website of the US Patent and Trademark Office.If you're looking for trademarks, watch out for names that are similar to yours, especially if they belong to businesses or individuals in the same field.
Step 7: A business structure can be chosen.
A corporation or an limited liability company can be used to organize your business.You can either run it as a general partnership or sole proprietor.It will be next to impossible to separate your new business from your bankruptcy if you go that route.Businesses can't file Chapter 7 bankruptcy.If you were a sole proprietor, your business is not treated as separate from your personal finances.You want to keep your business separate this time around.One of the easiest ways to do this is by forming an limited liability company.The limited personal liability of a corporation is offered.They are cheaper to create.If you decide to stick with what you know and start another sole proprietorship or a general partnership, your bankruptcy is going to have a greater impact on your ability to do business.Before you make a final decision, you should talk to an experienced business attorney to get their advice on which business structure would be best for you.They can help you get it set up so you can do business in your state.
Step 8: There is a new employer identification number.
To operate your business separately from your personal finances, you need an employer identification number from the IRS.You should get a new one if you have one for your old business.If you operated your business as a sole proprietor and didn't have any employees, you may not have had an EIN before.The process is very simple.The IRS has a website where you can get an EIN.The application service is only available on Mondays through Fridays.All you have to do is answer a few questions on the website.An EIN will be generated for your business once you submit the information.You can use the EIN to open bank accounts, apply for credit cards and loans, and establish a credit history for your business.
Step 9: Adding partners is a good idea.
If you ran your previous business on your own, adding a partner with a strong credit history can help you get the financing you need.If you're thinking about adding a partner, make sure you look into their business and finances thoroughly.Because of the precarious state of your finances, it's not a good idea to bring in a partner just because you like them.They could end up doing you more harm than good.Someone with a good track record in the industry is essential for your small business.You want to make sure that they have a good credit report, both personally and with any businesses they've previously owned.
Step 10: A conservative budget is created.
If you're trying to rebuild your business's credit after a bankruptcy, you don't want to overextend yourself.Keep any income projections as conservative as possible.When you're working on your budget, it's a good idea to look back at your finances before you filed for bankruptcy.Identifying where you went wrong before and coming up with new practices to replace the ones that got you into trouble is the key to developing a responsible budget.New practices will become a habit with time.This process can help you with your finances and any small business you're trying to start after going bankrupt.If you're having difficulty with budget creation, you might want to try searching online for resources that are available for new businesses in your field.There are many resources on the website of the SBA.If you're still having trouble, you might want to try talking to an accountant or finance expert, but attempting to do it yourself first can save you some money.
Step 11: You should try to get a business credit card.
A business credit card can help build your business's credit.You might not be able to get the best interest rate with your credit history.Once you've got your business's bank account set up with your EIN, the first place you might want to try is the bank.You will need to have operated that account for at least several months and maintain a healthy balance to get a credit card from a bank.Search online for banks and credit card companies that market to people with poor or damaged credit.You can improve your credit score by learning how to use your card.Instead of carrying a balance, pay it off every month.
Step 12: It's a good idea to be up front about your bankruptcy.
If you wait to talk about your bankruptcy until your lender or potential investor knows about it, you lose the chance to make your finances better.Your credit will be checked by traditional lenders or business investors, so they can find out about your bankruptcy.If you tell them about it before they check your credit, you can show how much you've learned about managing your finances since you filed for bankruptcy.You have the chance to explain why you decided to file for bankruptcy.Many people who file for bankruptcy have legitimate reasons for doing so, and you might even find a lender has sympathy for them.
Step 13: A comprehensive business plan is needed.
A well-researched and organized business plan is a must for starting a small business.It shows potential investors that you are serious about your business and have evaluated the risks.Most traditional lenders will want to see a business plan before they will give you a loan.Your business plan includes details about your business and its organization, your analysis of your industry and demand for your products or services, as well as projections of operating expenses and potential profits.If you've never created a business plan and don't know where to start, you can find great resources on the SBA website.You can get ideas by looking at sample business plans.
Step 14: Look for partial investments.
You may not be able to find an investor who is willing to fund the entire start-up costs for a small business after going bankrupt.Since the investor has less to lose, you may have more luck asking for smaller amounts.It may be easier to find a lender who is willing to chip in the remaining amount if you provide part of your start-up costs.If you put your own money into your business, make sure to structure it as a loan and require the business to pay you back.If the business goes into financial trouble, the courts may see your personal investment as a sign that it isn't separate from your finances.If this is true, your personal assets could be used to recover money you owe.
Step 15: There are alternative financing options.
You may be able to get back on track if you use micro-loans or start a campaign online.If you're skilled at selling and marketing your product or services, these options can work.Micro-lending websites allow you to present your total funding need and get small loans from investors.Since it can be difficult to obtain a personal loan from a traditional lender, these sites can work well if you have a shortfall after your bankruptcy.Crowdfunding can help you get the money you need to get started if you are offering an innovative product or service.Some of the sites require you to have a business motive, while others don't.To be successful with many of these alternative financing options, you have to have a large and active social network with whom you can share your project.There is little chance of a campaign getting off the ground without being shared far and wide.
Step 16: Loans that need personal guarantees should be used with caution.
Many small business loans, like those offered by the Small Business Association, require you to make a personal guarantee or pledge personal assets such as your home.If your business doesn't go according to plan, you should consider whether you want to risk losing your home or other valuable personal assets.If you end up going into default with a personally guaranteed loan, the creditor may be able to take your other personal assets as well.