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Bouncing back after small business bankruptcy

It may not feel like it's a good thing, but filing for bankruptcy seemed like your only choice when your business began to fail. You may now be wondering if you should look for a retail job or try running your own business one more time. The truth is that rebuilding a business after bankruptcy is not easy, but it is also not impossible if you are willing to do the work.

You probably filed one of these three forms of bankruptcy:

  • Chapter 7: liquidated your business
  • Chapter 11: allowed you to continue operating your business while a trustee made sure you stayed on track
  • Chapter 13: included the debt of both your sole proprietorship and your personal finances

Each type of bankruptcy has its own way of affecting your future business ventures. If you filed Chapter 11, for example, your business may still be operating, but its future can depend on the direction of the trustee.

Getting financing for your new business

Your credit rating has a negative mark now. There's no denying that this will make obtaining financing more difficult. Chances are 12 times greater that a finance company will turn you down for loans, but you do not have to give up. Your interest rate may be several points higher, but eventually you may qualify for lower rates. You may also want to try other forms of financing, such as peer-to-peer lending.

The bankruptcy will remain on your credit report for seven to 10 years. While obtaining financing may be difficult during that time, it is not necessarily the hardest part of restarting your business after a bankruptcy. The biggest challenge may be disciplining yourself to stay financially irreproachable.

Rebuilding your credit and your reputation among vendors

Re-establishing trust among your creditors and vendors may be a large part of your job for the next few years. Vendors may refuse to work with you, and those who do may place stipulations on your relationship. Business advisors suggest you start with smaller vendors who may be more sympathetic to the tenuous stability of a fellow entrepreneur.

Once you have financing and your suppliers agree to work with you, it will be vital that you never miss a payment. You may choose to standardize your accounts payable process so that you overlook nothing. Financial advisors suggest you check and re-check your records to avoid costly errors.

Consulting an attorney to discuss filing bankruptcy was not an easy decision, but with your lawyer's advice and assistance, you now have the chance to place those financial difficulties behind you and step into the future with renewed confidence.

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  • Santa Clara County Bar Association | 1917
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