As a business owner you may want to file for bankruptcy if you are drowned in a sea of credit problems, and there is no way out. But before you take your final decision, consider consulting anon profit debt relief agency to to settle debt on credit card. A large number of such debt relief agencies across the country provide credit counseling, debt management programs and alternatives to debt consolidation – without a loan or bankruptcy.

What is chapter 7 bankruptcy and how it affects your business?

Chapter 7 bankruptcy is the most common type of bankruptcy filing and is also known as liquidation – converting assets into money. If a debtor files for chapter 7 bankruptcy, all his non-exempt property is sold and the proceeds of the same are distributed to the creditors. Most debts would be discharged within months of filing a bankruptcy petition. This is also one of the faster way of starting your business afresh. The court not only appoints a trustee but also creates a “bankruptcy estate”. Mostly, a chapter 7 trustee is responsible for selling the assets and distributing the proceeds to the creditors, after paying off the administrative and legal expenses. But practically, after bankruptcy, the business is over. However, life gives you a second chance. After bankruptcy, you can always start a new business and even your existing business can take a new turn. Although the new business may operate under the same name as the previous one, it is a better idea to start afresh with a new identity. This will prevent any negative credit information from hampering your new business.

Opening a new business after bankruptcy

Bankruptcy remains on an individual’s credit report from 7 to 10 years. Getting a loan during this time frame might be difficult but not impossible. Generally, all business loans need a personal guarantee from an officer of the business. The credit rating of a person is used as the basis for approval or rejection of a business loan. Following are a few tips to get a business loan after bankruptcy:

• Accounts Receivable Loans

In order to survive each and every business has to have some income. They offer terms to clients whereby they purchase a product but pay for it nearly 90 days later. This delayed income is called accounts receivable. These loans are based on the income of a business and so, a business owner’s personal credit is not taken into consideration.

• Equipment loans

In a business that sells a product, there is equipment that is used in the production of that product. This equipment is generally highly customized for the business and may cost millions of dollars. If a business owner has filed for bankruptcy he can use this equipment as collateral for the loan to the new business. The basis for the loan will be the value of the equipment and not the business owner’s credit status.