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.

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But, what if you can’t fight this battle alone? Fortunately, there are a number of good debt management programs in the market today that are designed to cater to individuals like you. With these programs, you can learn the secrets of retaining your wealth and how to stay debt free even if the global financial situation gets worse. Although it might take time to adapt these new practices, it is at least serving as a good first step to begin with. It is smart to embrace the program while you still have something in your savings account and are not completely broke.

Depending on how deep you are in debt, there are various kinds of debt management programs. You can enroll to the one that is ideal for your situation and follow whatever has been suggested to you without thinking twice about it. Usually, the people who run these programs are very good with reviving finances and might find solutions that might have missed you altogether. Signing up for these programs means you are open to suggestions provided by a professional and hence if you are told to give up something, there is little you can do but to give it up.

When deciding to go in for professional help, you obviously don’t want to go to one that has been rated poorly and instead only sign up for the best debt management program. This is normal, and with some research and effort, you should be able to find one that can help you out with your situation. Most of these programs don’t charge much and are usually paid once you start seeing a reduction in your debt. This might not always be the case, but it is nevertheless what happens most frequently. Also, the people who offer these kinds of programs usually have a strong financial background, so you might want to keep an eye out for that as well.

Be aware that not everyone can qualify for this type of program. It is only for people who are really deep in debt and are not able to afford minimum monthly payments also. Sometimes, you might come across a program that says to manage debt but what it might be doing is consolidating your debt, or negotiating it, which is also considering managing. Find out all details about the program before you go ahead and sign for it. After all, there is no point in joining something that is not of much relevance to your situation.

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