There are many dangers in filing for bankruptcy. This is why people are encouraged to pursue the alternatives to try and salvage the financial health of their business.
There are many alternatives to save your business from bankruptcy. One is debt settlement. You can negotiate with your creditors to pay only a portion of what you owe and have the rest forgiven. This will take some strong negotiation skills and if you cannot handle it, there are debt settlement companies who can help you communicate with your creditors.
Another option is to look for a new loan that will help you jumpstart the finances of your business. If the credit rating can help you get a business loan, then go ahead with it. Or you can look for an investor who can put more money in the business. If you are lucky enough to get the finances that you will need to keep the business afloat, make sure that you use it properly. It should only be used to help the business increase profits so it can cover the expenses and payment obligations.
In case none of the alternatives can help keep the business afloat, then you may just have to file for bankruptcy.
According to the data from the USCourts.gov, 25,227 businesses filed for bankruptcy in 2016 – which was more than 2015 with only 25,046 business bankruptcies filed. If your business went through bankruptcy, there are a couple of things that you need to do in order to rise from your financial predicament.
Important things to remember about business bankruptcy
Before you try recovering from your recent bankruptcy filing, you need to understand a couple of thing about it first.
Sometimes, bankruptcy is the best way to move forward. You need to accept that there was no other way to salvage the business except to file your petition to be bankrupt. It may feel like a total failure but sometimes, the best course of action is to declare bankruptcy. According to an article published on Forbes.com, there are times when the best option is to be bankrupt. While it can ruin your credit history and make financial recovery difficult, it can be easier on your mental health. If you find yourself struggling to sleep because of your business issues, then just let it go.
Bankruptcy is not the end of your financial struggles but it does allow you to start over. While bankruptcy will help put an end to the debt problems of your business, that does not mean will end your financial struggles. Being bankrupt is not the end of your problems. There are so many things to do right after the bankruptcy proceedings. You need to be aware of these tasks because it will help you cope with the after effects of this financial situation. The great thing about going through bankruptcy is it can give you a fresh start. There is nothing that will keep you from trying again. However, the bankruptcy stint will make things difficult the second time around. While it may be difficult, you can still rebuild your broken financial position. If you wish to start another business, you have every right to do just that.
Pay attention to financial lessons from bankruptcy. Finally, it is important for you to understand that bankruptcy comes with a lot of financial lessons. To be specific, you can learn a lot of debt relief lessons. You need to pay attention to these because these lessons will allow you to steer clear of the same mistakes that led you to being bankrupt. You have to identify what caused your financial downfall and what you can do to make things better. Regardless if you plan to start another business or not, you need to understand the lessons that you may have missed.
How to start over after your business goes bankrupt
As mentioned, there is nothing wrong with starting over after you have declared that you are bankrupt. According to an article published on MentalFloss.com, there are a lot of successful people who have once declared bankruptcy. These people include Abraham Lincoln, Henry Ford, Walt Disney, Milton Hershey, and H.J. Heinz. Some of them are known entrepreneurs who did not let a financial downfall cause them to lose hope or let go of their dreams.
In case you want to start over, here are some tips that will help you improve your finances after bankruptcy.
- Identify the habits that led you to declare bankruptcy. Were you borrowing too much money? Maybe you fell short when it came to monitoring your financial transactions. It is also possible that you relied on your credit card too much. While the use of credit is not unheard of in a business, you need to use it wisely in order to keep it from ruining the value of your company. Take note that it is also possible that your business is not earning enough profit. This can be a valid reason to declare bankruptcy. By identifying what caused you to be bankrupt, you can keep yourself from making the same mistake in the future.
- Set up a business that is separate from your own finances. One of the mistakes of small business owners is linking their personal finances to their business. If that happens, the bankruptcy filing of the business would significantly affect your own net worth. You might even lose your personal assets because of it. Make sure your own money is protected by keeping it separate from your personal financial accounts.
- Be prepared to have a hard time getting financial aid. One of the significant effects of bankruptcy will be on your credit history. The taint of being bankrupt will remain in your records for the next ten years. While practicing the right credit management habits will allow you to raise your credit score, those who will look at your report will still see that you once filed for bankruptcy. This will make creditors and lenders from being too open about approving your loan. In case they approve of your loan, that would come at a price – like a high-interest rate.
Make sure that your financial recovery will include practicing the right habits this time around. Avoiding bankruptcy is simple – but it does take consistent good credit behavior.
Common questions about bankruptcy
Question: What is the effect of bankruptcy?
Answer: Bankruptcy will mainly affect your credit history. This is the record that will tell everyone your credit behavior. The more negative entries like bankruptcy in your report, the more you will be deemed a high-risk borrower. That can compromise a lot of financial opportunities that could have improved your financial situation.
Question: Why is bankruptcy is bad?
Answer: While it might be the best option for some financial situations, it is bad because it shows how you were unable to pay off your financial obligations. It paints your financial management abilities in a very bad light. Having to go to court because you cannot pay off your debts is never a good thing.
Question: When should you not file for bankruptcy?
Answer: If you can still settle your debts or get the finances that will help you avoid bankruptcy, then do it. Usually, this becomes the best option once you have exhausted all other debt relief options.
Question: Can bankruptcy help your finances?
Answer: If it can help you get a fresh start – yes it can. But your financial success will mainly depend on your habits. Even if you successfully file for bankruptcy, if you continue to practice the same bad financial habits, then you cannot improve your financial position.
Question: How can bankruptcy change your life?
Answer: That depends on you. If you learn you lesson after bankruptcy, it can end up well for you. It can help you start anew. But if you do not learn from your financial mistakes, then it will not help you at all – only destroy your credit rating.
