Starting your own business and managing it on your own terms can be an exciting, rewarding endeavor, but there’s always the risk that one day, you may have to deal with the serious matter of bankruptcy. If that day comes, you don’t want to be caught unprepared when you appear in court to defend yourself and your business interests before the judge.
1) Understand the process
The court will assess your financial situation and decide whether or not you have the ability to pay back the money you owe. If they think that you can repay the debt, they will discharge your debts and give you a fresh start. If they don’t think that you’re able to afford the debt, they’ll declare your business bankrupt and liquidate your assets. The bankruptcy hearing is where all of this is determined.
2) Choose the right type of bankruptcy for your business
You can choose from two types of bankruptcy filings, Chapter 11 and Chapter 7.
Chapter 11 is typically reserved for companies that want to stay in business and repay some or all of their debt over time. If your company’s debts are overwhelming and you don’t have the ability to pay them off, a Chapter 11 filing may be the best option.
Chapter 7 is typically reserved for companies that want to close their doors and liquidate assets after filing bankruptcy. If you can’t afford your overhead costs, a Chapter 7 filing may be the best option.
3) File Paperwork
You will likely need the services of an attorney to file the required paperwork. The first thing you will want to do is file your petition in bankruptcy with the bankruptcy court. Once your petition has been filed, it will be necessary to prepare and file many other forms with the court, including a Statement of Financial Affairs, Chapter 13 Plan or Chapter 11 Plan, Notice of Meeting of Creditors and/or Trustee, and other various forms related to your repayment plan.
4) Comply with court orders
- Comply with the automatic stay
The automatic stay is one of the most powerful tools in a bankruptcy case. It is designed to protect your assets and preserve your business from seizure by creditors. If you fail to comply with the automatic stay, it could lead to a termination of your bankruptcy case.
- Attend the creditors’ meeting
If you are the debtor, then you will be required to attend a creditors’ meeting where the trustee will present information about your bankruptcy case. The purpose of this meeting is to help prepare creditors and other interested parties about the upcoming process.
If you have any questions about what was said in the meeting, please feel free to contact me directly. I am here to help answer any questions and make sure that you are fully aware of all of your rights as a debtor in bankruptcy proceedings.
- Complete debtor education
Debtor education is a requirement before filing for bankruptcy. It is a class that educates debtors on their rights and responsibilities when it comes to their debts.
5) Obtain a discharge
A discharge is an order by the bankruptcy court that releases your debts and allows you to move on with your life. If you can get a discharge, you’ll be able to start fresh without the weight of debt hanging over your head.
Finally: Begin to rebuild your credit
If your business went bankrupt, you may find it difficult or even impossible to borrow money. This can make it hard for you and your family to get by on a day-to-day basis. One way you can start rebuilding your credit is by applying for an unsecured credit card. When you apply, the issuing bank will perform a credit check and give you the chance to get approved. It doesn’t matter if your bankruptcy was discharged because the inquiry will not show up on your report. The key here is to be mindful of how much you spend because if you use up all of your credit limit, that’ll hurt your credit score as well.