Bankruptcy can be scary and frustrating, especially when it feels like it means losing hope for your financial and business future. But bankruptcy doesn’t mean giving up. Even after filing, you can still follow your dreams of starting and operating a successful business. Sure, you may have to give up some assets, like an expensive car or jewelry. And if you are in America, you might have considered filing chapter 7 bankruptcy. But sometimes it’s necessary to help you ease your debt, restart your credit and rebuild your life.
While challenges will abound after declaring bankruptcy, the right approach will help you get back on your feet, ready to start again. Your first step is understanding your situation after your bankruptcy; you’ll need to assess your credit damage and create a plan. Then you can better approach the challenges of starting a new business and build a working strategy.
Starting your own business after a bankruptcy isn’t impossible. With the right help and information in your toolkit, you can bounce back with strength, striving for your future goals while learning from the past.
Starting Over After Bankruptcy
The first step in starting over after bankruptcy is assessing your situation post-declaration. You need to paint a broader picture for yourself regarding how you got here. Perhaps your last attempt at starting a business went wrong. With only half of small businesses lasting five years or more, there are many reasons a financial failure can occur.
- Unrecoverable overhead costs
- Poor use of business funds
- Lack of knowledge, training, and expertise
- Poor timing
- Premature scaling
Luckily for you, however, the experience of going through a bankruptcy is a learning opportunity in itself. The aftermath forces you to assess your experience, examining every angle of what went wrong and what could have been done better. This is a key aspect of learning, and failure is only a part of the journey to success.
Take the story of Walt Disney, for example. His first endeavor, Laugh-O-Gram studios, was left without financial backing after a team of animators had already been hired. This left Disney unable to pay his debts, leading to bankruptcy in 1921. Just two years later, Disney was able to use a family loan to start a new company, and the rest—as they say—is history. Now, the Walt Disney Company is worth almost $200 billion.
But getting back on your feet the way Walt Disney did may seem impossible when first going through your bankruptcy. Luckily, in most of Europe, some protections leave the debtor with relief even in the stressful circumstances that surround a bankruptcy. These protections can include:
- Retaining your personal assets
- Retaining your pension in most cases
- Being able to use your bank account for most living expenses
- Retaining income needed for personal expenses
Your bankruptcy will last only 12 months, after which time you will be released from bankruptcy restrictions and most remaining debts. However, your bankruptcy will still show up on your credit report for up to six years, which can create financing challenges—among other problems—when you’re trying to start over with a new business venture.
It is possible to thrive after bankruptcy. Request proof of your discharge and your limitations on business will be lifted in most cases after the 12-month period. While your assets that were part of the bankruptcy will remain in the care of the trustee, you can begin your fresh start with significantly less debt. Then it’s just a matter of navigating the challenges of starting a new business.
The Challenges of Starting a Business
When it comes to starting a business after bankruptcy, you’ll have to work harder and be smarter with your financial footwork. Your poor credit rating will be a significant barrier to immediately setting out again with the kind of financing and investor help you may need. Unless you plan on waiting years for the bankruptcy to fall off your credit report, you will likely need to find alternative methods of financing your endeavours.
Luckily for you, you are not without recourse. There are funding options and methods for building back investor trust through smart decisions.
Address these three primary challenges of starting a business to succeed after a bankruptcy:
1. Obtaining Financing
Anyone who has attempted to acquire a loan with a poor credit history understands the difficulty of that situation. With poor credit, your options are much more limited—but you still have options.
First, you can seek out a co-signer. This can be a risky choice, unadvisable if you intend to stay on good terms with the co-signer even if your new startup fails. You also don’t want to saddle another person with debt. Co-signing may be acceptable if the other person fully understands the risks and is willing to take a chance, perhaps as a full business partner.
Additionally, you can offer up any personal assets—such as a vehicle—you still might have as collateral on a new loan. This can be risky as well since it involves tying your business finances to your personal ones. You will need personal guarantees to obtain most loans after a bankruptcy, but you should never risk losing assets that you will need even if your new venture is a failure.
Ultimately, what you want to seek out are government loan options or trusted investors who can help you with minimal risk to themselves. Programs exist designed specifically with small business owners and those who have experienced bankruptcy in mind, so explore all your options to find the right financing. It will be more challenging because of what you’ve gone through, but finding funding is still possible.
2. Building Trust
Another essential element of starting a new business after bankruptcy is establishing trust, both for your investors and your customers. You need to show that you have a plan in place to avoid past pitfalls and come out ahead.
In terms of acquiring credit lines for your business, that often means using secured credit cards that use some form of asset or another as collateral. You’ll have less personal protection, but you can start building up your credit again.
Similarly, your friends, colleagues, and family members who may have invested in you before need some form of evidence that your new venture can go further. This will take proof-of-concept demonstrations and pitches for your business ideas. Establishing enough trust over time can help you work towards the security of a merger or acquisition, which can be highly beneficial in recovering from the devastation of a bankruptcy.
3. Applying Lessons Learned
No matter the circumstances surrounding your bankruptcy, there are lessons to take away. Whether you’ve learned about financial management or the separation of business and personal finances, you can apply these lessons to your new enterprise for financial success.
First, structure your new business into a protected legal entity like a private limited company (Ltd). This helps ensure that any fallout of another failure will not devastate your personal finances. After a bankruptcy, you will still likely need to provide some level of personal guarantees and collateral into your new endeavours, but by separating your business as much as possible, you can remain more secure.
Another key insight is to simply limit your debt and overhead as much as possible before starting a business venture. Even celebrities like Elton John and Cyndi Lauper have experienced bankruptcies due to taking on too much debt without the insight to handle it to the best result. In each of these cases, these individuals transformed their situations and made massive successes of themselves. There is no reason you cannot do the same.
While challenges abound in recovering and starting a new business after a bankruptcy, it’s far from impossible. In fact, people do it all the time. Approach these challenges with patience and skill, and apply some useful tips for overcoming financial difficulties.
Tips for Overcoming Financial and Credit Challenges
Your path towards solvency and success after the bankruptcy is reliant upon smart financial moves on your part. You can put these moves into practise both before and during your new business formation, building a strong foundation to weather whatever comes.
Here are a few simple tips for repairing your credit after bankruptcy and rebuilding business success:
- Consistently check your credit report for errors.
- Ensure all your due payments are made on time. Using auto-pay options can be extremely helpful in this regard.
- Consider a credit-builder loan when you’re sure your new business returns can cover it.
- Use a secured credit card to build your credit faster.
- Make more than the monthly payment.
While resources like consumer proposals and creditor negotiations can help you before a bankruptcy, after-the-fact recovery depends more on your consistency and dedication. Your new business may very well help you secure the funds to build your credit back more quickly, but the keyword in your business approach should be caution.
Take time after bankruptcy to truly apply everything you’ve learned into a robust business strategy that utilizes as little debt and credit as possible. Innovate to secure your funding, then apply these strategies and tips into a business practice that is both self-sufficient and thriving.
Bankruptcy is not a life sentence. You can recover and strive for your dreams even after a failed venture. All kinds of famous entrepreneurs have done it. All it takes is facing the challenges head-on with comprehensive, cost-cutting solutions that allow you to build back your credit and trust.