The first question you’ll need to address is “what is your credit score?”
Many lenders that offer small business financing will check business credit scores, personal credit scores of the business owners, or both. While many lenders have minimum credit score requirements, that minimum varies across lenders. Some lenders will accept personal credit scores in the 500s but most are looking for scores of at least 640— 680 or higher, and a few require scores of at least 700.
Bankruptcy has a serious negative impact on credit scores. But it is possible to rebuild credit even after with a bankruptcy on your personal credit report.
Moving Forward After Bankruptcy
Move Forward Financially
One of the biggest hesitations with filing for bankruptcy is the amount of time it takes to restore your life and your credit.
According to the Fair Credit Reporting Act, a bankruptcy will remain on a debtor’s credit for up to ten years after your filing date. A Chapter 13 bankruptcy is typically removed from a debtor’s credit report after seven years. Remember that these timelines are from the day you file your case, not the day it is discharged, which helps you get through it a little faster. Because most Chapter 13 bankruptcies last three to five years because of the repayment schedule, chances are a Chapter 13 will only appear on a credit report for another two to four years after completing it.
Create a Budget
You know that you have had difficulties managing money before – there’s a reason you wound up in bankruptcy. Take the time to set yourself up for success. Sit down, take a look at what money you have coming in and what’s going out. Figure out a game plan for how to tackle your next financial steps. All nonprofit credit counseling agencies offer free basic consumer help on topics such as budgeting.
Pay Your Bills!
Chances are you’ve learned from your past wrong-turns when it comes to money. Now that you have a clean slate, you have the opportunity to remain diligent about your finances. That means paying bills on time, creating a budget, and monitoring spending. It might be a good decision to work with a financial advisor to get some tips on how to better manage your cash flow.
Use a Secured Credit Card
Bankruptcy can mean a hard hit to your credit. A secured credit card allows you to deposit an amount of money into a bank account, which acts as your credit limit, thus allowing you to pay down debts quickly and also rebuild your credit as you do it.
Fill out an application at a bank and make a deposit into a secured account. The bank will then provide a credit card with a credit line that’s 50% to 100% of the deposit. According to the Federal Trade Commission, the bank usually pays interest on your deposit.
Many secured cards come with an annual fee. Additionally, the annual percentage rates for secured credit cards may range from 15% to 23%, which are higher than most unsecured cards. Rebuilding credit is all about proving that you are able to repay your debts. This high apr is meant as a way to secure that you will do just that.
You will most likely need to pay application and processing fees for this card. Check to see if you are able to get a refund of these charges if you are denied a card. And lastly, compare the total fees required before signing anything.
Also, you will want to confirm that the bank reports your credit card limit to the major credit card bureaus, offers periodic credit increases, and also doesn’t report the card as secured.
Once you get a lender that is willing to extend credit, make sure you are in the habit of paying on time. Keep your credit card balances low relative to card limits — less than 30% is typically advised. Less than 10% is even better.
Check Your Credit Score
You’ll want to know where your credit score is following bankruptcy so that you have a starting base. From there, check in periodically to ensure it’s increasing.
Move Forward Emotionally
There are a lot of emotions that go into filing for bankruptcy. It’s important to realize that bankruptcy is not the end of the world. In fact, it’s a way to move forward without the stress of creditors breathing down your back. Here are some tips for how to move forward.
Stop the Guilt Trip
It’s not uncommon for people to feel feelings of disappointment and failure when they declare bankruptcy. These are tough economic times. In 2010, U.S. personal bankruptcy filings rose by 9 percent. That translates to 1.53 million bankruptcy filings. According to a 2011 survey by FindLaw.com, one in eight adult Americans (13 percent of the population), consider filing for bankruptcy. You are not alone, so stop feeling guilty, or as if you have failed.
Focusing on what you have – the ability to move forward can help you remain positive. In addition to this, surround yourself with positive people.
Getting a Business Loan
The second question you’ll want to ask if you’re seeking a business loan after a bankruptcy is “what is the status of your bankruptcy?”
Most small business financing options require that your bankruptcy be discharged. Bankruptcies which have not been discharged can be difficult for lenders due to the court’s involvement in the disposition of assets to creditors.
If you are in the middle of the bankruptcy process it may be difficult to get financing. If you do find a lender that is willing to work with you, talk to your bankruptcy attorney to make sure it will not jeopardize your case.
Types of Bankruptcy Available
Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.
When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.
During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors. Just because your assets are being sold, that does not mean that all of your property needs to be sold.
Chapter 11 Bankruptcy
Under Chapter 11 bankruptcy, the business or individual undergoes a reorganization in order to pay down its debt and reorganize its income and expenses while regaining its profits. If your business is a corporation, limited liability company (LLC) or partnership, it can continue business operations during the bankruptcy process. While the business is making payments through the debt repayment plan, the business continues operating.
The Chapter 11 bankruptcy process can be a complex, and lengthy one. If you are facing a Chapter 11, you’ll want to work with a bankruptcy attorney to understand the process and what you will need to do to move through it. They will be able to explain the terminology in addition to what is legal, and what you will be required to do.
Filing for Bankruptcy and a Quick Overview of Process
It is always advised that when you decide to file for bankruptcy, that you work with a bankruptcy attorney to ensure that you follow the correct process and submit the correct paperwork.
Your bankruptcy will not be official until you have entered the bankruptcy petition with the court. Once the petition is filed, you will receive an automatic stay. Apart from actually receiving a discharge of debts, an automatic stay is probably the most important feature of filing for bankruptcy.
When you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay immediately goes into effect and prohibits most creditors from continuing with collection activities. This can provide welcome relief to debtors as well as an opportunity to regroup during bankruptcy. Because of this the automatic stay may provide a powerful reason to file for bankruptcy.
It’s important you educate yourself about what’s impacted by automatic stays before filing. While some things can be prevented, an automatic stay might not be able to prevent other important issues you are facing. Below you will find a quick list of things that can and cannot be prevented, but you should work with a lawyer to fully understand the ins and outs of each.
Automatic Stay Can Prevent:
- Utility disconnections
- Collection of overpayments of public benefits
- Multiple wage garnishments
Automatic Stay Cannot Prevent:
- Certain tax proceedings
- Support actions
- Criminal proceedings
- Loans from a pension
- Multiple filings
After Automatic Stay
The automatic stay does not mean you are “done.” Below is a quick overview of what happens next.
A court will assign a trustee to oversee the bankruptcy case, including ensuring a debtor is eligible to file as well as handling the meeting of the creditors. this meeting usually happens 6 weeks after filing. During this meeting, the bankruptcy trustee and your creditors ask you questions about your bankruptcy petition. You will be under oath for this meeting, and will need to prepare documents outlining your assets, debts, expenses and overall state of affairs. A bankruptcy lawyer can help you to prepare these necessary documents.
If filing Chapter 7 or Chapter 13, to fully exit bankruptcy a debtor will need to complete a certified Debtor Education Course. This is similar to the Credit Counseling course required for petitioning for bankruptcy. At the conclusion of the course, you will receive a certificate of completion. Once you receive that certificate, your bankruptcy case is closed. All debts should be handled, and creditors should not be allowed to collect any debts.
At this point, you are free to move forward.
Working with a Bankruptcy Attorney
Bankruptcy law can be hard to understand. As you can see, there are a number of processes involved that you might not be fully aware of. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. A bankruptcy attorney might also be able to prescribe options that keep you out of having to declare bankruptcy in the first place. There can be a lot of questions during this extremely stressful time. Let the lawyers at Resnik Hayes Moradi LLP walk you through the process so you can achieve the best outcome possible.