How to Relaunch a Business after Bankruptcy

The law does not prevent you from starting a new business after declaring bankruptcy. However, if you start the process right after filing for bankruptcy, obtaining credit for the business will be difficult. You may also encounter difficulties if you closed a similar business shortly before declaring bankruptcy.

Here are 5 things you should do before starting a new business after filing for bankruptcy.

1. Examine the Risk Factors

You, like many business owners, may have specialized skills in a specific industry or product. However, after bankruptcy case, you may want to pursue your expertise and start a business as you've done in the past. Regrettably, this is not always a good idea. If you start a new business that is similar to your old one, you may be accused of fraud. It makes no difference which business structure you choose; the results will be the same.

The creditor of your previous business may be able to collect debts owed by that business from your new one. You should consult with a bankruptcy attorney about your situation and the risks involved. They will guide you of your options while dealing with creditors.

2. Separate the Entities

When a business fails, it is not uncommon for the owner to declare personal bankruptcy. Personal bankruptcy is frequently used by business owners to discharge their personal liability for business debt.

The owner is typically a sole proprietor, a partner in a failed partnership, or has signed on behalf of a limited liability company or corporate entity. As a result, you should establish a separate entity for your new venture, such as a corporation or a limited liability company. The benefit of this strategy is that these companies are solely responsible for the business debt. If you sign a personal guarantee for a business debt, you will forfeit this benefit and become personally liable for the obligation as a sole proprietor.

3. Prepare to Deal with Funding Issues

Banks and other lenders will inquire about your personal credit history when you apply for business funding. With your poor credit and devastated financial situation, it will be difficult to convince them to offer funding after declaring bankruptcy.

Moreover, there are steps you consider to improve your chances of approval. Prepare a comprehensive business plan, find a business partner with good credit, apply for financing from a small community bank, contact investors for funding, or look for financing and grants offered by local communities.

You can also look into funding from the Small Business Administration. But be cautious! To cover the business debt, the Small Business Administration may require a personal guarantee as   well as personal assets as collateral.

4. Obtain New Tax Identification Numbers or Employer Identification Numbers

If your previous business was a sole proprietorship and was included in your personal bankruptcy, you will need new tax or employer identification numbers when starting a new one.

If you have previously declared Chapter 7 bankruptcy and liquidated a corporation or limited liability company. Keep in mind that a corporation or a limited liability company cannot be discharged under Chapter 7 bankruptcy. The company will still be responsible for the debt. As a result, even if you re-establish the business or start a new one under a different name, creditors may still pursue you for an unpaid debt.

5. Pay Your Company's Taxes.

Tax debt is typically non-dischargeable, which means you will continue to owe it even if you file for bankruptcy. The most important thing to remember when starting a business after bankruptcy is to plan for paying your business taxes. Create a business budget that will allow you to meet your tax obligations on time. To avoid a large penalty, ensure that the business pays its tax obligations as well as any "trust fund" taxes to the property taxation authority.

If you still seeking for your specific answers regarding your specific situation then contact with a professional Bankruptcy Attorney in Folsom, CA. So, you’ll find your solutions with more clarity.

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