The small business that you’ve started up long ago may have been struggling to turn a profit for quite some time already. On top of that, you may also have acquired some business debts along the way, but perhaps you’ve already exhausted all possible repayment options. This would lead you to file for Chapter 7, 11, or 13 bankruptcy, depending on how you’ve set up your business.
But as much as filing for bankruptcy can relieve you of most of your financial burden, you’ll also have to prepare yourself for the following long-term effects that business bankruptcy can inflict on your small firm.
1.) You may have a harder time trying to borrow money from financial institutions.
Whether you want to request additional funds to keep your small business afloat even amidst its bankruptcy, or if you want to set up a brand new business that’s meant to replace your old one that went bankrupt, taking out a loan might not be as easy for you anymore, especially compared to when you first started your business venture.
- If you’ve filed for Chapter 7 bankruptcy, wherein most of your business debts are discharged but you have to close your business down, your bankruptcy will stay on your credit report for 10 years.
- If you’ve filed for either Chapter 11 or 13 bankruptcy, the bankruptcy stays on your credit report for only seven years.
2.) Your state’s business license office might ask you if you’ve ever filed for business bankruptcy before.
After filing for Chapter 7 bankruptcy and recovering your finances little by little, you may have decided to start up another business in the hopes that it will turn a profit this time around and not send you spiraling into debt yet again.
However, while applying for a business license in your state’s business license office, personnel might look into your credit report and raise suspicions as to you why you filed for business bankruptcy. You might then have to explain the entire story of what went on with your previous small business venture that led it to be declared bankrupt under Chapter 7 before your new business license can get granted.
3.) You might decide to stop pursuing business start-ups for good.
Filing for Chapter 7, 11, or 13 bankruptcy not only affects your small business but also has an impact on whether you want to continue being an entrepreneur despite the major blow of bankruptcy. Bankruptcy is a big event. It causes business owners to sink into depressions and can be hard to emotionally recover from. Some business owners can more easily accept the situation and move on, while other owners have a very difficult time and treat it as a personal failure. The latter are often able to move on and make sure they don’t repeat the same mistakes when or if they start up a new business.
More than 20,000 businesses in the United States filed for bankruptcy in 2017. Filing for business bankruptcy is a somewhat normal thing, and most people in the business community think it is completely fine despite the stigma that continues to be associated with it from time to time.
We should note, though, that filing for business bankruptcy should only be seen as a measure of last resort when all other methods of repaying your small business’s debts to your creditors have already failed you. You might want to double back and read again the long-term effects of bankruptcy for your small business, and then discuss any plans you have of filing for it with a lawyer so you can have a better grasp of bankruptcy.