Featured image by Nataliya Vaitkevich via Pexels
Starting a business can be an exciting journey, but it’s not always a smooth one. In fact, studies show that many startups don’t survive the first few years of operation. Unfortunately, if your startup has failed and you’re left with mounting debt, you may be wondering if filing for bankruptcy is an option. You may also be wondering how you can manage your personal finances as well as all of the business expenses.
RELATED ARTICLE: MANAGING PERSONAL FINANCES AFTER A BUSINESS FAILURE
Before filing for bankruptcy, it may be helpful to validate your debt with a debt validation letter. This will confirm that the debts you owe are actually yours to pay. It is important to know your rights under the fair debt collection practices act. It will help you confirm the debt is yours and accurate.
If you’re considering filing for Chapter 7 bankruptcy, you’ll need to liquidate your assets to pay off your debts. This can be a viable option if you have significant debt and few assets to your name. However, it’s important to note that not all debts can be discharged through Chapter 7 bankruptcy. Additionally, Chapter 7 bankruptcy may not be the appropriate route for you if your startup has failed.
Ascend Finance has a free Chapter 7 bankruptcy calculator online to see if you qualify and get a price estimate. Just to note, however, student loans, child support payments, and certain tax debts are typically not eligible for discharge.
It’s also important to note that not all assets will be sold off, as some may be exempt under federal or state law. The proceeds from the sale of your assets will be used to pay your creditors and any remaining unsecured debts will be discharged. This means you will no longer be responsible for paying them. However, certain debts, such as child support payments, taxes, and student loans, cannot be discharged through Chapter 7 bankruptcy. It’s essential to seek the advice of a bankruptcy attorney before proceeding with this option.
Chapter 13 bankruptcy involves reorganizing your debts into a payment plan that spans three to five years. This can be a good option if you have a steady income and want to keep your assets. However, keep in mind that you will need to make payments according to the plan. Moreover, you must repay your debts in full, even if your startup fails.
Chapter 13 bankruptcy is often called a “wage earner’s” bankruptcy. It involves creating a repayment plan to pay off your debts over a period of three to five years. This type of bankruptcy can be a good option if you have a steady income and want to keep your assets.
Under Chapter 13 bankruptcy, you may be able to keep your home, car, and other assets, as long as you continue to make payments according to the repayment plan. It’s important to note that certain debts, such as child support payments, taxes, and student loans, cannot be discharged through Chapter 13 bankruptcy. Consulting with a bankruptcy attorney can help you decide if this option is right for you.
Chapter 11 and Startups
You might also want to consider whether Chapter 7 or Chapter 11 bankruptcy would be better for your situation. Typically, businesses that want to reorganize their debts while continuing to operate use Chapter 11 bankruptcy. This type of bankruptcy allows businesses, including startups, to create a plan to pay off their debts over time while keeping their operations running.
It is important to remember that Chapter 7 and Chapter 13 bankruptcy are designed for individuals. On the other hand, Chapter 11 bankruptcy is often better for businesses.
Under Chapter 11 bankruptcy, businesses can renegotiate their debts with creditors. Then they restructure their operations to become more profitable. This can include selling off non-essential assets, closing unprofitable divisions, and renegotiating contracts with suppliers and vendors.
Chapter 11 bankruptcy can be a powerful tool for businesses to regain their financial footing. However, it’s a complex process that requires the assistance of an experienced bankruptcy attorney. It’s also worth noting that the costs of filing for Chapter 11 bankruptcy can be high, and the process can take several years to complete.
RELATED ARTICLE: 3 TIPS TO HELP AVERT THE FAILURE OF YOUR ONLINE BUSINESS
If you’re contemplating bankruptcy due to your failed startup, it’s important to note that if you have personally guaranteed any loans or debts for your business, you will still be held responsible for repaying these debts even if you file for bankruptcy. Therefore, it’s essential to carefully consider all of your options before making a decision.
In conclusion, filing for bankruptcy can be a daunting decision to make. However, it may be a sensible option if your startup has failed and you’re struggling with debt. Consulting with an experienced bankruptcy attorney and weighing all of your options can help you make an informed decision that’s best for your unique situation. Keep in mind that filing for bankruptcy will have long-term implications for your credit score and your ability to secure credit in the future.
For more thoughts about managing your business, whether your startup is thriving or it’s going downhill, be sure to browse our blog often.