Bankruptcy is the process a business undergoes after being unable to pay debts. The court imposes the process to help companies eliminate debts. Business activities vary in terms of the type of products and services they handle. When a business is not profitable for extended periods, the owner can go into bankruptcy and the company exits the market for some time. In this article, we are looking at six reasons why a business should file for bankruptcy. They include the following:
1. Debt Relief
Filing for bankruptcy allows you to repay your business debts. The court may require you to qualify for the discharge of debts. Fillers don’t have the same income requirement. If the creditors are many, your assets may get divided among them all. It happens when you have plans of clearing all the known business debts. The court then decides whether you keep your personal belongings, pension, automobile, or retirement funds. Sometimes the process can be lengthy and complicated, so you need to seek the services of a bankruptcy lawyer. A professional at NYLegalHelp.com thinks that working with a lawyer provides you the necessary strategies for discharging debts. Bankruptcy lawyers also help you with vital details and services to secure a better financial future.
2. Credit Score
Filing for bankruptcy initially hurts your credit score but might help you rebuild credit in the long run. Bankruptcy provides you the relief you need from creditors by granting you a fresh start. The new beginning is a significant hit to your credit, but in the long-term, it can help boost your credit score. A credit score is a number that gives a summary of your credit history and determines your likelihood of defaulting on a debt. Moneylenders use it to determine your qualification for a loan and the interest rate to charge. There are other factors involved in improving your credit scores like financial history, credit utilization, and other considerations. Once there is a cancellation of business debts, you can start rebuilding your credit on a clean slate.
3. Secure Assets
If you are facing bankruptcy, the chances of losing assets are high. It is the worst nightmare of every business owner to lose the assets you worked hard to achieve. Fortunately, some laws shield certain business assets. The court allows you to file a bankruptcy exemption. It determines the property to keep, whether it is your car, pension, or other belongings. If the property is exempt, you have the right to keep it during and after the bankruptcy. Failure to exempt it, the trustee can sell to pay the business creditors. If you want to secure your property during bankruptcy, it is vital to know how bankruptcy exemptions work.
When you make poor decisions in your business operations, debts build up; uncertainties increase, cash flow changes, and entrepreneurs may need to reevaluate their financial plan accordingly. Filing for bankruptcy doesn’t necessarily mean that you close your business. With the help of an attorney, you can restructure your business by finding a solution with your creditors rather than completely shutting down the operation. If you run a sole proprietorship business, the court reduces the debt payments while your company reorganizes. However, you must provide full disclosure of details to creditors about what the company is doing to make it profitable again. You come up with a payment plan for the debts as you reorganize your business.
Read More: 5 Things to Do When On a Budget
5. Fresh Start
You get a chance to start again once you file for bankruptcy. Elimination of debts gives you an opportunity for a new business life. You can recover good credit after bankruptcy. Many people think that filing bankruptcy takes a long period of bad credit. That is not true. The process starts by applying for a credit card. Credit holders allow you to have a card a few years after bankruptcy. You can also apply for a business mortgage to finance your new operation after three years. Once you get back on your feet, you can plan for your financial future.
6. Prevent Wage Garnishment
Getting behind business payments can cause a lot of pressure upon you. It feels like the world is on your shoulder. Things can become stressful when you receive a wage garnishment threat from creditors. If you are in this situation, don’t worry, there is hope. You can stop the garnishment by filing for bankruptcy. It allows you to gain control of your financial situation and maintain it even after bankruptcy. Before you file for bankruptcy, it is crucial to try and negotiate a repayment plan. If this doesn’t work, then proceed with the arrangements. The court then sets an automatic stop to prevent creditors from receiving money from your business paychecks.
Most people take filing for bankruptcy as an admittance of defeat or a sign of failure. However, it is a way to give business owners a fresh start. This article provides you the necessary details to make the best financial decision after filing for business bankruptcy. Despite the positive impacts associated with filing for bankruptcy, deciding at the wrong time can worsen your financial situation. You may end up losing the property you would otherwise be able to keep. It is worth consulting a reputable credit counselor before making any decision.