Can You Start a Business After Bankruptcy?
Starting a business after declaring Bankruptcy is certainly possible, but you must be prepared to face some restrictions. If you plan to become a sole trader, you must ensure you fulfil the bankruptcy obligations.
These obligations include adding your full name to your business name so that people doing business with you know that you filed for Bankruptcy. They can look up your name on the discharged bankrupts list known as the National Personal Insolvency Index (NPII).
If the business name doesn’t include your full name, you must inform the people you conduct business with about your Bankruptcy. Be sure to discuss further restrictions and obligations as a business owner with your trustee.
How long are Bankruptcies in Australia?
In Australia, the bankruptcy process typically lasts three years and one day, per the Bankruptcy Act 1966. At the end of the bankruptcy period, the bankrupt individual is ‘discharged’; however, in some circumstances, the trustee can extend the Bankruptcy.
Factors to Consider When Starting a Business During Bankruptcy
Certain factors would impact you when you start a business during your Bankruptcy. It is essential to understand these factors fully before you begin planning your business. These factors include:
- You will be entitled to keep the profits you gain from your business, but you will be subjected to income contributions per the Bankruptcy Act of Australia. The net profit of your business would be deemed your income for all assessment purposes. Moreover, there would be a threshold amount you are allowed to earn before you must start paying your trustee.
- You will be liable for all liabilities and debts you incur after the date you are declared bankrupt. These debts don’t come under provable debts, and AFSA can take recovery action against you if you cannot make payments.
- You must maintain accurate and updated accounts and records to explain all expenditures and income throughout your Bankruptcy. Accurate accounts and books you must maintain include income tax returns, balance sheets, profit and loss statements, general ledger, and bank statements. Remember that it is an offence if you fail to do this,
What happens after Bankruptcy Discharge?
Discharge is outlined in section 149 of the Bankruptcy Act 1966. After discharge, the bankrupt is no longer subject to many of the Bankruptcy Act provisions but still has some ongoing obligations to assist the trustee.
Business Assistance After Bankruptcy
Financing options would significantly depend on the business you plan to conduct. Securing credit would be challenging after you have filed for Bankruptcy because of the personal insolvency agreement. Even if you change the business structure, it will not prevent people from running a credit history check.
To make creditors and lenders most likely work with you, you should consider:
- Creating a detailed business plan to share with them and include all contingencies
- Having a business partner who has a good credit rating
- Seeking small community lending institutions for business loans
- Securing some private investors
- Applying for loans and grants by institutions who want to enhance their infrastructures
- You can also consider looking for government-sponsored grants and loans. Create a solid case to appropriately use the funds and start a sustainable and profitable business.
Essential Tips to Start a Business After Bankruptcy
Here are a few things you should keep in mind to ensure running a smooth business after filing for Bankruptcy:
Communicating and Cooperating with Your Bankruptcy Trustee
You must comply with the specified bankruptcy processes and thoroughly cooperate with your bankruptcy trustee. Your trustee is the individual or body managing your Bankruptcy, and you would have to declare all information about your debts, assets, and income to them.
The trustee would assist in selling your assets to manage your debts and contact all creditors to inform them about your Bankruptcy. You must make regular payments if you start earning more than the threshold amount.
Avoiding Further Loans Until Getting Discharged from Bankruptcy
You can apply for business loans when you are bankrupt, but it is wiser to restrict the loans and manage your finances within your means. This means you can partner with an individual with a good credit score.
However, if you must get the loans, you must ensure you meet the debt repayment requirement and schedule. Avoid applying for multiple loans, as these get recorded on your credit file and can impact your score.
Not Taking Any Shortcuts
Your goal should be to prevent personal liability, so you must be vigilant about the steps you take when doing business, particularly paying your business taxes. It would be best if you stayed clear of any shortcuts regarding taxes.
Ensure you are paying all taxes before the deadline. This includes not just business taxes but trust fund taxes, which are payroll withholding taxes, superannuation, and more.
You must maintain complete records of your accounting books. If you find financing for your business, chances are it will be short-term and renewable while you re-establish your credit score. You must showcase that working with you would be in the lender’s best interest. You can do this by keeping all your records updated and avoiding discrepancies.
Is Starting A Business After Declaring Bankruptcy Possible?
“Running any business can be a struggle, but doing so after declaring Bankruptcy can make things much more difficult. Having a strong financial foundation is not easy. It may take years to rebuild, but having clear goals, a solid business plan, and realistic targets can make conducting business during or after your Bankruptcy easier. You must be aware of the restrictions and obligations you will face as a business person. We recommend talking to your trustee or one of our bankruptcy experts about any concerns you may have about starting or running a business during or after Bankruptcy.”
Andrew Bell Bankruptcy Advisor
With over 30 years of experience in debt solutions and bankruptcy in Australia Andrew can find a solution for you.
“Nothing is more satisfying to me than knowing that I’ve helped someone get back on their feet by guiding them through the Bankruptcy Process. Rest assured, you’re in good hands with me as we solve your financial problems together.”