Can You Start a Business After Filing Bankruptcy?
Bankruptcy for individuals or businesses isn’t desirable but it isn’t an end-all, as many believe. It gives you a chance to start all over again and rebuild your finances. Starting a business after declaring bankruptcy might be challenging but it is certainly not impossible.
It is essential, however, to be mindful of the decisions you make in order to avoid previously made financial mistakes. It is recommended that you consult a bankruptcy specialist and also discuss your options with your trustee before you get started.
Moreover, it is always wiser to learn as much as you possibly can about running and conducting a business after declaring bankruptcy.
Is Starting A Business After Declaring Bankruptcy Possible?
It is certainly possible to start a business after declaring bankruptcy but you must be prepared to face some restrictions. If you are planning to become a sole trader, you are obliged to ensure you fulfil the bankruptcy obligations.
These obligations include adding your full name to your business name so that people doing business with you are aware that you filed for bankruptcy. They can look up your name on the National Personal Insolvency Index (NPII).
In case the business name doesn’t include your full name, you are obliged to inform the people you conduct business with about your bankruptcy. Be sure to discuss further restrictions and obligations you have as a business owner with your trustee.
Factors to Consider When Starting a Business During Bankruptcy
During your bankruptcy, there are certain factors that would impact you when you start a business. It is important 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 make income contributions as per the Bankruptcy Act of Australia. Keep in mind that 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 have to 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 recovery action can be taken against you if you are unable to make payments.
- You have to maintain accurate and updated accounts and records to explain all expenditure and income throughout your bankruptcy. Accurate accounts and books you have to maintain include income tax returns, balance sheets, profit and loss statements, general ledger, and bank statements. Keep in mind, it is an offence if you fail to do this.
Business Assistance After Bankruptcy
Financing options would significantly depend on the type of business you are planning to conduct. Securing credit would be challenging after you have filed for bankruptcy. Even if you change the business structure, it will not prevent people from conducting 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. Be sure to create a strong case that you can appropriately use the funds and create 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
It is crucial that you comply with the specified processes of bankruptcy and completely 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. If you start earning more than the threshold amount, you will be obliged to make regular payments.
Avoiding Further Loans Until Getting Discharged From Bankruptcy
You are allowed to 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 who has a good credit score.
However, if you have to get the loans, you need to make sure that you would be able to 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 any personal liability, which means you need to be vigilant about the steps you take when doing business, particularly paying your business taxes. You need to stay clear of any shortcuts when it comes to 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.
Maintaining Record Books
You must maintain complete records of your accounting books. If you manage to find financing for your business, chances are that it would be short-term and renewable while you reestablish your credit score.
You must showcase that working with you would be in the lender’s best interest. This can be done by keeping all your records updated and avoiding any discrepancies.
Declaring bankruptcy can be a major financial struggle that can make running a business a challenge for you. It certainly takes years to rebuild a strong financial foundation but having clear goals, a solid business plan, and realistic targets can make conducting business during your bankruptcy easier.
It is important to be aware of all the restrictions and obligations you would have as a businessperson after filing for bankruptcy. Ensure you discuss things with your trustee and consult a bankruptcy expert to help you run things smoothly. Get in touch with us for a free consultation
As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.
For Ross, it’s important to see the people behind the financial problem –not just numbers.
Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.
The unit she & her husband live in is not owned by them, but subject to a 20-year lease.
The money to be repaid by the management was due only at sale, when the client finally left the retirement village.
Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.
Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.
The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.
The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.
The moneys paid represented about 75% of what would have been available to creditors if they waited two years.
It is a win for the client and for the creditors.
I made an appointment with Andrew after finding him on google. I was nervous and apprehensive about what to expect but he made the process of bankruptcy extremely uncomplicated and stress free, allowing myself the opportunity to get the fresh start I was so desperate for. Thank you Andrew I could not recommend you enough.
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Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.
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