Bankruptcy is the lowest point of any business or a person’s life. It jeopardises the business’s financial stability and affects the lives of employees. Many workers get laid off when a company files for bankruptcy. To avoid such a horrible situation, you should take the necessary measures and avoid making errors. Before jumping on to the topic, let’s discuss what bankruptcy is:
What is Bankruptcy?
Sales are not the only source of income for businesses; companies also take debts from many different companies and financial firms to ensure smooth operation. However, sometimes, companies fail to strike a balance between loans and revenue. When revenue lessens, and a company starts relying on loans, it’ll run out of money to pay back its debts at a certain stage. When such a tragic situation happens, owners file for bankruptcy. If accepted, the government can exempt some applicants’ debts.
Being bankrupt is a businessman’s ultimate nightmare. This is the lowest point of every company. Owners try their best to keep their revenue high and debts low, so they don’t have to face this situation.
What are the Aftermaths of Bankruptcy?
Once you have filed for bankruptcy, you’ll see horrible things happen to your professional and personal life. Here are the consequences you can expect to witness:
1. Ruins your Credit Score
When you cannot pay back your debts or don’t have enough cash to run basic business operations, investors will lose faith in your company. In bankruptcy, credit score decreases by more than 100 points in most cases, making it almost impossible for business owners to apply for a loan again. Recovering your credit score after such a fall can take many years. Sadly, bankruptcy might happen in a few months, but it doesn’t go away that easily. You’ll have to work hard and earn investors’ trust to improve your credit score as soon as possible.
2. Bankruptcy gets Recorded Publicly
Bankruptcy is not a private matter. When your business files for it, your investors and stakeholders will instantly know about your company going broke. This will affect your professional as well as personal life. Anyone on the internet can easily find out the details of your business’s bankruptcy online. Forget business loans; you’ll even struggle to apply for small personal loans like car loans.
Moreover, if you haven’t applied for insurance yet, don’t expect good packages after going bankrupt. You will even have trouble getting a good job, no matter how qualified you are. Many bankrupt businessmen who did not know what to do ended up working at restaurants or as taxi drivers.
3. You Don’t Get Debt-Free After Filing Bankruptcy
While the government will provide you with some relief when you file for bankruptcy, don’t expect all of your debts to vanish. Even if you don’t have enough money to work with, you will still have to pay for debts like alimony, student loan, fines, and back taxes. However, you can get relaxation in some of these expenses, depending upon what type of bankruptcy you have filed.
4. It’s Almost Impossible to Get Mortgage
Are you thinking of buying a new property after going bankrupt? Well, full marks for optimism! But do you recognise how difficult it is to get a mortgage when you are publicly broke and bankrupt? Mortgage rules are extremely strict. A Chapter 7 bankrupt businessman can only get a mortgage if they have made intelligent credit decisions lately. However, applicants should wait two years after filing bankruptcy to opt for a mortgage.
5. Don’t Expect a Good Credit Card
If you have had a high-limit credit card, the bank might take it from you after your credit score reaches a certain minimum level. In return, they might give you a substandard card or no card at all. Banks make sure good credit cards go to account holders with the best credit score and track record. You have hit rock bottom, and it will take you some time to get back on your feet and be financially stable again.
6. You Can Lose Your Assets
In chapter 13 bankruptcy, you are required to keep paying the payments the court has ordered you. However, if you don’t pay up, the judge might change your bankruptcy category from chapter 13 to chapter 7. Ultimately, the court will liquidate all your assets, including your properties, shares and other expensive personal belongings.
How Can You Recover From Bankruptcy?
If you’re suffering from this horrible situation, don’t lose hope. You can still salvage yourself out of this mess. Here are some ways to rescue your business from this financial misery.
1. Be Prepared
Bankruptcy doesn’t hit you all of a sudden. It’s a gradual decline in income and an increase in debts. When you observe these symptoms, it’s time to identify the causes leading or have already led your business to bankruptcy. Try eliminating them by incorporating effective business solutions. When trying to get your company up and running, you have to eliminate costs driving your company towards bankruptcy. If those processes are important, try finding cost-effective solutions that can save you a lot of operational costs.
2. Retain Your Customers and Improve Lead Generation
The lack of customer satisfaction could be why your business hasn’t performed well. While you might’ve lost many customers, some of them (liking your service) might have stayed loyal to the brand. Therefore, you need to try your utmost to retain these customers and promote your business. Remember, you have to find affordable ways to promote your business, as you don’t have enough cash to spend on marketing and brand promotion.
3. Seek Funding
If you’ve gone bankrupt, trying to improve your situation solely relying on your business revenue is a pretty farfetched task. Even after fixing all problems, you need to realise the damage is irreversible. Applying for debt is not an option anymore, considering your horrendous credit score. You need funding to improve your situation. If your situation is not completely hopeless, you can ask for debt from a bank to revive your business’s cash flow. However, if your credit score is beyond saving, it’s better to opt for alternative finance providers. However, considering your situation, expect heavy interest rates on the funding.
4. Send reminders to your debtors
If you have taken loans from other companies, some companies might also have taken loans from you. It’s normal for companies to leave many debts unpaid for long periods. However, if your debtors don’t pay up on time, it’ll create cash flow issues. Considering how crucial stable cash flow is during bankruptcy, making them reimburse is important. Start sending reminders to your debtors and urge them to pay back their debts. If you fail to do so, you can hire the services of a debt collection firm.
5. Offer discounts
Another way to generate immediate cash flow in your business is by offering discounts to customers who pay in advance. Businesses normally allow clients to pay them within 30 or 90 days. However, you don’t have that much time, do you? Offering discounts can be a great way to make your offer look attractive in front of your clients. However, make sure the discounts you offer are affordable and don’t offer anything contributing to further financial burden.
6. Start Returning Your Debts
If your situation improves and you have enough cash to start baying back your debts, start doing so. You have to improve your credit score drastically. For that, you have to win back the trust of the financial firms and companies you have taken loans from. After all, the best way to generate more revenue and save on operational costs is by incorporating more cost-effective business processes.
7. Keep Checking Your Credit Score
You will have to take a loan at some point. But, it won’t be possible if you have a horrendously low credit score. Therefore, keep repaying your debts and improve your credit score. Don’t let this opportunity slip by if it’s good enough to take new loans. However, this time around, don’t make similar or new mistakes because this is your last chance to revive your business.
Bankruptcy is not irreversible. However, to make the recovery process easier, it’s important to understand what’s causing a financial decline in your business and how to recover from it.
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