Surprising Ways to Reduce the Risk of Bankruptcy

 Most people say bankruptcy is not the end of the world, and for most business owners, that’s factual. Business owners regularly bounce back from bankruptcy and find ways to bring back their business without relying on credit. However, if you’re a business owner who relies on credit to run your business, bankruptcy can set you back drastically. Here are a few ways to decrease the risk:

Realize that bankruptcy can happen to you.

The first approach to reducing the risk of bankruptcy is to acknowledge that it can happen to you. When you accept the possibility, you’ll be more likely to take the necessary safety measures outlined in the following strategies.

Most people keep all their property: 

Illinois law allows you to keep your home, cars, furniture, appliances, employer sponsored retirement and other things you need to get a fresh start. While there are limits to the values of what you can keep, typically you are not required to give up anything. Generally, fears of losing your property are exaggerated by the credit industry.

 You don’t need to be broke to file for bankruptcy:

 You can be employed, have a bank account and own property up to certain limits as of the date your bankruptcy case is filed. After your case is filed, you can buy and own whatever you want and your creditors cannot touch the assets. In fact, if you buy a lottery ticket after your Chapter 7 bankruptcy discharge and win, you may be able to keep the winnings unless other state laws place a limit on this. I read a story on a bankruptcy blog about a man in Connecticut who bought a winning lottery ticket after he filed bankruptcy, spent the money, and the court let him discharge his debts.

 You don’t have to owe a minimum amount of money to file for bankruptcy:

 Chapter 7 bankruptcy is designed for people who are unable to repay their vacant debts. It is not designed for people who are in with debt certain amounts. Your ability to file for Chapter 7 bankruptcy is based on your debt, assets and income.

 You can get credit again after bankruptcy:

 True. The negative impact of bankruptcy on your credit is extremely exaggerated. It won’t be long before you’re getting credit card offers again. You should, however, refuse all offers of credit cards until you’ve put together a realistic savings plan. Once you have a savings plan in place and start to build your cash reserves, you will be able to start thinking about new credit. If you want to buy a home or car after bankruptcy, you will likely be pleased. I have seen many bankruptcy clients purchase a home within two years of filing an Illinois bankruptcy, but only after they have taken steps to establish their own financial balance.

No one from the court will tell your employer about your bankruptcy:

 The bankruptcy court does not inform your employer when your case is filed. Your payroll department may be contacted to stop a wage garnishment, but in most cases they are not told why.

 Your spouse does not have to file for bankruptcy with you:

 It’s common for one spouse to have a huge amount of debt in their name only. However, if spouses have debts they want to discharge for which they’re both liable, they should file together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who didn’t file.

 Your immigration status will not change due to your bankruptcy:

 Many people fear that they will endanger their immigration status if they file for bankruptcy. This is false. Generally your immigration status is not affected by filing for bankruptcy, but you should check with your immigration lawyer just to be sure.

If you file for bankruptcy, you’ll be in good company: 

No doubt, several of your friends and coworkers have filed for bankruptcy, but you may not know this because they don’t talk about it. Also, many famous people and big companies have filed for bankruptcy, including: President Abraham Lincoln, Author Mark Twain, Automobile Manufacturer Henry Ford, Hall of Fame quarterback Johnny Unitas, Hollywood director Francis Ford Coppola, Television personality Larry King , Actor Mickey Rooney , Actor Burt Reynolds , Actress Kim Basinger, Entertainer Jerry Lee Lewis, Entertainer Wayne Newton, Entertainer M.C. Hammer, Continental Airlines, United Airlines. You have no cause to feel guilty about filing for bankruptcy, especially if you use it as an opportunity to provide for you and your family’s security. All of these people and companies – and hundreds more whose names you’d recognize – filed for bankruptcy. So while your financial problems seem serious, they aren’t the end of the world. Declaring bankruptcy is the first step toward a safe, secure financial future.

Acknowledge the financial and emotional consequences of bankruptcy.

There are enduring financial penalties that follow bankruptcy. There are also emotional consequences. For instance, if bankruptcy causes you to lose your possessions and go out of business, it might also squash your enthusiasm to rebuild your business. Even if you are motivated to restructure your business, it’s going to be a struggle to source enough capital without access to credit. You’ll need to start gradually and work your way back up from scratch. The long-term financial consequences can be distressing. A bankruptcy will remain on your credit report for a very long time, during which time you’ll need to find alternative sources for capital. If you’re in the U.S., remember that both Chapter 7 and Chapter 13 bankruptcy will impact your credit long-term. Rather than eliminating debt, Chapter 13 bankruptcy establishes a debt repayment plan. This type of bankruptcy stays on your credit report for only seven years. Chapter 7 bankruptcy can eradicate old income taxes, utility bills, and credit card debt. However, as a consequence of debt elimination, Chapter 7 will remain on your credit report for ten years. You don’t want to spend years struggling with getting capital for your business. Allow this potential consequence to inspire you to make wise financial decisions and prevent the problem entirely.