Starting a Small Business after Bankruptcy - Georgia Bankruptcy and Business AttorneysAfter filing a Georgia bankruptcy and receiving a discharge, you may feel a wave of relief and then begin planning on how to start a business to get you back on track. Below are some tips on how to get a business going and keep it going after bankruptcy.

Timing is Important

While you may be eager to start a business while going through the bankruptcy process, it might be wiser to wait to open a business until after your bankruptcy has been completed and discharged.  This is because you may not have enough time to dedicate to your new business.  However, if your bankruptcy case is relatively simple, it is usually not a problem to start a new business before, during, or after the filing of your bankruptcy case.  A Chapter 7 bankruptcy is the simplest form of bankruptcy and can usually be completed in just a few months.  Fortunately, Federal and Georgia law give you a lot of flexibility in when you can start your new business.

Once the bankruptcy is over, you’re completely free of court supervision and can take on as much credit as creditors will give you.  The same is true for Chapter 13, another popular form of personal bankruptcy. However, Chapter 13 is a much longer process, as it requires a payment plan of three to five years to complete the case.  If you do decide to start a new business while your bankruptcy case is still open, it is important to discuss your plan with an experienced bankruptcy and business attorney.  At Coleman Legal Group, LLC – we routinely help clients file personal and business bankruptcy cases, and start new businesses at the same time.  We also advise them on the what they need to avoid doing, and when is the best time to start the new business.

Finding Financing, or Avoiding It

Once you receive your bankruptcy discharge you can start a new business without the worry of your future earnings being seized by creditors.  The problem is finding financing and suppliers for your business since you may have few assets of your own. Securing new credit, property, tools, and supplies may be difficult on a cash-only basis.  Try to establish credit in the name of your new business, without a personal guarantee if possible. You will have to pay higher interest rates, but you may be able to renegotiate the terms after some time has passed.  Better yet, start the new business sooner rather than later, and give yourself time to generate regular revenue, avoiding the necessity of having to finance operations.  In any event, it is best to borrow as little as possible to finance your business, or nothing if possible.

Consider Your Options for Funding

Consider involving a partner or other co-signer with established credit to help get your business off the ground.  One of the most important things you need to remember is that you need to keep it simple when starting over after bankruptcy.  The best method is starting small and strive to grow the business at a safe and steady rate over time.  Applying for a $100,000 loan to start your business will most likely result in you being rejected. It is more advisable to apply for a $10,000 loan to get you started with the small things like a website or advertising.  Once the business has moderate success in this way, you can seek an additional $30,000 to rent an office space.  However, be careful to avoid personal guarantees for business loans if at all possible.  If you choose to solicit “investors” in your business, make sure to adhere to all applicable Federal and State laws.  Otherwise, you may be subject to significant criminal and civil penalties.  See SEC Rule 506(c).

Consider Taking Investors

Starting small and working your way up to more permanent financing solutions will help build your credit. It will also provide you with financial statements to show future borrowers so you can prove the viability of your business plan.  A better way to get the asset base you need for collateral is to find investors.  Some investors will not care about your credit if your business plan has a high likelihood for success. Once you have your loans or investors all set it is time to start operating your business.  From then on it is important that you pay all your business debts on time so that you can begin to build a good credit rating.   Also, when possible, keep your personal finances separate from your business finances.  With these things in mind you will find a greater chance of success in your business after bankruptcy.  However, as mentioned earlier, make sure to adhere to all applicable laws and regulations related to the solicitation of investment in your business.

Other Considerations When Starting a New Georgia Business

If you are closing an old business and starting a new business in Georgia following a bankruptcy, you will want to make sure to do the following:

  • get a new name for your business
  • register your new business with the Georgia Secretary of State
  • get a new website domain for your business
  • get a new phone number for your business
  • get a new Employer Identification Number (EIN) for your business
  • register your new business with the Federal Government
  • start collecting sales taxes under your new business if required
  • get a new address if possible
  • get new signage for your business
  • sign a new lease for your business (and avoid a personal guarantee if possible)

While rarely a problem, all of these steps above will help prevent accusations of your new business being merely an “alter ego” to your old business.  However, if you are merely starting a business for the first time following a bankruptcy, the above are still generally required to do most of the above as a new business owner.  But you will not need to worry about the “alter ego” accusation from any of your creditors.

If you are starting a new business following a bankruptcy, or just have question regarding personal or business bankruptcy, call us at 470-947-2471 to discuss your case with one of our experienced business bankruptcy attorneys.  Contact >

Updated:  2020-01-12