How small business owners can try and avoid bankruptcy after credit card offers

Bankruptcy is a thing that many small business owners wish to never come in contact with. Bankruptcy is unavoidable to some but should be avoided at all costs. Even some of the wealthiest people in business have come in contact with bankruptcy - and survived!

People such as H.J Heinz, Walt Disney, Henry Ford and Milton Hershey all went through bankruptcy to form some of the most successful businesses in the world. Had they not gone through these "character building" days of bankruptcies they may never have had the careers that they went on to have. But is bankruptcy worth the risk?

Why should you frantically try to avoid this type of ending? If you can educate yourself on bankruptcy information then you will be taking the first step in protecting yourself from experiencing it. It does not matter if you are a business owner or an individual, if you are financing anything through unsecured credit cards or personal credit cards/ credit than you need to know how bankruptcy laws could affect you.

There are several forms of bankruptcy that are prevalent among small businesses and individuals. We'll deal with three here.

The first is Chapter 7 bankruptcy that some also refer to as straight bankruptcy. In Chapter 7 all of your assets are sold to repay your debts. This can include your car and your home. This is the most common form of bankruptcy. While your home is usually repossessed there are some exceptions that may keep this from happening. If your assets are not completely liquidated then they are usually sold in order to repay your debts. Any unsecured debts (I.E credit cards) are usually written off and cancelled.

The other most prevalent forms of bankruptcy are Chapter 13 and Chapter 11 bankruptcies. These bankruptcies are more for individuals who have fallen upon financial difficulties. Chapter 13 is more for individuals while 11 is more for small business owners. In either case your creditors (with the court) will try to come to an understanding with you as a repayment plan. It may take many years to pay your debt back but in the long run you will have a clean slate and a better credit score.

Most of the time people have an easier time filing for Chapter 13 bankruptcies rather then Chapter 7 because of the certain instances that make the two bankruptcies different. The National Association of Consumer Bankruptcy Attorney's says that over 20 percent of all bankruptcies are a result of small businesses. Whether this is because of over usage of business credit cards or from just lack of business sense it seems as if the numbers are continuing to climb in this direction.

The good news for small businesses. Small businesses can rejoice in knowing that it will soon be harder for individuals to file for Chapter 7 bankruptcy and easier for small businesses to collect their due. This is especially good news for the small business owner who operates as a creditor who needs the money from customers and lenders in order to keep their business up and running.

This new law means that unsecured creditors are eligible to be paid for the goods and services that are made 20 days before the bankruptcy is filed. This gives unsecured creditors a better peace of mind in knowing that they will most likely be rewarded for the money that they are due.

In the past creditors often had to wait until after all of the secured creditors were paid off before they got their share. Many times there was nothing left and the small businesses were left with nothing. The new law has made it easier for small businesses to be paid for their business transactions with those individuals who run into bankruptcy issues.

The bad news for debtors. If you are a debtor there is some bad news that you should be aware of. Primarily debtors are going to have a difficult time getting their debts forgiven - if they are an individual. Small businesses are going to have a tougher time then normal staying in business and many new small businesses will turn to bankruptcy shortly after starting business. The new bankruptcy laws are going to have a destructive force upon small businesses.

The new bankruptcy laws go as far as re-defining who a small business owner really is. They are labeled as an individual or entity that has less than two million dollars in total debts (including unsecured credit cards). If you happen to be in this category of business owners than you can expect to be treated by a Trustee of the court to have your businesses future examined.

The Trustee can either decide that your business will not survive or that it has a chance of getting back on its feet. If the Trustee thinks that your small business is over with then they will file a Chapter 7 bankruptcy and begin the sale of all your assets to pay off the businesses debts. If they think you will survive then they will file either Chapter 11 or Chapter 13 bankruptcy.

This is where having an LLC comes into play. If your business is tied together with your personal assets then you may run in risk of losing all of your personal assets as well as business assets. However, if your business is run under an LLC (Limited Liability Company) then you can only be held liable for the assets that belong solely to your business. Most businesses are recommended to classify themselves as an LLC as soon as they start their business because of bankruptcy policies and as a protection from people that may sue the business.

Old way versus new way. When dealing with bankruptcy there are a few things you will want to keep in mind about the new law changes.

The first concern small businesses and individuals should be aware of on the subject of counseling. Now, a business cannot file for bankruptcy of any sort unless they had sought the assistance of a credit counseling agency at least six months before filing for bankruptcy. This law prohibits individuals and business owners from immediately filing for bankruptcy at the first sign of trouble.

Now they must wait and ride out the waters to see if there is another solution to the problem. While some emergency exceptions are available, you must talk to the court ahead of time. Another big change in the laws regarding bankruptcy is that attorneys are now held liable for either inaccurate or incomplete information that is given to the court. It is not just the debtor's problem anymore but their attorneys as well.

When you file for bankruptcy you are required to file all of your personal assets. If you forget or purposely leave any of them out, you and your attorney could be in big trouble. The reason for this change is to make sure the bankruptcy process has as few flaws as possible.

A third change that was undertaken is the new law on automatic dismissal. If you fail to give all of the required documents in the 45 days you are given from your initial request then your bankruptcy request will be dismissed automatically. These documents can include: tax information, net income, employment history, credit counseling services and financial documentation.

If you have already filed for either a Chapter 7, 11 or 12 bankruptcies in the past four years you cannot be granted as discharge from your debt on your current situation.