How to Become an Owner & Operator With a Prior Bankruptcy

Starting a business after bankruptcy may seem difficult, especially if your business needs credit. Other creditors such as vendors, suppliers, distributors, and property owners may run a credit check or require collateral that you do not have. Bankruptcy does not have to be a death sentence to your future prosperity, though. You have a fresh start, and as an owner or operator of a new venture, you have unlimited possibilities. Do not let bankruptcy determine your destiny. Start your business now.

Incorporate your new business. Form a corporation or limited liability company (LLC) to protect your personal assets in the event that you encounter financial difficulties. Unlike running a business as a sole proprietor, you have legal safeguards with limited liability for your business debts. To form a corporation or LLC, see the Resource box for more information.

File a Doing Business As (DBA) at the county clerk’s office. If you run a business under a name different from yours or your corporate name, you must file a DBA. You can piggyback off the success of your new business if you start another business in the future. Each DBA is a separate business, but you may run those businesses under the same corporation. Therefore, good credit earned from your corporation flows over to the new entities and gives you more to work with when applying for credit and doing business with others.

Apply for a new Employer Identification Number (EIN). Unlike businesses run by a sole proprietorship, Corporations and LLCs are a separate business entity, so you must have an EIN. Under some circumstances, a sole proprietorship must apply for an EIN. In any case, applying for a new EIN gives you a fresh credit file, and separates you from your business. You may need to make changes to your business in order to qualify for a new EIN if you had an EIN previously. Use the Resource box for more information.

Open a business checking account. Most banks require an EIN for business banking, even though you want to use your SSN instead. Some banks require a certified copy of your DBA in order to open one. A business bank account separates your personal finances from your business finances, making it easier to track, budget, and gather information quickly for tax preparation.

Build credit with your new business. Some creditors use the business owner’s personal credit file in addition to the credit file of the business when determining whether to extend credit. Take out a secure credit card and use it for your business needs to build credit. Have your utility payments reported to the credit bureaus so your company can establish a good credit history, so your previous bankruptcy will not have as much influence and overshadow your new business ventures.

Apply for a business license and other required permits. Your city’s business licensing department can give you the information you need regarding zoning requirements and permits needed for your type of business. The location of your business may not allow businesses for your type in that zone, including those who work from home. Permits such as fire, water and air pollution, and signage permits are only some of the types of permits your business needs. After bankruptcy, the last thing you want to do is violate a fundamental responsibility, inching your way into another financial meltdown.