A business bankruptcy is often the last option that is considered when a business flounders financially. This is because it can result in numerous negative consequences. Once of those consequences is the effect on one’s credit. That said, if you have realized that the only option left for your business is business bankruptcy then it is best to understand the effects that teach type of business bankruptcy will have on your credit.

Chapter 13 business bankruptcy is frequently known as reorganization. Your debt is not discharged with this type of bankruptcy. It gives you the option of working out a payment plan for paying off creditors, much like in an installment plan. The goal of this type of business bankruptcy is to design a payment plan with timeframes that are manageable for you. This type of business bankruptcy is best used by individuals who have had a short term financial problem. As with all forms of bankruptcy, creditors receive a notice or ‘stay’ from the court that prevents them from continuing collection efforts, beginning about 15 days from the time that your bankruptcy petition is filed. With this form of business bankruptcy, there will be negative effects on your credit. The advantage to this method is that it does demonstrate your willingness to pay your debts instead of simply discharging them. When the time comes to obtain credit, this can be to your advantage.

The worst type of business bankruptcy that you can file from a credit perspective is Chapter 7 business bankruptcy. This is because Chapter 7 absolves you of all debts that are owed with the exception of unpaid income taxes and child support. With this form of bankruptcy it is not uncommon to be unable to obtain credit or loans for at least one or two years following the bankruptcy.

It is important to understand in all cases of bankruptcy, the bankruptcy will remain on your credit for ten years. This does not necessarily mean that you will not be able to obtain credit for ten years, it just means that prospective creditors will receive notice of your bankruptcy when you apply for credit. The type of business bankruptcy which you have filed and how you handle your credit situation in the time following your bankruptcy case can go a long way toward determining how easy it will be for you to obtain credit in the future.

Your credit applications decisions may also depend upon the type of credit that you are trying to obtain. Federal law prohibits discrimination on the basis of bankruptcy for student loan applications. If you apply for a FHA or VA insured mortgage loan, you may be able to receive approval in as little as one year following the discharge of your bankruptcy. For other home loans, be prepared to wait at least two years following the discharge of your business bankruptcy case. Revolving credit, such as credit cards and charge cards, are typically determined by individual lender credit standards.

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