Nic Cober, attorney and author of CEO of My Soul, a memoir that chronicles this small businesswoman’s tumultuous personal and entrepreneurial journey through debt, divorce, and financial failure, does not mince words or emotions when describing her experiences with personal and business bankruptcy.
“It sucks,” Cober shares with EBONY.com. “It is an economic hardship that impacts your credit and it reduces your ability to get loans readily.”
But Cober is an eternal optimist and considers adversity to be her best teacher.
“I am so much more knowledgeable about money and business because I filed for a Chapter 7 bankruptcy.”
If the state of your personal finances is forcing you to file for Chapter 7 bankruptcy, which involves the complete liquidation of a debtor’s property to pay creditors and wipe out remaining debts giving the debtor a fresh start, it’s time to start thinking about the bright side of the situation. Chapter 7 bankruptcy could be a hidden blessing.
Bankruptcy doesn’t tell you something that you don’t already know. Small business owners or individuals in great financial standing don’t have to consider bankruptcy. That’s to say that if you have to consider filing for personal or business debt, your finances are already in shambles, though you may not want to admit it.
“Your credit is already bad. You’re not able to pay your debt and your income is lower than what your expenses are,” says Cober. “This is especially true with the small business owner, whose expenses are typically driven by the business.”
But bankruptcy saves you from inflicting further financial damage.
“Bankruptcy proceedings allow you to stop digging a deeper hole for yourself,” Cober says. “You can start to look up and move forward; time will pass and you can start to rebuild.”
In a Chapter 7 bankruptcy, individuals can wipe out many types of unsecured debt. Unsecured debt is debt that you do not have to put up collateral for, such as a debt incurred from a credit card or medical bills.
On the other hand, mortgages typically survive bankruptcy, which means that while you will not be forced to sell your home once you file, it may still be foreclosed on. Car payments do as well. Child support, spousal support, back taxes that are less than three years old, and any judgments from a court are generally not discharged either. It’s also very rare that student loans are discharged once you file, unless you’re able to show extreme hardship, which is very difficult to prove from the start.
Bankruptcy is not forever. Once you’ve declared bankruptcy, you can start to rebuild your credit, and you can apply for a loan. You can purchase a home and a car.
“What people don’t know is that those things can happen within a relatively short period of time after bankruptcy has been declared,” says Cober. “Banks will start to lend to you shortly there after, especially short lines of credit. Home loans take about two or three years,” Cober adds.
The secret to financial recovery after bankruptcy is rooted in self-love. One of the recurring themes in CEO of my Soul is the role that compassion plays in overcoming even the most seemingly insurmountable challenges in life and business.
“Shame and hope can’t exist in the same space. Constantly shaming myself for bad decisions is a losing proposition,” Cober maintains. “You have to learn, grow and go. There are always going be challenges, but the only thing that we can control 100% of the time is our response and perspective to those challenges.”
There are resources available to help you understand small business finances, personal finances, and the laws that affect them.
“Most business bankruptcies end up being personal bankruptcies if that business is a small business,” Cober warns. “It’s fiction to believe that small business owners such as boot strappers and “mom and pop” shops are viewed as completely separate entities from their businesses.”
Typically, a small business owner is extended personal lines of credit for a business based on their personal credit.
“So if the business goes under, their credit is in jeopardy, too,” Cober adds.
However, by creating a limited liability corporation (LLC) or a corporation, a small business owner’s personal liability can be limited. Most companies or the owners of those companies can protect their personal assets from the demise of a business with proper legal and business counsel.
There is a great amount of shame attached to filing for Chapter 7 or any other bankruptcy provision. It’s important to understand that though the initial financial situation is dire, it’s not forever. Individuals and business owners like Cober understand that filing for Chapter 7 creates difficult financial, life, and business detours, but does not definitively determine your future success. Only you can do that.