Why Filing Bankruptcy Doesn’t Mean the End of Your Entrepreneurship Dreams

by / ⠀Entrepreneurship Funding / September 30, 2021
You're saddled with debt and wondering about your options. Learn why filing bankruptcy may actually help fuel your entrepreneurship dreams.

Filing for bankruptcy is the last resort for many individuals as they fear it spells the end of their days of entrepreneurship. However, bankruptcy can prove to be a saving grace for many.

As an entrepreneur, I’ve realized that debt can bring with it a tunnel vision. You can’t see past the debt.

Dave Ramsey, a famous personal finance entrepreneur known for his 7 baby steps, once filed for bankruptcy. When that debt is eliminated either through paying it off or bankruptcy, you’ll have more mental capacity to develop your entrepreneurial ideas. So let’s discuss how bankruptcy really works.

Filing bankruptcy is the process of getting rid of any unsecured debts that are becoming difficult to pay. There are many different types of bankruptcy. Certain types have the debtor pay some or all of the unsecured debt back while still providing them some much-needed relief.

With that being said, if you are an entrepreneur and are worried about bankruptcy ruining your entrepreneurial dreams, don’t stress about it too much. As bankruptcy can be an intimidating process and worrisome for a lot of individuals, in this article I will cover the following:

  1. Different Types of Bankruptcy
  2. Positives and Negatives to Bankruptcy
  3. Pursuing Your Entrepreneurship Dreams After Bankruptcy
  4. Alternatives to Bankruptcy

Whether you’re an individual trying to understand what skills entrepreneurs should add to their resume, or have been an entrepreneur for years, understanding the impact of bankruptcy can be extremely beneficial.

1. Different Types of Bankruptcy

Chapter 7 vs. Chapter 13

The two most common consumer bankruptcy types are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy, the “liquidation” bankruptcy, is the process of wiping out your unsecured debt and unprotected assets. In Chapter 13 bankruptcy, you would set up a repayment plan where you’re restricting your existing secured and unsecured debt into a three- to five-year payment plan.

Understanding Chapter 13 Bankruptcy

The “wage earners” bankruptcy, also known as Chapter 13 bankruptcy, is a three- to five-year repayment plan. Many people ask the question, “Is Chapter 13 worth it?” As you need to qualify for Chapter 7 based on your annual gross income, Chapter 13 bankruptcy is generally an option for individuals that do not qualify for Chapter 7 or have assets they would only be able to protect in a Chapter 13 bankruptcy.

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The monthly Chapter 13 plan payment can include:

  • Attorney Fees
  • Administration Fees
  • Trustee Fee
  • Mortgage
  • Auto Loan(s)
  • Secured Loan(s)
  • Disposable Income

While bankruptcy can sound intimidating, these tools have been in place to help provide necessary financial relief. With that being said, there are still pros and cons of bankruptcy to consider.

Understanding Chapter 7 Bankruptcy

As stated earlier, unsecured debt can be wiped out in a Chapter 7 bankruptcy as well as your unprotected assets. One big question when filing a Chapter 7 is, “What defines an asset as unprotected?” For example, one way you can understand if your assets will be protected in a Chapter 7 bankruptcy is to look at your state’s bankruptcy exemptions. When it comes to specifically protecting your home, you will want to take a look at your state’s bankruptcy homestead exemption.

2. Positives and Negatives to Bankruptcy

It’s very important that your entrepreneurial dreams don’t come to an end after filing bankruptcy. That being so, it’s important to choose the right bankruptcy route for you and to understand the associated risks.

Pros and Cons to Chapter 7 Bankruptcy

1. It wipes out almost all of your unsecured debt. 1. It remains on a credit report for 10 years.
2. You may receive a discharge after ~120 days. 2. It has a high impact on credit score.
3. It’s generally the least expensive option. 3. You may have limited availability to credit post-discharge.
4. It provides legal protection against creditors.

Pros and Cons to Chapter 13 Bankruptcy

1. You receive legal protection against creditors. 1. It’s a three- to five-year payment plan.
2. It can help get caught up on arrears. 2. It has a high impact on credit score.
3. It can protect most assets. 3. You have limited availability to credit post-discharge.
4. It’s often more expensive than Chapter 7.
5. You may have to pay 100% back to creditors.
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The impact of filing either a Chapter 7 or Chapter 13 bankruptcy can depend on your current situation. Depending on the line of work you are in, it may be to your benefit to steer clear of bankruptcy.

3. Pursuing Your Entrepreneurship Dreams After Bankruptcy

It’s understandable that you wouldn’t want to jeopardize any chances of continuing your entrepreneurial dreams if you file bankruptcy. Thankfully, there are steps you can take to help continue the pursuit.

Rebuilding Credit After Filing Bankruptcy

If you filed a Chapter 7, you can start to rebuild your credit immediately after discharge. Although the availability of credit may be limited, there are still opportunities that can help rebuild your credit. The process of rebuilding credit after bankruptcy may be tedious. However, the effort can be very beneficial if you’re hoping to continue your entrepreneurial career.

Eliminate the Causes

You might find that the main reason you had to file bankruptcy was the poor use of credit cards. You could understandably be worried that if you get more credit cards, you’ll fall into the same trap. That being so, it may well be helpful to stop using credit cards as a second bankruptcy might serve to dissuade you from entrepreneurship altogether.

Having a healthy availability of credit can be helpful for buying a home, getting a loan, and so forth. However, if you don’t see the need for credit down the road — and want to steer clear of another bankruptcy — it could be helpful to not apply for new credit cards after bankruptcy.

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4. Alternatives to Bankruptcy

Thankfully, there are alternatives to bankruptcy. It’s possible to bounce back after filing bankruptcy.

If you’ve read this far and are still worried that filing bankruptcy may jeopardize your entrepreneurial dreams, it may be helpful to look at the alternatives to bankruptcy. Three of the main alternatives to bankruptcy are:

  1. Credit Counseling
  2. Settling Debt
  3. Debt Consolidation Loans

Credit Counseling vs. Settling Debt

There’s one main difference between debt management and debt settlement.

Debt management is the process of negotiating with your creditors to bring down the total amount of interest. Debt settlement is the process of negotiating with the creditors to bring down the total amount of debt.

You can either negotiate with creditors yourself or work with a credit counseling company to negotiate for you. Most companies charge fees between 15% – 25% so it’s important to compare costs and read reviews before enrolling in any program.

You can most certainly negotiate with the creditors yourself. Just be aware that it can be a lot of work and quite intimidating if you’re not sure what to do.

Debt Consolidation Loans

The process of utilizing a consolidation loan can be very helpful if you’re worried about settling debts with your creditors.

Debt consolidation involves taking out a loan to consolidate all of your debt into a single payment plan. Debt settlement and debt consolidation are very similar. However, it’s important to note that with debt settlement you are directly resolving the accounts with the creditors.


Eliminating debt and filing for bankruptcy can both be very intimidating. This is especially true if you’re worried about bankruptcy causing your entrepreneurship dreams to come to an end. Fortunately, you can keep those dreams alive after bankruptcy, as well as through alternative options to bankruptcy.

About The Author


Rumzz is a digital strategist and content marketer. She enjoys spending time with her family. She loves to go out and experience new moments whenever they came to light. Rumzz discovers satisfaction in investigating new subjects that help to extend her points of view. You can frequently locate her immersed in a good book or out searching for a new experience


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