The decision to declare personal bankruptcy is always a difficult one to make. For those who are self-employed or own a small business, the decision becomes more complicated. How does business bankruptcy work? How will your business assets be affected? What will happen to your business? There is much to be considered as a business owner or self-employed individual in filing for bankruptcy. Spergel can help you explore your options and navigate the legal issues of business bankruptcy. Below, we have outlined some of the key considerations for filing business bankruptcy.
Resigning as a business director
If your small business is conducted through a private corporation and you are a director, you must resign the directorship as part of business bankruptcy. If the business is viable, it can perhaps continue without your involvement but such is the exception not the rule. Usually when the director of a small corporation resigns, the business ceases to operate and its assets are dealt with by the creditors. In addition to personal liabilities being covered by your personal bankruptcy, so too will your liabilities as a director such as unpaid HST, employee source deductions, claims by employees and creditor claims that you have guaranteed personally. You can continue to earn a living subject to the surplus income guidelines imposed by bankruptcy law. These guidelines allow you to retain a certain proportion of earnings depending upon your after-tax income and the number of persons in your household.
Assets in business bankruptcy
If you are self-employed or operate your business as a sole proprietorship, the assets and liabilities of the business are yours as an individual. Subject to provincial “tool-of-trade” and personal exemptions, all the business assets and your personal assets will form part of your bankruptcy. Almost all liabilities, whether business or personal, will be covered by your bankruptcy. If you make the decision to earn a living after bankruptcy as a self-employed individual rather than as an employee, you must understand that obtaining credit should you need such to operate will be virtually impossible. For those businesses that have irregular income, this can become a real challenge and may very well lead to further financial failure. Learn more about life after bankruptcy.
Business bankruptcy alternatives
In light of the impact on small business owners and self-employed individuals, business bankruptcy is not always the best option. Spergel also offers consumer proposals as an alternative to bankruptcy, depending upon your personal situation. Consumer proposals are simply an offer to your creditors to repay a portion of your debt over a maximum of five years. If accepted by your creditors, it stops all interest charges and lawsuits brought against you. It also allows you to focus on the repayment of all or a portion of your debt. It is better than bankruptcy for your credit score and doesn’t impact your ability to be a director of an incorporated business. For small business owners, this also means that business assets will remain unaffected and credit may still be available. Spergel can help you find the best option for you and your small business.
If you are a small business owner or self-employed individual considering business bankruptcy, contact the debt professionals at Spergel. Spergel will outline the options available to you and help you deal with your debts in a way that right for both you and your business. Contact us at 310-4321, email us, or visit our nearest location for a free consultation.
