How Filing for Personal Bankruptcy Can Affect Your Business
Filing for personal bankruptcy can negatively affect your business, depending on how it’s structured. Before filing, you should be aware of all the possible implications that bankruptcy can have on you and your company.
Here are some of the typical repercussions that filing for personal bankruptcy in Ontario can have on your business.
How Your Business Is Structured
How you organize your business will impact how it’ll be affected by personal bankruptcy. Different business structures are affected differently.
- Sole proprietorship. A sole proprietorship means there’s no legal separation between the individual and the business. You declare all your business’s profits and losses on your personal income tax return. It means your business is a personal asset, and creditors can seize and sell it during the bankruptcy process.
- Partnership. If you own a business with one or more partners, you may need to sell your company interests back to the partnership. This, in effect, protects the business from bankruptcy proceedings.
- Corporation. If your business is incorporated, it’s considered a separate legal entity and exempt from your personal bankruptcy. You may need to resign your position if you’re the director, but you can still own shares.
It’s important to carefully consider different business structures before starting a new venture.
Closing Your Business
If your business is a significant reason why you’re filing for personal bankruptcy, you may want to consider shutting it down and walking away. Closing the business will release you from any personal loan guarantees to creditors and any directors’ liability for unpaid HST and payroll deductions.
Personal bankruptcy is an effective way to eliminate or reduce your debt. However, it should only be used as a last resort. There are alternatives!
For example, a consumer proposal allows you to avoid filing for bankruptcy and still gives you relief from your outstanding debts. It’s a legally binding contract whereby you agree to pay a set monthly amount towards your debt over three to five years. The process protects your assets, including your business if you’re self-employed.
Furthermore, you can avoid bankruptcy through debt consolidation, whereby you acquire a loan to pay off your debts, often at a lower interest rate than what you’d have to pay if you kept your payments separate.
Personal and Corporate Debt Management Services In Ottawa & Eastern Ontario
At D. & A. MacLeod Company Ltd., our team of licensed insolvency trustees has become a trusted source of personal and corporate bankruptcy solutions in Ottawa and Eastern Ontario. We can help you through every step of the insolvency process and ensure your rights are protected. Contact us today for a free consultation and let us help you find a new beginning.