Can I Keep My Business If I File Personal Bankruptcy?
How to Keep a Business When Filing Personal Bankruptcy
We will deal with two business structures; incorporated companies and proprietorships.
If the company has no assets that the trustee could sell, or a low value, which will be paid by the bankrupt, then the company can carry on with the business.
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The first thing to be aware of is, that in a personal bankruptcy, any worth the business has belongs to (is vested in) the trustee.
In many cases the business will have little or no value.
For example, personal service businesses, such as landscapers, renovation contractors, building contractors, hair dressers, barbers, and truckers, could have very few assets or assets encumbered by secured loans.
A bankrupt cannot be an officer or director of an incorporated company, so before going into bankruptcy the director must resign.
This must be done with a lawyer and registered with the appropriate registry.
The spouse, relative or a friend will replace that person as a director and the bankrupt will carry on as an employee or manager.
A proprietorship in a personal bankruptcy is part of the bankrupt’s assets just as is a car, furniture or tools and equipment.
Most provinces have exemptions which allow a bankrupt to keep tools of the trade.
Ontario, for example, allows $11,300 worth of tools of the trade to be retained in a bankruptcy.
The trustee will evaluate the proprietorship and if there are no assets that can be sold, or if there is a low value, which the bankrupt will pay then the business can carry on.
When the business can be retained, whether it is an incorporated company or a proprietorship everyone wins; the bankrupt has a job and can make contributions to the bankruptcy estate for the benefit of the creditors.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our licensed insolvency trustees, who are in every province and territory in Canada.