Misinformation often surrounds the questions: Can I start a small business while bankrupt? or Can I start a small business while in a consumer proposal? Typically, these misconceptions are perpetuated by hearsay and anecdotal accounts. However, the reality is that bankruptcy or consumer proposals don’t necessarily put a stop on your income-generating abilities or entrepreneurial ambitions.
Debunking Myths about Bankruptcy and Self-Employment
Contrary to common belief, being bankrupt or in a consumer proposal does not restrict you from working or running a business. These misconceptions often stem from a lack of understanding about bankruptcy.
Bankruptcy is a legally defined status for those overwhelmed by debt. It’s a decision made by the individual to eliminate their debt, not a punitive measure imposed by others. Once you declare bankruptcy, you’re shielded from the legal actions of your creditors seeking to enforce payment.
Moreover, bankruptcy does not prevent you from earning a living. You can work, receive payment, and maintain your livelihood even while bankrupt. Furthermore, you still have the option to continue self-employment or initiate a small business.
Constraints on a Bankrupt Individual
While bankruptcy doesn’t bar you from work or business, some conditions apply. For instance, you cannot establish a company under your name while bankrupt, as the company becomes an asset and would need to be handed over to the trustee. This implies you would lose control over your business.
You’re also prohibited from being a director of an incorporated company or having fiduciary duties (handling money belonging to someone else). This is because an incorporated company is legally considered a separate entity, and bankruptcy disqualifies you from managing its finances.
Additionally, the Bankruptcy and Insolvency Act stipulates that you must inform anyone offering you credit above $1000 or any person you transact business with about your bankruptcy status. Failure to disclose this information is considered an offense under the Act.
What if You Already Own an Incorporated Business?
If you’re already an owner of an incorporated company, bankruptcy might not be the most suitable debt relief solution. Instead, a consumer proposal could be a viable alternative to handle your debts and allow you to remain a director of an incorporated company.
In fact, there are no restrictions on owning and operating an incorporated company while in a consumer proposal. You can also initiate a business, establish a company, and generate income through self-employment without any constraints.
The critical takeaway here is that bankruptcy or consumer proposal doesn’t hinder your capacity to earn a living, even if you’re self-employed. Consumer proposals enable small businesses to persist even in the face of substantial personal debt, allowing self-employed professionals to become debt-free.
As every individual’s circumstances are unique, it’s recommended to consult with a Licensed Insolvency Trustee. They can evaluate your situation, discuss your options, and help you devise a plan to manage your debt without harming your business.