Declaring Business Bankruptcy in Alberta

In the business world, financial instability and debt accumulation can sometimes lead to the point of no return. In such a scenario, Declaring Business Bankruptcy in Alberta becomes a viable option. Though this route is not exactly a bed of roses, it can provide a way out for struggling businesses and pave the path towards a fresh start.

What is Business Bankruptcy?

Business bankruptcy is a legal procedure that allows a business to discharge its debts when it can no longer meet its financial obligations. In Alberta, the process is governed by the federal Bankruptcy and Insolvency Act (BIA). When a business files for bankruptcy, it essentially surrenders its assets to a Licensed Insolvency Trustee (LIT) who then liquidates them to repay the creditors.

Why Consider Business Bankruptcy?

Business bankruptcy should be considered when a business is unable to service its debts, and there’s no reasonable prospect of recovery. Filing for bankruptcy can bring relief from creditor harassment, lawsuits, and wage garnishments. However, it’s essential to consult with a LIT to explore all possible options before deciding on this drastic measure.

Types of Business Bankruptcy

The bankruptcy process varies depending on the type of business structure. In Alberta, there are three main types:

  1. Sole Proprietorship: As a sole proprietor, the business and personal assets are considered one. Therefore, declaring bankruptcy for a sole proprietorship is akin to personal bankruptcy.
  2. Partnership: In a partnership, if one partner declares bankruptcy, the partnership is dissolved. However, if there are more than two partners, the partnership can continue if the remaining partners agree.
  3. Corporation: A corporation is a separate legal entity, so its bankruptcy doesn’t affect the personal assets of the owners, unless they have personally guaranteed the company’s debts.

Understanding the Bankruptcy Process

Sole Proprietorship and Partnership Bankruptcy

For sole proprietorships and partnerships, the bankruptcy process is similar to personal bankruptcy. Here are the steps involved:

  1. Consult a LIT: The first step in declaring bankruptcy is to engage a LIT who will assess your financial situation and advise on the best course of action.
  2. File for Bankruptcy: If bankruptcy is the chosen route, the LIT will file the necessary documents with the Office of the Superintendent of Bankruptcy (OSB). You’ll then need to surrender all your non-exempt business and personal assets to the LIT.
  3. Credit Counselling: The debtor must attend two credit counselling sessions to understand the causes of bankruptcy and how to manage finances in the future.
  4. Discharge from Bankruptcy: Once all the requirements are met, the debtor will be discharged from bankruptcy, effectively releasing them from the obligation to repay most of the debts.

Corporate Bankruptcy

Corporate bankruptcy follows a slightly different process:

  1. Consult a LIT: As with other types of bankruptcy, the process begins with consulting a LIT who will evaluate the company’s financial situation.
  2. Declaration of Bankruptcy: If bankruptcy is the best option, the LIT will file a declaration with the OSB.
  3. Management of Assets: The LIT takes control of the corporation’s assets, selling them off to pay the creditors. The business may be allowed to buy back some assets to restart operations.
  4. Discharge from Bankruptcy: After all debts are settled, the corporation may be discharged from bankruptcy.

Alternatives to Bankruptcy

Bankruptcy should be the last resort. There are other debt solutions that businesses can consider:

  1. Consumer Proposal: If you’re a sole proprietor, a consumer proposal might be a suitable option. It’s a legal agreement between you and your creditors to repay a portion of your debts over a specific period.
  2. Division 1 Proposal: This is a formal procedure that allows a business to pay a percentage of what it owes or extend the payment deadline.
  3. Business Restructuring: Business restructuring involves reorganizing the company’s legal, operational, or financial structures to make it more profitable or better organized for its present needs.

FAQs on Business Bankruptcy

Here are some frequently asked questions about declaring business bankruptcy in Alberta:

  • Does bankruptcy impact my personal credit score? If you’re a sole proprietor, business bankruptcy equates to personal bankruptcy, and it will affect your credit score.
  • What happens after declaring bankruptcy? Once bankruptcy is declared, you stop making payments on your unsecured debts, and any related lawsuits are also suspended.
  • When will I be discharged from bankruptcy? The discharge period varies based on your financial situation and whether it’s your first bankruptcy.
  • How do I file income tax during bankruptcy? Your LIT will guide you through the tax filing process during bankruptcy.


Declaring business bankruptcy in Alberta is a complex process that requires careful thought and professional advice. It’s crucial to understand the implications of bankruptcy and explore all possible alternatives before making a decision. Consulting with a LIT can provide valuable guidance and help navigate the bankruptcy process effectively.

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