How to Maintain A Business While Bankrupt
Over 125,000 Canadians will file for bankruptcy this year.
So, it stands to reason that at least some of them will be business owners.
While filing for bankruptcy in Canada is difficult at any moment, it becomes even more worrying when your future earnings are jeopardized too.
Despite what you may have heard, though, maintaining a business in bankruptcy is a possibility more often than not.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
Business Bankruptcy Versus Personal Bankruptcy
First and foremost, it’s important to understand the difference between personal bankruptcy and business bankruptcy.
When dealing with the latter, the entire company stops trading.
As the owner, you might be able to launch a new company.
Alternatively, traditional employment is an option.
A personal bankruptcy is a lot different.
It doesn’t technically affect the business.
Likewise, your need to file for bankruptcy shouldn’t exclude you from earning a living in the future.
If your earnings come from being a business owner, then you should be allowed to keep managing the company.
After all, your personal situation is not indicative of how the venture has performed.
Of course, if your business is unincorporated, there is little distinction between the company and the individual.
As such, business assets will be treated as personal assets, meaning bankruptcy could result in the liquidation of those assets.
It should additionally be noted that the main function of filing for bankruptcy is to remove debt.
So, a personal bankruptcy will only have a limited impact if your company continues to lose money.
The Impacts Of Bankruptcy On The Business
When dealing with an incorporated business, the company is a different entity to the owner.
As such, the incorporating itself should remain unaffected by the owner’s personal bankruptcy.
However, some partnerships and registered businesses can be automatically made bankrupt.
The confusion surrounding this aspect is one of the reasons that a Trustee should be used to handle the situation.
Perhaps the most obvious issue relates to credit.
Suppliers and bank lenders will view your business as a greater financial risk as a result of the owner’s bankruptcy.
Therefore, taking proactive steps to rebuild your credit following bankruptcy is crucial for the business opportunities as well as personal matters.
As your credit score grows, new lines of credit may become available.
It is possible that the personal bankruptcy will exclude you from being the director of an incorporated company, but this is judged on a case-by-case basis.
If you do suffer this fate, it may still be possible to take on another role until the bankruptcy is discharged.
When running a company remains an option, any salary that is withdrawn from the business will count towards personal income, once the personal income taxes have been accounted for.
Seeking Bankruptcy As A Business Owner
The thought of filing for personal bankruptcy when managing a business remains quite daunting, which is why the process should be completed by a licensed Trustee that can guide you through the implications on both a personal level and a business one.
Bankruptcy Canada can guide you through every step of the process.
To find out more, call (877) 879-4770 today.
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?
