If your business is a sole proprietorship or a partnership, the assets of the business cannot be held separately from your personal assets, and therefore a small business bankruptcy is, in effect, a personal bankruptcy. If your business is incorporated, it is considered by law to be an independent legal entity, and therefore gives you liability protection.
If you declare bankruptcy, you surrender everything you own to a trustee in bankruptcy in exchange for the elimination of your debts, and you get a chance to start over. Keep in mind, however, that your credit report will be affected, making it harder to get a loan in the future, and you are required to perform certain duties, like reporting your income to your trustee every month.
Filing for bankruptcy should be your last resort. Before taking that step, consider the alternatives.
Alternatives to bankruptcy
If you are having financial difficulties, and are considering filing for bankruptcy, first consider other options. These include reworking your budget, consolidating loans, selling assets or taking more formal actions such as a Division 1 Proposal, where you work with a trustee to offer to pay your creditors a percentage of what you owe them over a period of time.
- Alternatives to bankruptcy
If you feel that your financial situation is out of control, there are several steps towards financial stability that you can take today.
- Farm Debt Mediation Service
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- Managing your business in an economic downturn
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Declaring bankruptcy may be the only way to deal with your creditors, if your business fails and you are unable to pay your debts. When you are in bankruptcy, your creditors cannot take your inventory or your assets to cover the amount you owe them, or garnish your wages if you get a job. A bankruptcy trustee will take your assets and sell or use them to pay off your creditors.
- You Owe Money — Considering bankruptcy
If you are considering declaring bankruptcy, follow these steps provided by the Office of the Superintendent of Bankruptcy.
- Office of the Superintendent of Bankruptcy Canada
If you are considering declaring bankruptcy or are a creditor, get the information you need to best manage your situation.
- How many businesses appear and disappear each year?
Take a look at the statistics on business entries and exits per year.
- CRA checklist for small businesses
Use this checklist from the Canada Revenue Agency to help you understand each stage of the lifecycle of your business.
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