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Can You File Personal Bankruptcy If You Own A Business

What Assets Are Exempt From Bankruptcy In Ontario

Can I File for Bankruptcy if I Own a Business?

When you file for bankruptcy in Ontario, you dont need to be concerned that you will lose everything. These assets are exempt under federal and provincial law:

  • Your primary residence, as long as the homes equity does not $10,000
  • One vehicle worth less than $6,600
  • $13,150 of household furnishings and appliances
  • $11,300 of tools of the trade
  • All necessary clothing for you and your dependents
  • All necessary medical devices for you and your dependents
  • Certain types of life insurance
  • All savings in Registered Retirement Savings Plans , Registered Retirement Income Funds and Savings and Profit Sharing Plan funds, not including contributions from the 12 months before your filing
  • Bankruptcy For A Corporation Or Limited Company

    If your business is incorporated then by law it is considered its own legal entity. Many people think that by setting up a limited or incorporated business they are fully separating themselves from their business assets and debts, but that is not always the case.

    Even if your business is structured as a corporation or limited company there is still a personal liability created for certain debts, such as money owing to employees for wages, and to Revenue Canada for GST debt or payroll source deductions.

    Filing a bankruptcy for your corporation does not end the business existence companies are not automatically dissolved because of a bankruptcy filing. However, unless the bankrupt corporation is able to later repay all the debts it owed at the time of the bankruptcy filing, it will ultimately cease to operate.

    A Licensed Insolvency Trustee will help you determine which debts would be considered your corporate and personal liabilities and whether a corporate or personal bankruptcy, proposal, or other solution would be most beneficial. For many owners, it may not be necessary to file a business bankruptcy.

    What Is An S Corporation

    An S corporation is a small business which has a single proprietor or a small partnership. The number of shareholders of the S corporation is small, and the shareholders must be people with some exceptions.

    To be an S corporation, eligibility consists of these requirements:

    • It cannot have more than 75 shareholders.
    • No nonresident aliens can be shareholders.
    • It has only one class of stock.

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    You Will Have A Trustee That Will Manage Your Bankruptcy

    A trustee is the person or entity that manages your bankruptcy. They work with you, and your creditors, to achieve a fair and reasonable outcome for all. During bankruptcy, you have an obligation to provide information to your trustee, including changes to your circumstances. This may involve supplying books, bank statements and other documents that the trustee asks you to provide.

    When you apply for bankruptcy, you can choose a registered trustee. If you do not choose a trustee, your bankruptcy may initially be administered by either the Official Trustee or a registered trustee.

    Can I Be Involved In An Llc And File Bankruptcy

    Can Business Assets Be Touched if You File Personal ...

    If you are a member of a limited liability corporation and run into trouble with your personal debts, bankruptcy is still an option for you, even if you are the LLC’s only member. However, business owners must make careful decisions when considering whether to file for personal bankruptcy, as this process could affect the business, even if the business itself is not bankrupt.

    Tips

    • If you decide to file for personal bankruptcy, your involvement within an LLC will be interpreted by bankruptcy courts as an asset within your estate. With that in mind, the trustee in charge of your bankruptcy may opt to sell your LLC ownership to help settle your debts.

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    Exceptions To Discharge From Personal Bankruptcy In Nine Months

    The length of your bankruptcy will be nine months, unless one or more of the following is true:

    • You fail to perform all your bankruptcy duties, such as regular payments of surplus income to the trustee.
    • You have surplus income .
    • You have been bankrupt before.
    • There is an objection filed to your discharge.

    How much longer your bankruptcy period will be depends on the details of your case. Twenty-one month is typical when the bankrupt individual makes a good salary .

    The Automatic Stay Protects You Not Any Other Person

    The automatic stay protects the person filing bankruptcy and his/her assets. Other persons are generally NOT protected. The issue is whether you and your business are considered to be the same or separate persons for this purpose.

    If your business is a sole proprietorship, the law considers you and your business to be the same person. So a lawsuit against the business would be stopped by your personal bankruptcy filing.

    But what if your business was set up as a corporation, a limited liability company or a partnership?

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    Small Business Reorganization Act Of 2019

    Chapter 11 is a more complicated process for individuals but can be an excellent option for businesses. In 2019, the Small Business Reorganization Act made small business bankruptcy Chapter 11 more affordable. The SBRA allows for restructuring debt so that you do not have to liquidate as many assets and potentially save the business.

    Read more in our bankruptcy blog about a newer law that has gone into effect to assist small business owners when filing bankruptcy.

    Bankruptcy For Small Business Owners

    #Small Business #Bankruptcy: Should You #File Bankruptcy on Your Business?

    Some business owners choose Chapter 7 bankruptcy if their businesses have assets that can be liquidated. If the business does not have assets, then the owner may be able to file under Chapter 7 and avoid creditors taking action against the individual owner. However, if you do not have assets to liquidate, it may be wiser to let the corporation end by not filing for corporate status.

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    Take Your First Step Towards A Debt Free Life

    If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you.

    Bankruptcy Aside Other Drawbacks To Starting A New Business

    Not to discourage you from starting a business, because Im an entrepreneur myself . Im sure youve all heard the statistics on how many small businesses fail. I like how Robert Kiyosaki puts it, something like if 9 out of 10 businesses fail, I might as well get my first 9 out of the way now. Some industries have a higher failure rate than others. So, keep this in mind too, when you are making your decision about starting a new business.

    Sorry if Ive put a damper on things. I just want to point out all of the good and the bad. Plus, without specific details, its hard to give specific answers. And as for starting an incorporated business just before filing for bankruptcy personally I wouldnt do it. I would wait until the bankruptcy is discharged. In the end its your decision, and your trustee is the one who should give you the final OK on it.

    After Bankruptcy Canada

    If you’ve been discharged from a bankruptcy in Canada, you know how hard it is to rebuild your credit and have a happy life – especially in today’s tougher economy. Not only that, there is very little information available to Canadians on what to do, and, what not to do, to make a speedy recovery from bankruptcy.

    You may get advice from someone who recovered from a bankruptcy or bad credit just a few years ago. It may be outdated information already. What worked in the past doesn’t necessarily work now. We’re in a new credit economy.

    Resources

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    Effects Of Chapter 11 Bankruptcy On A Business

    Chapter 11 is a business reorganization bankruptcy that permits businesses to continue operations while also reorganizing debts through a debt repayment plan. In most cases, it is not wise to file under Chapter 11 as an individual, since Chapter 13 is less expensive and easier. Certain individuals, however, are not eligible for Chapter 13 because they have over $1,081,400 of secured debt or over $360,475 of unsecured debt. In those cases, an individual may have to file for Chapter 11.

    Chapter 11 is more complicated and expensive than either of the other two chapters, but both individuals and business may file under this chapter. Chapter 11 is most appropriate for a larger-scale business whose owners want to rebuild and have a plan for the future.

    There are requirements for Chapter 11 that are not applicable to Chapter 7 or 13. For example, as a business owner you will need to file operating reports, and a creditors committee will need to be appointed. The creditors will vote on your debt reorganization plan and must approve it before it is confirmed by the court.

    Exceptions To The Surrender Of All Assets

    Can Personal Loans Be Included in Bankruptcy?

    Some assets are not taken from you in bankruptcy. These are the exemptions that the federal and provincial governments have determined you need to survive and be a productive member of society. The goal of bankruptcy is to give you a fresh start not to punish or humiliate you. You will typically retain personal items and furnishings.

    The list of exemptions is set by each provincial or territorial government. For example, in Saskatchewan, a motor vehicle with a value not exceeding $10,000.00 is exempt along with personal items such as clothing and jewelry to the extent of $7,500.00 and all household furnishings and appliances. In addition, RRSPs, RDSPs as well as equity in your residence to a maximum of $50,000.00 per registered owner are exempt from seizure. For the relevant exemptions in your province, we recommend speaking with a Licensed Insolvency Trustee.

    For most people, the assets that may be lost in a bankruptcy include certain non-registered investments, RESPs, recreational equipment such as a boat, snowmobile, or motorcycle, etc.

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    Small Business Partnerships And Corporations In Chapter 11 Subchapter V

    Because Chapter 13 is only available to individuals and sole proprietors, partnerships and corporations that seek to stay open by restructuring debt must look to Chapter 11. Chapter 11 allows companies to operate while paying less toward debt.

    In the past, many small businesses found Chapter 11 cost prohibitive because of the additional rights afforded to creditors and the increased legal fees that result. However, the relaxed procedural requirements of Chapter 11, Subchapter V give small business owners the option of restructuring debt using processes similar to Chapter 13 bankruptcy. Your bankruptcy lawyer can evaluate whether Chapter 11, Subchapter V will work for you.

    My Personal And Business Bankruptcies: Can I Combine Them Into One Case

    A debtor can combine his or her personal and business debts in one bankruptcy filing if he or she is a sole proprietor. However, if the business is incorporated, the debts owed by the business will not be discharged, even if the sole shareholder files a personal bankruptcy discharging the same debt. Only the individual who filed the case discharges the debt .

    Normally, a Chapter 7 for a corporation is unnecessary. Small corporations usually just liquidate assets and die. If the shareholders dont want to deal with lawsuits against their corporation, they will often file a Corporate Chapter 7 to avoid having to participate in the suit, including appearances at hearings or depositions. In a Chapter 7 business bankruptcy, there is no formal discharge. There is a liquidation of assets and a formal dissolution or winding down of the company.

    The benefit to filing a Chapter 7 business bankruptcy is having the bankruptcy trustee liquidate the assets and pay the priority debts first. This should help relieve, but may not completely absolve, the owners, shareholders or officers of whatever personal liabilities they may have regarding those debts. Once again, this is usually something the shareholders can accomplish on their own by liquidating corporate assets and using the proceeds to pay priority creditors.

    If you have questions about a personal or business bankruptcy, please contact us at your earliest convenience. Check out our website for more valuable information.

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    Who Can File Bankruptcy

    To go into personal bankruptcy in Canada, a person must have lived or done business in Canada within the last year or, have the majority of their property in Canada, and must be insolvent.

    To be insolvent essentially means:

  • To owe at least $1,000.
  • Not to be able to meet your debts as they are due to be paid.
  • To not have sufficient assets to convert to cash to pay your debts.
  • Homestead Exemptions In A Personal Bankruptcy

    Which to file, personal or business bankruptcy?

    A homestead exemption is a legal provision that exempts an individuals primary residencefrom various legal claims, including bankruptcy in many states. This partof the statute is why you will see many entrepreneurs, celebrities andprofessional athletes have one of these exempt states as their primarylegal domicile. In some states, there is no limit on the value of theexempt residence.

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    What You Keep When Filing For Bankruptcy

    Laws were created to help protect your property during bankruptcy, called bankruptcy exemptions however, exemptions vary depending on the process and the state.

    Your state determines whether you must use your states exemptions or if you can choose the federal exemptions. If you live in one of the following states, you can choose the state or the federal bankruptcy exemptions:

    • Alaska
    • Washington
    • Wisconsin

    If you do not reside in one of these states, you must follow your states bankruptcy exemptions.

    Common federal bankruptcy exemptions are listed below. Married couples filing jointly can double the exemption amount and all amounts are shown for cases filed after April 1, 2016, and cases filed after April 1, 2019. These numbers will be adjusted again on April 1, 2022.

    Should I Try To Negotiate With Creditors Before Filing For Personal Bankruptcy An I Delay The Personal Bankruptcy Process Because Of The Coronavirus

    Since hundreds of thousands of businesses in New York have also been affected by the coronavirus, many creditors will work with you to try to work out some sort of payment plan, meaning that eventual road leading to bankruptcy can in fact be delayed or even possibly ruled out completely.

    There are many programs provided by both the federal and New York state government that can offer some sort of financial relief. Businesses with fewer than 500 employees can apply for a loan through the Paycheck Protection Program, which was instituted in the Coronavirus Aid, Relief and Economic Security Act . In fact, the Payback Protection Program has approved 860,000 applications for $210 billion of loans. Borrowers can apply for forgiveness for any funds used for payroll costs, mortgage, interest, rent and utilities over an eight-week period.

    In negotiating with creditors, a few key strategies are important to keep in mind. One, you can mention to the creditors that unless they work with you, youll have no choice but to file for bankruptcy. Unsecured creditors, such as credit card companies, know this, and most would rather settle the debt for pennies on the dollar than wind up with nothing if the debtor files for bankruptcy protection.

    Second, unsecured creditors may settle for around 50% of the debt. Therefore, you should start with a lower offer, around 15%, and negotiate from there.

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    Your Trustee May Sell Your Assets

    You are able to keep:

    • ordinary household goods
    • tools up to a set amount used to earn an income and
    • vehicle with a value up to a set amount.

    Your trustee can sell other assets including your house and property. You must not dispose of any property belonging to the trustee. You must declare any assets you have when you apply for bankruptcy and any you receive during bankruptcy.

    How Does Personal Bankruptcy Affect Your Spouses Credit Or Assets

    If you own a business but already have a #bankruptcy ...

    If you file for bankruptcy, it only impacts your partner if your bankruptcyfilingincludesdebtsthat youve both co-signed on . In that case, your partner is responsible for those debts, even if youhave filed for bankruptcy. If co-signed loans are too much for your partner to manage alone, speak with an LIT to discussdebt relief options, like a consumer proposal,debtconsolidation, or, in extreme situations, bankruptcy.

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    What Happens To Your Personal And Business Property

    The biggest downside to Chapter 7 is that you may have to give up some property. If, despite your business’s money problems, you still have a significant amount of property you own free and clear, including investments, real estate, vehicles, or business assets, the bankruptcy trustee will take at least some of it, sell it, and distribute the proceeds to your creditors.

    However, if you have few personal assets, or you owe a lot of money on them, you aren’t likely to lose much. And in any case, you will get to keep the basic necessities of life, including clothing, furniture, possibly a vehicle, and some or all of your equity in your house, depending on your state’s laws. Now let’s look at what you’re likely to lose, if anything.

    Wages Benefits And Retirement Account Exemptions

    There are exemptions to protect the money you receive as a benefit, support or what you have in retirement savings, including:

    • Alimony, support, or maintenance that you reasonably need for your support
    • Life insurance payments that you need for support
    • All Social Security benefits, unemployment benefits, veterans benefits, public assistance and disability or illness benefits
    • Under most circumstances, you can keep proceeds from your retirement accounts up to the maximum aggregate value of $1,362,800

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