Filing for bankruptcy is never an easy decision. There are many important things to consider and whatever decision you make, you’ll have to live with both positive and negative consequences.
How is Corporate Bankruptcy Different than Personal Bankruptcy?
If your business is incorporated, then legally the business is a separate entity and its assets are owned by the business. In this case the incorporated company can go bankrupt if it cannot meet its financial obligations. If you’re set up as a sole proprietorship, then you would simply file for personal bankruptcy because there is no separation between your personal assets and your business assets.
What Happens When You File for Corporate Bankruptcy?
You can expect both positive and negative outcomes when your business files for bankruptcy. Some of the negative outcomes you should be aware of are:
Expense: There are legal fees attached to filing as well as payments that need to be made for a specified period of time before you’re released from the bankruptcy. In some cases, bankruptcy can be quite expensive.
Negative impact on your credit: There are certain types of business debt that you, as the owner of the business, will have to take personal responsibility for, especially if you offered your lending institution a personal guarantee. These debts can affect your personal credit rating even if you’re an incorporated enterprise.
Loss of assets: Depending on the amount of assets that you own and the amount of debt that you’re carrying, you may lose your non-exempt assets. These will be sold and the funds will be used to pay your creditors.
On the other hand, some of the positive outcomes you can look forward to are:
No more threatening phone calls: When you file for bankruptcy, you’ll be given an automatic stay, which means that your creditors won’t be able to contact you anymore.
Relief from your debts: Once you have fulfilled all the obligations of your bankruptcy, your debts will be discharged.
A clean slate: Once your bankruptcy is discharged, you’ll have a clean slate on which to build a more solid financial future for your business and yourself.
At Welker & Associates we help owners of incorporated companies deal with their debt issues, including government debt. There are three main government debts that business owners have to deal with:
Corporate income tax
HST
Payroll source deductions
If you own a business and are struggling with debt, contact us today for a free, no obligation consultation.
