Managing Business Bankruptcy
Bankruptcy should be your last resort. If you cannot pay off your debts any other way, bankruptcy may be your only option.
What is Bankruptcy?
Bankruptcy is a legal process that can forgive your personal or company debts if you are unable to pay them.
Learn about the basics of insolvency and bankruptcy from the Office of the Superintendent of Bankruptcy Canada (OSB).
Bankruptcy for Sole Proprietorships and Partnerships
If you own a sole proprietorship or partnership, you have unlimited liability for your company’s debts. Your personal assets (such as your house or vehicles) can be seized if your business cannot meet its financial obligations. Declaring bankruptcy for your business is effectively the same as declaring personal bankruptcy.
If you are an individual and your total debts do not exceed $250,000, you may also want to consider a consumer proposal. This is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). The LIT will work with you to develop a plan for paying back your creditors. Learn more about consumer proposals from the OSB.
Bankruptcy for Corporations
If you own a corporation, you cannot be held personally liable for the debts of your business. But declaring bankruptcy isn’t a free pass—it will still affect your credit rating and make it harder to get a loan in the future.
Find out more about bankruptcy from Small Business Services Canada.
Types of Bankruptcy
There are three different types of bankruptcy, according to the Canada Revenue Agency:
- Voluntary Assignment: Insolvent persons voluntarily assign all of their assets for the general benefit of their creditors.
- Involuntary Assignment: A creditor files a petition in a provincial court for a receiving order against the debtor’s assets, known as being petitioned into bankruptcy.
- Deemed Bankruptcy: A debtor, who has started the insolvency process, has failed to meet the requirements for filing a Division I proposal in bankruptcy under the Bankruptcy and Insolvency Act or has failed to adhere to the provisions provided within the proposal after it has been filed and accepted by the creditors/court.
Learn more about different types of bankruptcy from the Canada Revenue Agency.
What to Do When You Need to Declare Bankruptcy
Find A Licensed Insolvency Trustee
Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses with debt problems and can help you make informed choices to deal with financial difficulties.
Explore Other Alternatives to Bankruptcy
Before you formally declare bankruptcy, work with your LIT to find out if you can satisfy your debts by any other means.
Learn more about your alternative options to declaring bankruptcy.
Money Mentors, an Alberta not-for-profit organization, offers credit counselling to help you explore alternative options to bankruptcy. They can also help you start an Orderly Payment of Debts debt management program to consolidate your debts, lower your interest rates, and stop collection calls.
Understand the Process for Declaring and Managing Bankruptcy
Your LIT will work with you to fill out all the necessary forms to declare bankruptcy. From then on, your LIT will handle all communication with your creditors (the people you owe money to).
There are a number of steps you must complete once you formally declare bankruptcy, including:
- Your LIT will sell all of your assets to help repay your debts
- You must attend two financial counselling sessions
- You may be required to make surplus income payments
Learn more about what happens after you declare bankruptcy.