Toronto Business Bankruptcy Alternatives for Your Small Business

Many small businesses are facing financial difficulties in these hard times, and many
entrepreneurs only see bankruptcy as the only option they have to pursue relief from
excessive levels of debt. But that shouldn’t be the case as there are many
Toronto business bankruptcy alternatives that are available for small business owners.

Filing for business bankruptcy in Canada can be very complex. There can be personal
implications that may affect your family, business partners and other people who are
in one or the other connected to the company. Much of the bankruptcy process has a
lot to do with the structure of your business and the types of creditors you have.

Partnerships and Sole Proprietorships

If your small business is legally set up as a partnership or as a sole proprietorship it
means that the business is structured in such a way that your personal assets and
liabilities are not legally separated from the business. As such, you as the business
owner is the one who goes bankrupt and not the business itself. This is treated as a
personal bankruptcy and your creditors are dealt with according to the laws under a
personal bankruptcy. As a consequence, any personal assets you have will be used
to limit the liabilities towards any creditors.

Incorporated Businesses

In an incorporated company, the business is considered a separate entity from the
person that operates the business. This means that your personal assets and liabilities
are legally detached from the business and, in turn, assets and liabilities of the business
are held separately from those of the business owner. The company can go bankrupt,
and the assets of the incorporated business will be sold to reduce the liabilities to your
creditors. Personal assets of the business owner will not be touched.

You will need to be very careful if you are thinking about bankrupting the business.
Another thing to weigh on is the possible implication if you have personally guaranteed
business debts. Creditors will no doubt go after you for the debts you have guaranteed
and this might force you to either negotiate repayment terms with creditors or to file for
personal bankruptcy as well.

If you assess that your small business will still be able to make money for the long term
and is merely facing hard times due to the economic downturn, you might want to consider
making a an informal or formal proposal with your creditors or finding another alternative
such as placing your business into receivership or sell the business without the help of a
secured creditor.

A small business bankruptcy can actually be very costly and, consequently, it can create
more problems than it solves. It’s not a solution for all and may not be the best option for
your small business. It’s crucial that  you as business owner understand all the other
Toronto business bankruptcy alternatives that are available to save the business before
deciding on bankruptcy. Consult with a licensed insolvency trustee or a lawyer to get
professional advice and more specific information about you can save your business from
insurmountable debt.

What to Tell a Licensed Personal Bankruptcy Trustee in Toronto

bankruptcy trustee

Before you file for bankruptcy or a consumer proposal in Toronto, a licensed personal bankruptcy trustee will first need to make an assessment of your financial situation. This initial consultation is usually a free service and will help you decide whether filing for bankruptcy is right for you or another debt repayment option is the better course of action.

Two things are accomplished during this initial consultation:

1.         The Trustee will be able to look at your financial situation thoroughly, then inform you of all your options for paying off your debts and counsel you on the best steps to take to solve your debt problem.

2.         You have the opportunity to ask questions about all options that are available to you and to fully understand the consequences of each option before you make a decision about your financial future.

During the assessment meeting, you’ll need to divulge important details and release certain documents to help the Trustee understand your situation fully.

Some documents you’ll need to bring on the day of your meeting include the following:

-        A detailed list of all your debts, including statements, invoices, letters from creditors or other documents to validate the amount of each debt.

-        A detailed summary of all your assets, including your house or other properties, cars and any investments such as RRSPs and RESPs

-        Your latest pay stub to show your most recent income and deduction information

-        A detailed list of your monthly expenses

You’ll also need to disclose important details about your life that impact, or may potentially impact, your financial situation. Some of these details can be:

-        Marriage, separation or divorce. If you’re entering into a marriage with a boatload of bad debt, your Trustee can advise about how to keep both of your credit histories separate. A recent separation or divorce may make you liable for debts incurred during the marriage. If you disclose that a separation may happen in the future, your trustee can explain who is responsible for debts in a separation or divorce.

-        A medical condition. Your Trustee has to know if you have any medical condition that may put your ability to earn at risk, which in turn may affect your ability to make payments and fulfill the terms of the bankruptcy or other payment option you choose.

-        Employment changes. Whether you are starting a second job, or you just got a raise, or you lost your job, your Trustee has to know all your sources of income so he can recommend the best solution that is most affordable for you.

When you enter into a legal process, such as bankruptcy or a consumer proposal, it's extremely important that you disclose all important facts to your Trustee. Any undisclosed information could complicate or lengthen your bankruptcy.  At the very least your bankruptcy discharge may be delayed, or at worst you could be charged criminally if your omission is proven to be fraudulent.

Keep in mind that when you work with a licensed personal bankruptcy trustee in Toronto he is there to help you, counsel you and to uphold your rights. So, it’s not a good idea to keep anything from him. Work with your Trustee instead, and make sure that he has all the relevant information he needs to give you the best possible chance to start a new debt free life.