How can a business go bankrupt?

How can a business go bankrupt

Nov 24, 2016

If your business is having financial difficulties and is unable to to pay its debts, you may need to consider filing for bankruptcy. First you should consider alternatives to bankruptcy like selling your assets, consolidating your loans or choosing to work with a trustee. If your finances feel out of control, declaring bankruptcy might be the direction your business needs to take, before that happens it’s important to understand exactly how a business can go bankrupt and, if you’re the business owner, how that may affect you personally.

What does declaring bankruptcy mean?

When your business declares bankruptcy, your debts are eliminated in exchange for the surrendering of your assets to a licensed insolvency trustee (LIT).

Your business can go bankrupt if it is insolvent and owes more than $1,000. Insolvency refers to when a business is unable to pay its debts and further, would be unable to pay those debts if its assets are sold.

How declaring bankruptcy works

There are three ways in which a business can go bankrupt, the most common, is that a business can voluntarily declare bankruptcy. The remaining ways in which a business can go bankrupt involve the creditor. A creditor can petition or push a business into bankruptcy through court or the creditor can reject the businesses payment proposal and the business would then need to declare bankruptcy.

Bankruptcy should be guided and reviewed by a commercial litigation lawyer and a licensed trustee.  

How your businesses bankruptcy affects you personally

How your businesses bankruptcy affects your personal finances is dependent on how your business is structured. If your business is a partnership or a sole proprietorship your business bankruptcy means personal bankruptcy and your personal assets may be sold to cover your business debts. If your business is a corporation, and you do not have personal guarantees involved, your personal assets are not affected. Your lawyer can advise how your business may affect your personal finances before you file for bankruptcy.

If you want to learn more about your options for dealing with your business debts and learn how to minimize your business liability connect with a commercial litigation lawyer from St. Catharines law firm, Chown Cairns.