What Happens When Your Business Declares Bankruptcy?

If you are an entrepreneur, you understand there are countless factors that can impact on the success of a business. If you have experienced the stress and pain of a failed business venture then you’ve learned that the nightmare doesn’t end the day you close the doors. This can be the case even if you formally assigned your incorporated business into bankruptcy with the assistance of a Licensed Insolvency Trustee in bankruptcy.

Why are creditors of my bankrupt corporation still calling me?

Even though the corporation and an individual are separate legal entities, various creditors can “break through the corporate veil.” Notwithstanding the business is defunct and no longer operating, and even bankrupt, some creditors of the corporation have the ability to hold you personally liable for the amount owed them by the corporation. Such creditors include:

• Those taken out in your personal name
• Those you provided a signed personal guarantee
• Those from whom credit was obtained jointly in the names of the corporation and yourself
• Various creditors which have statutory authority to pursue directors of the corporation personally

Examples of creditors who may demand payment from you personally include:

• Credit cards used strictly for corporate expenses but in your personal name
• Personally guaranteed bank indebtedness such as a loan or line of credit
• Agreements in joint names such as asset or premises leases
• Unpaid employee wages and vacation pay
• Unremitted taxes such as payroll deductions, GST / HST, PST
• Unremitted Workers Compensation Board premiums

Is filing Personal Bankruptcy the only way to get creditors to stop harassing me?

Depending on the circumstances it may make sense to engage a lawyer to defend the claim of a creditor. Another option may be a proposal to all of your creditors, a legal process which allows for the compromise of all of your creditors at once. In some instances, bankruptcy may still be the most appropriate (or only) option. If you are facing collection action from creditors, whether personal or business, make a list of both and contact a restructuring professional to review the above options. These professionals are government regulated and accredited through CAIRP (The Canadian Association of Insolvency and Restructuring Professionals).