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Both individuals and corporations are capable of owning assets and incurring liabilities. Therefore, both individuals and corporations are permitted under the Bankruptcy and Insolvency Act to file an assignment in bankruptcy. Every year, there are more than 120,000 people nationwide that file a consumer proposal or a personal bankruptcy.
Individual Bankruptcies and Corporate Bankruptcies operate very similar on the surface, but also have some very key differences.
Personal Bankruptcy
Any individual or sole proprietor who has incurred debts over $1000.00 may make a voluntary assignment in bankruptcy. As a sole proprietor, your assets and liabilities are considered personal. Therefore, there is no difference in the process of filing bankruptcy whether it results from personal debts or debts incurred from your sole-proprietorship.
In order to voluntarily assign yourself into bankruptcy, you must visit a licensed insolvency trustee (LIT). Upon filing, all your assets will vest in the Trustee and the Trustee will be responsible for handling any repurchase of these assets by the Debtor. Upon filing, you will receive what is known as a stay of proceedings. This stay of proceedings will bar any creditors from proceeding with any legal action, including garnishment of your wages.
Corporate Bankruptcy
With a corporate bankruptcy — that is, where an incorporated entity (rather than a partnership or sole proprietorship) is unable to pay its debts, and file for bankruptcy— the process varies slightly.
According to the Bankruptcy and Insolvency Act, a corporation is considered a legal “person”. As a director of a company, you may be personally liable for certain debts of the corporation. These debts include any outstanding HST, unpaid Source Deductions as well as any loans leases that have been personally guaranteed.
Commonalities
All bankruptcies, whether personal or corporate, must be handled by a LIT. A LIT is authorized by the Office of the Superintendent of Bankruptcy to handle assets, initiate a meeting of creditors, and lawfully distribute all remaining assets of the bankruptcy estate.
If you are at all concerned about your personal finances or the financial status of your company, speak to a LIT at Harris & Partners Inc. about your options today at 1-800-268-8093. We can file and administer a corporate bankruptcy or personal bankruptcy in Markham, Barrie, Brampton, Brantford, Hamilton, Kitchener, North York, Oshawa, Pickering, St. Catharines, or Toronto. Our bankruptcy trustees are just a phone call away.
Read our guide – How does corporate bankruptcy affect personal credit?
