This article looks at some common misconceptions surrounding bankruptcy for small business owners.
Filing for bankruptcy is never an easy option for small business owners. The decision can feel like a personal failure and may leave one unsure about the future. However, there are a lot of myths surrounding bankruptcy, particularly for sole proprietorships and partnerships. While bankruptcy can certainly be difficult, it can also provide relief for those struggling to keep up with debts. Below is a look at some of the most common myths and misconceptions people have about bankruptcy for small businesses.
Small business bankruptcy is different
The first misconception that needs to be cleared up is the entire notion of small business bankruptcy as being different from personal bankruptcy. Strictly speaking, as the Canada Business Network points out, assets of a sole proprietorship or partnership are not considered separate from personal assets, meaning that when a sole proprietorship or partnership goes bankrupt it is essentially a personal bankruptcy.
All assets are up for grabs
Another misconception many people have about bankruptcy, as CBC News points out, is that once an individual declares bankruptcy then all of their assets, personal and business, will be lost to creditors. While it is true that many assets will be liquidated in order to pay creditors, some assets are protected. In many cases, for example, RRSP and RRIF contributions cannot be touched. Additionally, some business assets may be protected if they are necessary to maintaining one's income.
All debts will disappear
While it is true that bankruptcy will eliminate some debts, there are certain debts that cannot be discharged through bankruptcy. Secured debts, such as mortgages and auto loans, for example, will not disappear with a bankruptcy. Likewise, debts stemming from student loans, spousal maintenance, child support, or certain personal injury claims typically cannot be discharged through bankruptcy.
Bankruptcy is rare
Bankruptcy is usually considered a last resort option for most people, but that does not mean it is by any means uncommon. In fact, approximately eight percent of non-retired Canadians aged 45 to 64 have filed for bankruptcy at least once in their lives. While filing for bankruptcy is not something to be taken lightly, one should not feel ashamed if doing so is the only option available. The truth is that many responsible and prudent people face unexpected financial hardships that can lead to bankruptcy.
Legal advice
For business owners who are struggling to stay afloat, bankruptcy offers an option to start anew. Although bankruptcy will not fix every problem, it is often the best way for business owners to put an unsustainable level of debt behind them. A commercial litigation lawyer who is experienced in helping businesses deal with bankruptcy will be in the best position to offer clients invaluable advice and guidance during this difficult process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
