A consumer proposal is an incredibly valuable tool for relieving your debts. You can have some of your debts forgiven without enduring the same financial repercussions as a bankruptcy. However, as many Canadians kickstart their own small businesses, it becomes harder to understand what debts qualify for a consumer proposal. Popular questions we get are “can a consumer proposal save my business?” and “will I qualify for a consumer proposal if I have business debts?”. To be able to answer these questions, we must first understand the types of businesses and how this affects what you can do in a consumer proposal.
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Canada’s Business Types
Basically every Canadian business can be broken down into one of these business types:
- Sole Proprietorship: A business owned by one person. Legally, there is no separation between the business owner and the business itself. Since the business and business owner are seen as one entity, the owner is personally liable for any business debts.
- Partnership: A business owned by multiple people, who share ownership. All partners in a business partnership are responsible for the business. Like with a sole proprietorship, there is no legal separation, which means they’re collectively responsible for business debts.
- Corporation: When a business is incorporated, it becomes legally separated from the business owner. In a corporation, business owners are not responsible for debts related to the business. However, if the owner committed negligence or fraud through the corporation, the law can “pierce the corporate veil”.
These distinctions will help you understand if you’re eligible for a consumer proposal, or if it’s even the right path for you. Let’s break down some of the questions we get asked about consumer proposals for business owners and figure out what business types qualify.
Frequently Asked Questions about Consumer Proposals for Business Owners
Can a business do a consumer proposal?
If your business is a sole proprietorship or partnership, you can do a consumer proposal for both your business debts and personal debts. As a sole proprietor, you are personally responsible for all debts related to your business. Incorporated businesses cannot have their debts be included in a consumer proposal, they have to file a Division I Proposal instead.
Can you do a consumer proposal if you own a business?
Yes, any business owner can do a consumer proposal, regardless of if your business is a sole proprietorship or incorporated. However, the type of business you own does affect what debts are applicable for your consumer proposal. If you’re the owner of an incorporated business, you cannot include any debts related to your business as part of a consumer proposal. This is because you are not considered legally responsible for the debts of an incorporated business. Ask us about you and your business’s consumer proposal eligibility.
What is the debt limit for a consumer proposal?
The debt limit for a consumer proposal is $250,000 in debt. To qualify for a consumer proposal, your unsecured, personal debt must be less than $250,000. For a sole proprietor or partnership, this will include your business debts. For a corporation, business debts cannot be included unless personally guaranteed.
Am I personally liable for business debts?
If your business is a sole proprietorship or partnership, then yes, you are personally liable for business debts.
What do I do if my corporation is in debt?
Since corporations are not eligible for a consumer proposal, corporations must deal with debts in other ways, such as bankruptcy. It will largely depend on your situation which avenue is right for your corporation. For example, if you want to continue running the corporation, the resolution process requires extra consideration. Book a free consultation with one of our debt relief specialists to learn about your options.
Does bankrupting a business affect you personally?
It can. You could lose your assets under a sole proprietorship or partnership. For a corporation, bankruptcy won’t affect you personally unless the business debts are ones which you personally guaranteed.
Can I file for bankruptcy without losing my business?
No. In most cases, when you file for bankruptcy, all business operations will cease and the business will close down.
Thinking about a consumer proposal? We can explain what the process will look like for your specific situation, as well as other avenues for resolving your debts, in a free, no-obligation consultation! Get a full understanding of your options to make the right choice for yourself and your business. Book a free consultation with 4 Pillars today!
