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If you have unsecured debt of under $10,000 and live in the Province of Ontario filing bankruptcy may not be the best option for you. We suggest you contact the Office of the Superintendent of Bankruptcy at 416-973-6441 to discuss your options, or you can visit their website here.

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Accounting for BUSINESS income during bankruptcy?

I run a business as a sole propreitorship. Will I be allowed to continue the business if I declare bankruptcy? If the answer is yes , will I be allowed to keep raw materials/supplies required for the business? The machinery and the work premises are leased. How is the income from the business treated during bankruptcy? Is it cash or accrual method? Will I be required to provide a cash flow , income statements and balance sheet every month?

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One Response to “Accounting for BUSINESS income during bankruptcy?”

A licensed trustee said...

Certainly you may continue to operate the business, but you need to establish with your trustee which accounting method you will use and the status of the businesses assets.

Let’s start with the assets – technically, your trsutee must convert them into cash for the benefit of your creditors. Usually this means the physical equipment is appraised and assigned a value, so it your inventory and any receiveables you may have. All of these thigns are assets that must be converted.

Once the value of these assets has been determined you are usually given the choice of allowing them to be liquidated (which means you won’t be carrying on the business) or you agree to a payment plan to purchase the assets from your trustee over the course of your bankruptcy. For example, if all of your business assets are valued at $10,000 then you will be required to pay your trustee $10,000 in order to keep them.

In addition, you will be required to pay surplus income based on your earnings and any other charges that your trustee normally collects.

This is not an uncommon situation, but admittedly it is more complicated than a bankruptcy for some one that receives a regular paycheque.

Use the links on this page to find a trustee in your area so that you can discuss the mechanics of this process in detail before you decide what to do.