Business Failures and Personal Debt

	Business Failures & Personal Debt - Money Problems Radio Show (Opens in a new window. Optimized for Windows Media Player 6.4 and later versions.)
Originally aired on January 20, 2007.

Show Topic:

On today's program we discuss the topic of how a business failure and personal debt can be closely related - how a business failure can negatively impact your personal debt situation. Many people yearn to demonstrate their entrepreneurial flair and believe they may possess that "million dollar idea", but if the business runs into trouble it can lead to serious money problems.

Guests:

Ted Michalos joined us from the firm of Hoyes Michalos & Associates, Trustees in Bankruptcy. Ted and his partner Doug Hoyes started their firm in 1999 and have helped thousands of clients throughout Ontario take charge of their financial life and get that badly needed "fresh start". Ted is a chartered accountant and is an expert in personal insolvency and consumer proposals.

Show Summary:

Ted's first recommendation for people getting into business for themselves is to have a plan to protect yourself personally in case the business falls into crisis. Seek qualified counsel to assist in best safeguarding yourself.

He spoke about the three primary structures of a small business: the sole proprietorship, the partnership and the incorporation - and discussed the risks and advantages of each structure.

Ted advised that most people don't even know about these three forms of business structure and the characteristics and advantages of each. He also warned that a lot of people are simply caught unaware of how exposed they are financially if the business fails. Creditors want to be re-paid and, as a general rule, they do not extend any empathy or undo consideration to the fact that the personal debt situation is the result of a failed business.

With respect to outstanding employee wages or benefits, if the business fails they too can become like a creditor: the business owner is responsible for paying those outstanding amounts as well.

We discussed the responsibilities of the business owner's spouse to financial obligations and it is quite simple: anything that they have legally signed on to they have responsibility for.

Many business people, despite initial failure and a possible proposal or bankruptcy, will want to try again; according to Ted, there are very few restrictions assigned to people who have been through a proceeding and may want to try their hand at a second business. The biggest issue in that case, he advised, might be getting creditors to deal with you - since the things have ended badly the first time out.

We also talked about the "BIG 5"options in terms of debt management including:

	Debt Restructuring
	Consolidation Loans
	Credit Counselling
	Consumer Proposals
	Bankruptcy

Our guest advised that sometimes a consumer proposal can be used to "bridge the gap" between the struggles of a business in years 1 and 2, and the prospects for better financial health in years 4-5. The creditors, who vote on accepting or denying a consumer proposal, are not inclined to be swayed one way or the other if the reason for the personal debt issues is a business failure.

Finally, Ted gave us some insight as to what is involved in credit counselling sessions and how they can help regardless of what the reason for the debt and money crisis is.

Don't let your money problems overwhelm you! - Contact a licensed bankruptcy trustee for more information on how to deal with your personal debt caused by business failure.