Does your corporation’s bankruptcy affect your personal credit?

The short answer is no; your corporation’s bankruptcy does not affect your personal credit. 

Your corporation is a separate legal entity.  It has its own debts, its own contracts, and its own credit.  Your corporation’s bankruptcy does not affect your personal credit and the fact that a corporation that you were a shareholder, director, or officer of made an assignment will not show on your personal credit report.

But the longer answer is more nuanced. 

There are corporate debts that can become your responsibility and, if those debts are not paid, then your personal credit can be affected.  Two common examples of this are personal guarantees and directors’ liabilities for unremitted source deductions and H.S.T. 

The Income Tax Act requires a corporation that has employees to withhold the income tax that the employee owes and to remit it to the government.  Similarly the Excise Tax Act usually requires a corporation that sells goods or services to collect Excise Tax (H.S.T.) and to remit it to the government.  If a corporation that you are a director of withholds income taxes or collects H.S.T. and fails to remit these amounts then you may be personally liable for the payments.  

Similarly if you personally guarantee your corporation’s obligations, such as the payments under a lease or the corporation’s loans, and the corporation fails to pay these amounts, then you will be personally responsible for the payments. 

In both of these cases if the corporation makes an assignment in bankruptcy then there will not be enough money to pay the debts which means you will become personally responsible.  If you are unable to pay the debt then this will have an effect on your credit.

In these specific circumstances the bankruptcy of your corporation can have an effect on your personal credit but the general rule is that your corporation’s bankruptcy will not affect your credit. 

If you have any questions about your corporation’s bankruptcy, restructuring, or any other financial issues contact Wojtek Jaskiewicz at wjaskiewicz@weirfoulds.com or visit www.WeirFoulds.com.