When we talk about small business bankruptcy, there's not much difference between personal bankruptcy and that of a small business.
If a person's business is a sole proprietorship or a partnership, legally, they are their business, so when they face the prospect of bankruptcy, all their assets are involved and the bankruptcy procedures are the same. In other words, the assets of the business cannot be held separate from their personal assets, so a small business bankruptcy is in effect a personal bankruptcy.
Small business bankruptcy is different for incorporated businesses, because corporations are independent legal entities. Running an incorporated business gives a small business owner liability protection; it is the business' assets that are forfeit, not the individual's.
The bankruptcy procedures are essentially the same, however; the company is forced into or voluntarily seeks bankruptcy protection; all of the company's assets are turned over to the Trustee in Bankruptcy who sells them and distributes the funds to the creditors.
See The Bankruptcy Process in Canada for a more detailed explanation of bankruptcy procedures.
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