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Incorporating a business

Expert: Jordan Potasky

M Bosch asked:

If a business becomes incorporated and the house is used as collateral for a business loan, do creditors have a claim on any other personal assets other than the house? The business is home based and the product is cookies?

Jordan Potasky answered:

I am presuming that the mortgage is collateral to a personal guarantee given in support of the business loan. If the mortgage is the only security given in support of the guarantee then the lender would have no direct recourse to any other assets of the guarantor excpet the mortgaged property (that is to say, the creditor could not simply seize any other assets on its own).

Other assets, however, would be attachable by creditors of the guarantor if those creditors obtain a Judgment against the guarantor in respect of the guaranteed debt. Once Judgment is obtained creditors, through the offices of the Sheriff, could garnishee the guarantor's wages, bank accounts, and other monies due to the guarantor.

They could also seize the personal property of the guarantor not exempt by virtue of the provisions of the Execution Act and other statutes. This could include, among other things, an automobile, expensive furniture, boats, and an RRSP (if it is not invested in insurance products naming an immediate family member as a beneficiary).

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