One common misconception about bankruptcy is that tax debts, whether owed to Canada Revenue Agency (CRA) or provincially, do not go away after a bankruptcy. But this could not be further from the truth!
Only a few types of debts survive a bankruptcy. All tax debts, whether for personal income tax or directors’ liability for a company like GST/HST/QST and deductions at source will be discharged in a bankruptcy, meaning they will go away once the bankruptcy is over.
While the bankruptcy law is more restrictive with people who have over $200,000 in personal income tax debt that represents more than 75% of their total debts, this does not mean the debts will not go away. You can file bankruptcy in those circumstances, however you will not be eligible for an automatic discharge. If you think you may fall into this situation, speak with a licensed insolvency trustee to understand your options better.
One type of debt that may not go into a bankruptcy is government overpayments, most often coming from Employment Insurance or Social Assistance. Sometimes, these debts will follow you after a bankruptcy based on how the government has determined the overpayment. The best way to know if a debt will follow you or not is to speak with a licensed insolvency trustee about your situation.
Every situation is unique and for every person who comes to see me, I offer the following free analysis:
- What does it look like to file for bankruptcy?
- What does it look like to file a consumer proposal?
- Can the tax debt (and other debts) be paid back without filing a bankruptcy or proposal, and if so, how?
In terms of tax debts, your licensed insolvency trustee will require that you file all of your old tax returns. They will need to confirm that you actually do owe CRA money and how much.
They will also want you to confirm if CRA has placed any liens on any assets you own (like your house) or frozen your bank account. While a bankruptcy can deal with your frozen bank account, it can’t remove a lien once it is placed on your home by Canada Revenue Agency.
Sometimes, a bankruptcy is the cheapest, fastest and least obtrusive way to resolve your tax debts; however, this will depend on a few different factors like income, expenses, assets, other debts and your family situation. In other cases, it may be better to make a consumer proposal to Canada Revenue Agency and your other creditors to resolve your unpaid taxes.
In every case, a bankruptcy must suit your needs and not leave you worse off than before.
To find out if bankruptcy is the best way to eliminate your tax debts, talk to a licensed insolvency trustee! They have the experience to understand your situation and help you figure out the best way to manage, reduce, or eliminate all your debts.
I claimed bankruptcy and have been discharged 10 years ago. I am now facing another bankruptcy because of medical reasons. Will this be considered my second bankruptcy or again my first?
This will be your second bankruptcy.
In my case, I have to submit my taxes for five years. Can I start the process of bankruptcy while CRA are assessing my returns? I know it may take them up to 6 months and would like to declare before then.
Hi Scott. Yes, you could start the bankruptcy process now, but it may only be advisable to do so if you have other urgent reasons for filing now (like a wage garnishment). In my experience there will be fewer questions from CRA and the bankruptcy will proceed more smoothly if you can get your old taxes filed before the bankruptcy starts (even if they have not yet been assessed). So yes, as long as the taxes are filed, you can file now, even if they are not yet assessed.
I started my bankruptcy in May of 2016 and go to Court in front of a Judge on March 30th to see if he/she will resolve my debt to Student Loans ($34,000) that are 10 years old. The amount of my bankruptcy costs to my trustee was $2,000. I gave him $200 up front, then he agreed to use my income tax return of $1,800 last year to cover cost of bankruptcy. The trustee will be filing my return again this year, and I am expecting the same return amount. Is he legally allowed to keep that too? Or should it be given to me as my bankruptcy has now been paid off. I have no assets, I am impecuneous at the moment. Are you also able to post your response to my email as I don’t own a computer only a phone, and may have trouble returning to the correct site to see your answer. Thank you kindly.
Hi Lisa.
According to Section 67 (1)(c) of the Bankruptcy & Insolvency Act, the trustee is required to take your tax refund for the calendar year of bankruptcy. So, if you went bankrupt in 2016, you would lose your 2016 tax refund, which is the tax return they are filing now. So, I don’t understand what you mean when you say the trustee will be filing your return again this year, because this is the first year of your bankruptcy. The trustee does file a “pre” and “post” return for the period before and after your filing, but they cover only the 2016 year. Your trustee can provide more information on your specific situation.
Currently living out of province and in 10th month of bankruptcy, I took a job in Ontario to survive and keep , and keep my home in NFLD for my family as I am working away. I am making a ok wage , but I am given a living allowance of $2400 a month .Is this to be claimed on my bankruptcy and use as part of the calculation for my payment .
The definition of “income to include in a bankruptcy” is pretty broad – any and all types of income are usually included, but you’d have a good argument that the corresponding “extra expenses” should be allowed as a deduction. If you can’t come to an agreement with your trustee on what is “fair” then you may request mediation – a meeting with your trustee and someone from the Office of the Superintendent to resolve your differences. Speak to your trustee first…
Help!!!!
My wife has been working for herself for 10 years and has just received a writ from CRA for failing to pay her taxes for the last 4 years and she now owes $46,000. This is now the second time she has done this. We had to take out a second mortgage 5 years ago to pay off the first time, which she still owes $37,000 for it. So in total she owes $83,000 due to her not paying her taxes. Is it to late for her to claim bankruptcy?
Thanks for your help
Bankruptcy may not be the answer – it is not as simple as saying “I can’t pay my taxes so I should file bankruptcy”. First, the second mortgage on the house is secured to your house – if it doesn’t get paid the lender has the right to seize and sell your house. Second, you don’t want to file for bankruptcy if you have equity in your house now. I think it might be helpful to speak with a trustee, but more importantly, your wife should speak to an accountant or bookkeeper to see that she makes tax instalments every month, and files her taxes every year so you don’t have to keep going through this problem every 4 or 5 years…
I helped a friend get a loan for $20,000 which I co-signed for to pay her CRA debt back in 2014, today she still has over $14,000 owed on the loan, and again has current dept outstanding with CRA for 2016, 2017, 2018 for over $30,000 which is her dept alone.
Now she has filed for bankruptcy, so I am (I believe) on the hook for the residual join loan of $14,000. My question is can I put a claim on her estate for the $14,000 that I am now on the hook for and try to get some of it paid for by the estate and how long could I expect to be getting some money back?
Further more when she filed for bankruptcy her full income was disclosed at $2,800/month (a total of $33,600 per year) (which looks like some common min wage amount the CRA allows), when I know for a fact that she was making over $60,000 self employed (before taxes) and $20,000 in a part time job. Even after employment deductions were done and taxes owing would have been paid she would have earned over $40,000 + $20,000 = $60,000 which is $5,000/month take home income.
Is this legal, and how do I get the trustee to check/confirm/prove all this?
Currently she has agreed to pay $200/month to the trustee from the $2,800/month income. If she is actually taking home $5,000/month what she can “afford” to pay to the trustee would be much higher (ie $2,000/month) she would be able to pay a larger portion of her dept/loan via the trustee.
Yes, if you are owed money, you can file a claim with the trustee. Your next step would be to contact the trustee and advise them that you are a creditor, and also advise the trustee that you are aware of other income that the bankrupt may not be disclosing, so that the trustee can follow up on that.
i owe just over $150,000 in income tax arrears for over the past 76 years. i also owe $27k for source deductions and just over 20K ffor GST/HST as my company ion past failed as i had a serious fraud happen to me in another country while on hoildays ) a few years back), since then i have paid nothing as lost company and bank acct here hAs been frozen overt a year. i have nothing any more for anyone to take and own almost nothing . I think it is obvious i claim bankrupsy is it not. also will all my debts whch idescribed be disolved. they have put a garnish on my last emplyer to take 60% of my wage wehich was ridiculous so i quit that job but no i must deal with this now just wondering where to first.
You certainly have the right to file for bankruptcy and tax debts are normally included, BUT I should warn you that in cases like yours, it is not uncommon for CRA to request a “discharge hearing”. This means you may have to appear in Court and explain how the debt was incurred and (more importantly) why the debts should be written off. In most of the cases like yours the Court requires to repay part of the tax debt – it may be as little as 10% or much more. It depends on the facts in your case and how much CRA argues you should have to pay…
Your best bet is to contact a licenced insolvency trustee to discuss your situation.
I was hit in a car accident which forced me to close my business. the other person was at fault and i sued him. Several months later we were forced to declare bankruptcy when my new accountant told us my other accountant never did my taxes for CRA for several years leaving me owing around 113000.00. I was just discharged from the bankruptcy and CRA id in the process of writing off my debt because my law suit is not even close to ending due to ongoing medical issues. My trustee says i will be responsible if we should ever settle. Is this correct?
I am sorry, but responsible for what? When you filed for bankruptcy your right to sue was signed over to your bankrupt estate. At the end of you have the right to ask the trustee to return the right to sue to you. If you carry on with the lawsuit then you are 100 % responsible for the costs. Similarly if you win you receive 100% of the award. I hope I have answered your question.
Hello,
My husband has not been in a ‘solvent’ financial situation since we met. When we met, he was in the midst of a consumer proposal which was basically the result of overspending on home renovations and vehicle financing (camper trailer incl). He did handle the proposal responsibly and it was ‘discharged’.
Shortly after we met, he was let go from his employer and he began growing his own business. He’s been self-employed since – and I believe from that point on, he never properly accounted for any tax or EI/CPP deductions from his pay. He paid minimal income tax – only after being chased by CRA. He made arrangements and paid partial amounts.
In the end, he declared bankruptcy to eliminate his own personal tax debt, as well as the corp tax for the company in his name – which was dissolved. In order to continue his work, a new company was created which is in my name and he is a consultant. My husband’s income has always been very good – but again, he didn’t regularly track/pay his income tax. So, he’s facing a new $37K tax bill. He’s still paying $1,000 installments on the first bankruptcy – likely for another 10 months.
** Could he claim bankruptcy AGAIN?? If so, when? I imagine this would simply have the impact of maintaining the ruined state of his credit for a much longer time. Would there be any other impact?
Thank you for your time,
J
He cannot file bankruptcy a second time until he has been released (discharged) from the first one. He may have a problem with CRA if he immediately files bankruptcy a second time. Any creditor has the right to “oppose” a person’s discharge by asking the Court to review the facts of the bankruptcy. If his first bankruptcy was due in part to income taxes and he immediately files a second bankruptcy for income taxes the Court may very well say he won’t be released from the second bankruptcy until he can prove he is paying his new taxes – further they may very well make him payback a portion of the second bankruptcy’s taxes. Sorry, but a second bankruptcy will not be as simple as the first one.
This is a complicated question, so you should consult a trustee. More importantly, if the corporation is in your name, you should also confirm that you don’t have any personal tax liability.
Hi, like most on this page I have CRA debt. After putting 3 people through University and suffering the slings and arrows of high Vancouver rents and costs, I’m finally finished. My family came first and CRA came second, much to the chagrin of the government. I’ve been told that a Trustee will allow about $2,800 in living expenses before a percentage is deducted from my salary and anything above is either fully or partially taken and paid to creditors. $2,800 just covers rent and hydro so eating is out of the question. I’m a Canadian but I can’t afford to live here anymore so what happens if I declare bankruptcy and move to Thailand where I can live off of $2,800? Can you file for bankruptcy in Canada and then live in another country? Thank you.
You are referring to the surplus income guidelines. Yes, it is possible to live in another country while you are bankrupt, provided you complete the duties required. Your trustee can explain those duties to you before you file. Another option is a consumer proposal, which allows you to make a settlement with CRA but without the surplus income payments each month. Again, a licensed insolvency trustee can explain those implications to you in more detail.
I received a business loan through Lendified at a ridiculous interest rate for the business. It was for the business but they made me a guarantor on the agreement. My business went upside-down this past year and I am worried they are going to take my house and everything I own should I default on payment. Can I be resolved of this loan?
Hi Mike. It depends on the loan agreement. If you signed a personal guarantee than they can pursue you personally, which may include placing a lien on your house. You should get either legal advice to review their security or speak to a licensed insolvency trustee to review your options.
I declared bankruptcy in 2015 and got discharged in 2018, first time bankruptcy. I had 2 debts with the CRA, my income tax for $66,000 and my HST for $33,000. The CRA was able to put a lien on the house for both debts before I declared bankruptcy. In the statement of claims, the CRA stated a secured debt of $20,000, representing the available equity in the house, and the rest of the debt as unsecured and the HST debt as unsecured. This is also on my discharge papers. I talked to the person that has my file with the CRA in order to settle the remaining debt, and he did tell me on the phone that the amount owing was $22,582. He sent me the paperwork to fill-out, in order to make a payment arrangement over 5 years. But, when I got the paperwork, I got a surprise that the amounts are still in full $75,000 for the income tax debt and $29,000 for the HST debt. Can they decide to change the amount owing than what is listed on the discharge papers?
Hi Daniel. This is a question to ask your trustee, because they have all of the relevant paperwork. In general, CRA registers a “blanket” lien for whatever you owe, so at the time of your bankruptcy you owed around $100,000, so since they likely didn’t get much money from the bankruptcy, the full amount of the lien is still registered on your property. Again, you should start with a discussion with your trustee to review your options.
I am in the process of filing bankruptcy. Is it correct that once the bankruptcy is in place, that I can open another company account under another name and receive another gst number? I have to work and my work requires a gst number. I was told that once you have a gst number you DO NOT get another one. The one I had prior to bankruptcy has been closed by cra, so how am I expected to work to help pay back funds against my bankruptcy if I cannot get another gst number to do so??
CRA will be pleased to issue a new HST number for you the day after you file for bankruptcy. Your old number is automatically stopped once you file – you still need to do final HST returns on the old number, but you won’t have any problems getting a new number once you file.
Can I use my daughters university tuition which I paid as a expense on my monthly bankruptcy statement
If you can claim her tuition on your taxes then your trustee may allow it – you need to contact them to discuss it.
Hi,I have $37000 in cra debt and $27000 in unsecured debt( cc and lines of credit)I met with a trustee in august and declared bankruptcy( my second,i went bankrupt in 2004 due to divorce and was discharged in 2005).My job ended in march 2020 as the company closed during covid,s first wave.At the time of filing i had no assets and no employment income,and I advised the trustee that my EI would end in 4 weeks and i would be living on cpp and oas for a total of $1515.00 a month. My question: is there a line where insolvency ends and destitution begins,and should i have declared bankruptcy in this condition? I have a deficit of $700.00 a month after rent food utilities and trustee fees
The cost to file, even a second time, is based on your income. If you income has dropped you need to have a conversation with your trustee about the cost. There are no “free” bankruptcies, but your payments should change with your income. At some point, presumably after 24 months since this is your second bankruptcy, you’ll end up in Court if you have not been able to pay the required amount. The Court will then decide what is fair. Conversely, if you simply stop complying with your duties your trustee will eventually close your file. You will no be discharged from bankruptcy, but since you’re living on pensions only do you need to be discharged? That’s a decision you have to make yourself. Sounds like the best thing for you to do is go and speak to your trustee…
I owe EI $7000 and I am on a disability through social services. Can they garnish my cheque for the money owed? I did receive the CRB, but only because I was laid off work due to COVID and I made $5000 in self employment and employment income in 2019, so I don’t understand why they’re making me pay that money back. Also, I gave them all my tax returns and self employment statements, so it’s not like they didn’t know I made that $5000.
Thanks
I am sorry, who are “they”? CRA? The government is unlikely to garnishee a provincial disability benefit. If you switch to CPP disability at some point them may deduct a small amount to recover their money. The CRB is a bit more problematic – you either qualified or you didn’t and it sounds like CRA has decided you didn’t. Any decision may be appealed, but let’s assume at the end of the day they decide against you and want the money back, once again, while you are on a provincial disability benefit they federal government aren’t likely to take any deductions. It is only if you switch to a federal benefit that they may start to claw some of your overpayments back.
Hi how are you I was told that all Gst ei cpp is a secured tax in a company
Hi James. GST and source deductions are “deemed trusts”, so they are director’s obligations. This is a complicated area of law, so if you are a director of a corporation you should discuss your options with an insolvency lawyer or a licensed insolvency trustee.
I own a restaurant which has suffered through the pandemic. We were in good standing with CRA untill last year and now owe approximately $60K between income tax and HST. The business is incorporated. What are my options? Banks refuse to help my situation because its a restaurant business. We do not want to loose what we’ve built and have a lot of employees who rely on us for income.
Hi Paul. The answer depends on how quickly you think your business will recover. If you expect business to improve over the next year, you could work out an extended repayment plan with CRA. I suggest you discuss your options for dealing with CRA with your accountant, or meet with a licensed insolvency trustee to determine if a proposal is a viable option for your business.
Our incorpated business was hit hard by the pandemic. We’ve fallen behind on GST/ Corporate and source deductions to stay afloat and make payroll. It’s gotten so out of hand and my mental state can no longer be ignored. I’m wondering if bankruptcy is the answer. It breaks my soul to think of dissolving everything I worked so hard to accomplish but this may be what’s needed. What happens to tax debt when you file for corporate business bankruptcy?
Hi Anna. GST is a director’s personal obligation, so even if the corporation goes bankrupt, the directors may still be personally liable. You should consult a licensed insolvency trustee to discuss your options, both for the corporation and for you personally.