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.