Tax Refunds and Bankruptcy in Canada


Category: Bankruptcy Q&A (82) comments

Question: In your article Why Doesn’t Anyone File Bankruptcy in Canada in January? you said: “When you go bankrupt, you lose your tax refund for the year of bankruptcy, and all prior years that are not yet received.”

I went bankrupt in July 2011 and provided my 2011 tax refund to the trustee, but now I’m being told that I also have to provide my 2012 tax refund because 3 months of my bankruptcy was in 2012.

This doesn’t seem to equate with your comments.

Answer:  J. Douglas Hoyes, CA, CIRP, Bankruptcy Trustee, the author of that article, responds:

Your trustee is incorrect.  Section 67 of the Bankruptcy & Insolvency Act states that:

67. (1) The property of a bankrupt divisible among his creditors …shall comprise

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt,….

In simple terms, you lose your tax refund for the calendar year that you declared bankruptcy in Canada.  Providing your tax information to your trustee for the year of bankruptcy is one of the duties you must perform to receive your discharge from bankruptcy.

In your case you declared bankruptcy in 2011, so you lose your tax refund for the 2011 tax year.  Your trustee is required to file two tax returns for the year of bankruptcy:

  • pre-bankruptcy tax return, for the period from January 1 to the date of bankruptcy (July in your case); and
  • a post-bankruptcy tax return, for the period from the date of bankruptcy (in July in your case) to December 31.

The trustee gets all refunds to distribute to the creditors.

If there is a balance owing on your pre-bankruptcy tax return, that debt is included in your bankruptcy.

If there is a balance owing on your post-bankruptcy tax return, you are required to pay the tax owing, since that is a debt that was incurred after the date of bankruptcy.

I would suggest you contact your trustee and ask why they will be taking your 2012 tax refund; it may simply be that you mis-understood their explanation of the pre and post bankruptcy tax return.  If your trustee insists that you will lose your 2012 tax return (which won’t be filed until the spring of 2013), you should question them again, and ask them to provide support for their position (since the Bankruptcy & Insolvency Act clearly states otherwise).

Category: Bankruptcy Q&A |

About J. Douglas Hoyes

Douglas Hoyes, BA, CA, CPA, CBV, CIRP is a Licensed Insolvency Trustee and the co-founder of Hoyes, Michalos & Associates Inc., one of Canada's largest independent personal insolvency firms.

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  1. Robert

    So if I understand the explanation if declare bankruptcy in 2014 I would not have to give my 2013 tax refund (assume I am getting one) to the trustee. Is this correct? If I am wrong in this assumption then would it not be better for me to file my 2013 taxes, get the refund and then file for bankruptcy?

    Reply
  2. J. Douglas Hoyes Post author

    When you file for bankruptcy, you lose your tax refund for the year of bankruptcy, and for any prior years for which you have not received your tax refund.

    If you file bankruptcy in January 2014, you lose your tax refund for 2014 (which is the tax return that would be filed in the spring of 2015) because that’s the year of bankruptcy. If you have not yet received your 2013 tax refund, you would lose it as well.

    So yes, to answer your question, if you are expecting a tax refund for 2013 and you can afford to wait, in most cases it is prudent to file your taxes for the prior year, get your refund from CRA, and then declare bankruptcy, so that you only lose one year’s worth of tax refunds.

    Reply
    1. Cheryl F.

      I filed bankruptcy in 2012 and had almost finished paying it off when Canada Revenue granted me the Disability Tax Credit.

      My returns are being reassessed back to 2005 and I’m likely to receive a rather large refund. My 2012 thousand dollar refund has already gone directly to my trustee and they have sent the documents for remaining years to CRA.

      What happens to the money I have already paid to my trustee and to my future CRA refunds.

      Reply
      1. J. Douglas Hoyes Post author

        The law is very complicated, and there are numerous court cases on this issue, some of which contradict each other. As a general rule, all tax refunds for the year of bankruptcy and all prior years will be sent by CRA directly to the trustee. All tax refunds for future years will go to you. However, since this is a complicated area, you should discuss this directly with your trustee.

        Reply
    2. Marilyn O.

      I have filed in March 2016, and did my income tax.
      Before I claimed bankruptcy, I had someone to go over my taxes to prior years to see if there was anything that wasn’t claimed. As it happens, they did a reassessment for 2011-14, and I was owed $7,500 Approx. I had my 2011-14 taxes completed, they were being reassessed. Can they take all this money?
      Thanks

      Reply
      1. J. Douglas Hoyes Post author

        Hi Marilyn. Yes, all tax refunds for the period prior to bankruptcy become property of your bankruptcy estate.

        My general advice for people before filing bankruptcy is to get all tax returns up to date, so that if you are owed a refund it comes to you, not the creditors. This is not always possible if you are about to be garnisheed or subject to court action from other creditors, but it is worth considering. In your case, since you are already bankrupt, CRA will send any refunds for prior years to your trustee for distribution to your creditors.

        Reply
  3. Romona G.

    I filed bankruptcy in October 2012 and I am to pay for 21 months because of surplus income. My trustee filed and collected by Income tax refund, pre and post bankruptcy in the approx. amount of $5000. Now it’s time to file another tax return and I remember asking my trustee if it was my responsibility to file this years’ return, and she said yes, my responsibility. Now the question remains: Am I to forward the balance of that refund (because I am a single mom with dependent children, therefore, I know I will receive a refund) or is it to be divided and half sent to the Trustee, or do I actually get the refund in its entirety?

    Reply
  4. J. Douglas Hoyes Post author

    In your specific example, CRA will send you the refund.

    When you file bankruptcy you lose your tax refund for the year of bankruptcy, and for any prior years (where you have not yet received your refund) (as per is paragraph 67(1)(c) of the Bankruptcy & Insolvency Act). In your example you filed bankruptcy in 2012, so you lose your 2012 tax refunds (both your pre-bankruptcy and post-bankruptcy refunds), but CRA will send your 2013 tax refund to you directly because that is after the year of bankruptcy.

    The second part of your question is “when I get that tax refund, do I have to give it to the trustee, or do I have to include it in my income as part of the surplus income calculation?”

    Different trustees will have different answers to that question, because the law is somewhat vague, so this is a question you should ask your trustee. One interpretation is that since the tax refund for the year after the year of bankruptcy filing is not included in 67(1)(c), it is not an asset. However, section 68(2)(a) indicates that all sources of income are included in your income calculation, so many trustees would require you to include the refund in your income, and you would pay half of it as surplus income.

    Again, this is a very complicated area, because if you don’t receive that refund until after you are discharged it would not be considered income, so timing is also important, which is why you should discuss this with your trustee for a complete answer based on your specific situation.

    Reply
    1. Mary E.

      I declared bankruptcy in July 2014. I have had a student loan debt with the Canada student loan since I finished my studies in BC in 2003. I moved to the province of Quebec in 2003 and my student loan debt has been in repayment when I declared bankruptcy and was not eliminated because in September 2012 I returned back into studies and am a part-time university student. I live in Montreal and have a student loan debt with the provincial government as well. My trustee in bankruptcy advised me that I will not be obliged to reimburse both federal and provincial governments for my student loan debt until after my discharge. The provincial government has started seizing my solidarity tax credit in payment of the debt even though I have not been discharged yet. Yesterday after filing my income tax return for 2014 I have noticed that both governments owe me tax refund on education tax credit. As I understand any post bankruptcy federal tax refund go to the federal government. I would like to know if the federal government will use my tax refund to use it against my student loan debt and to reduce the amount of debt. I do not have any other provincial or federal debt other than the student loan debt which was not eliminated by bankruptcy!
      I would appreciate a reply from you.

      Sincerely yours,

      Mary E.

      Reply
      1. J. Douglas Hoyes Post author

        Hi Mary. Without full access to your file I can’t give you a complete answer; this is a question you should ask your trustee.

        In general, yes, it is standard practice for CRA to apply your tax refund against outstanding federal government debt, so it is likely that your 2014 tax refund will be automatically applied against your un-discharged Canada student loan. I am based in Ontario and I am not an expert on Quebec tax law, but as I understand it you also file a Quebec tax return, so it is possible that Quebec will take the same approach as Canada.

        You could also contact CRA to determine their approach, or ask your trustee to make the call on your behalf (since in my experience CRA does not always deal with issues like this in a consistent manner. If their system is not completely up to date, you may get the refund, or it may go to student loans, or it may go to your trustee).

        Reply
  5. Chris

    I am in the same situation as Ramona. I filed for bankruptcy in July 2012 and also have surplus and will be discharged from bankruptcy April 2014. If I wait to file my tax return until after I receive my discharge from bankruptcy, then would I be able to keep my entire return?

    Reply
  6. J. Douglas Hoyes Post author

    Chris: There are various factors that apply in each bankruptcy, so I suggest you discuss this with your trustee, as your trustee may have a different interpretation based on the facts of your case. In general, however, since you are not required to file your tax return until April 30, and you would not receive your refund until after your discharge, in virtually all cases your trustee will allow you to keep that refund.

    Reply
  7. 71 Year Old Senior on Very Low, Fixed Income

    I have a question regarding my 2013 Income Tax Refund…I filed for bankruptcy on March 21, 2013 and my bankruptcy ended on December 22, 2013. I received my bankruptcy discharge papers soon after my bankruptcy ended. I am wondering if having any medical conditions like the following – I need new glasses, my bottom teeth – what few I have – need to be pulled and either dentures or implants needed to be put in, I have heart disease, Left Bundle Branch Block (known as LBBB), and there may now be a fix for this but my appointment to check on this is until March 19. I also suffer from Arthritis, High Blood Pressure and hyperthyroidism – means that I can apply to keep my 2013 Tax Refund to help with these medical problems or not? I know my Bankruptcy Trustees are adamant that they will be taking take both years tax refunds and they refuse to discuss it at all. They have already taken my 2012 tax refund. Can I get help with this matter or is this the end of all my hopes on this issue as do not know where to turn now – thanks.

    Reply
  8. me

    heres a good one, what if your trustee filed your taxes like they were supposed to but they messed something up where the refund that was to go to them instead went as a credit on your personal account and no notification from either cra or the trustee happened then when you filed your next years return( the one you get to keep) that credit went on your return without your knowledge and then it came to bite you the year after that and the first years filing right after being discharged you are now stuck with that big debt. who’s responsible for that?

    Reply
    1. Angela

      This has happened and its not necessarily the Trustee’s fault but a screw-up at CRA because the Trustee has no control over what CRA does.

      The Trustee can, however, ask CRA to correct the reimbursement (i.e. send it to the Trustee) and then CRA will collect it back from the individual. That’s why you need to listen to what the Trustee tells you – if you are getting a refund (Pre or Post) in the year of bankruptcy, it goes to the Trustee. If you get it – question it immediately!!

      Reply
  9. Tracey

    My concern is close to Chris. I am in a 21 month bankruptcy and was wondering if I wait to file my taxes, which I know I will receive a refund, will I then be able to keep the entire amount? I was already told by my trustee that I would need to declare it as income while I am still sending income statements in, however, am I allowed to wait to file until I am discharged (which would be after April 30th) so that I don’t have to declare the income?

    Reply
  10. J. Douglas Hoyes Post author

    Tracey: as noted in my answer to Chris, each trustee may have a slightly different interpretation of the rules. If your trustee has advised that you must include your tax refund as income on your monthly income report, you have two options:

    1. File your taxes before April 30, and if you receive the refund while you are still bankrupt and include it as income on your income statements, you will owe half of the refund as surplus income (if you are already over your limit for that month).

    2. You could wait until after you are discharged to file your taxes for 2014 (which for you is the year after bankruptcy). CRA requires you to file your taxes by April 30. If you don’t, you will be charged interest and penalties on any amounts owing. In your case, if you are getting a refund, there would be no interest or penalties, since there would be nothing owing. However, filing late may delay child tax credits or other government benefits.

    I would recommend you discuss this with your trustee to fully evaluate your options.

    Reply
  11. Ian B.

    I’m sorry if I didn’t quite understand the previous answers. I went bankrupt July 2013 and was discharged March of 2014. Do I receive the tax refund for 2014? Thank you.

    Reply
  12. J. Douglas Hoyes Post author

    Hi Ian. Yes, you are discharged from your bankruptcy, so you receive your tax refund for 2014. Again, you should consult your own trustee for more information, as they have access to all aspects of your file.

    Reply
  13. Ali

    Short question: I filled bankruptcy in 2011. Paid the 2011 tax return when the trustee filed it. I have just come to know that I have qualified for Disability Tax Benefit from 2007-2011 for my son. So CRA will now re-assess all my tax returns from 2007-2011 and I am owed atleast $10,000 in tax refunds due to disability tax benefit. Will that go to the creditors as it’s all prior to 2011? This money is for my son not me as he is the one who is qualified disabled. The tax refund is for him?

    Reply
  14. Carrie S

    My issue is understanding what CRA means when they say debits transfered to pre bankruptcy acct. Since going bankrupt I have been receiving alot of letters issuing me notices of re assaments for various things in regards to marital status change/child credits,…….so they of course want monies our family/me do not have. Scared and worried for what happens. Please explain what and how I am to pay this?

    Reply
    1. J. Douglas Hoyes Post author

      Hi Carrie. You should bring the letters to your trustee and ask them to explain what the letters mean, and what you are required to do. Without seeing the letters and reviewing your entire history I can’t give you an accurate answer to your question.

      Reply
  15. Very Low, Fixed Income Senior

    I would like to ask why if my bankruptcy was discharged on time, after 9 months, last year on December 22, 2013 and I have paid to my bankruptcy trustees all monies owing to them ($1,800 dollars), why the bankruptcy trustees are still allowed to continue taking my GST/HST rebates (which they said they could take “in case I did not end up paying them monthly” – even though they had in their hands from day one the following: 1 month cash payment of $100 and 17 monthly post-dated cheques which finished paying them off in total last month – Aug. 30, 2014). I phoned CRA today and they say that the bankruptcy trustee can continue to take all my GST/HST rebates until they close their file which could take anywhere from 6 months to a year and there is nothing I can do about it? Isn’t this some kind of scam between the bankruptcy trustee and CRA – like double dipping? I owe the bankruptcy trustees nothing at all so why can they continue taking funds from me. They also took both my 2012 and 2013 tax refunds from me as well, even though my debts were extinguished on discharge on December 22, 2013 as I have my discharge papers? I was living on $1,303 a month when I first started my bankruptcy which barely covered rent, food and medical and I could not get any work. I don’t get it, why kick a senior when they are already down!!

    Reply
    1. J. Douglas Hoyes Post author

      Your trustee should not be taking your GST/HST rebates after you are discharged. I would suggest that you contact your trustee and ask them to complete CRA Form DC905 and send it to CRA advising them that CRA should send all future GST/HST rebates to you. If you have any problems, you can contact the Office of the Superintendent of Bankruptcy to discuss the actions of your trustee.

      Reply
    2. Angela

      Unfortunately, while most of these answers are correct, there could be other factors involved. Fort example, if you owe surplus income the Trustee may ask that subsequent tax refunds be applied to the balance so you can get your Discharge.

      GST may not be held by your Trustee after your discharge- they generally send the funds to CRA who, in turn, will refund it to you. That (as always) takes time as CRA doesn’t move very quickly.

      Just another perspective.

      Reply
      1. J. Douglas Hoyes Post author

        Hi Angela. Thanks for your perspective. You are correct that different trustees have different procedures, which is why it is important to ask many questions of your trustee up front.

        With regards to surplus income, you are correct that you must pay your surplus income before you get your discharge, so while the trustee cannot require you to surrender a tax refund for the year after bankruptcy, you could voluntarily choose to do so.

        As for GST or HST, that is again something to discuss with your trustee. A trustee is only permitted to retain the GST/HST in bankruptcies where the total funds are a set amount (the math is somewhat complicated, but in simple terms if there is more than $1,800 in the estate at the end, the trustee does not keep the HST). So, at our firm, if we are reasonably confident that there will be more than that amount at the end (due to expected tax refunds or surplus income, or voluntary contributions), we notify CRA at the start of the bankruptcy that we don’t want the HST cheques, so they are never sent to us (they go directly to the bankrupt), so there is nothing for us to return at the end.

        Reply
        1. Jackelyn

          This is what they are doing to me. I filed for bankruptcy in 2015. They did my taxes and held all gst and the refund from taxes for 2015. I went to do my taxes todayfor 2016. After paying $95 to get hr and block to do. I had to call my trustee they inform me they will taking this refund for 2016. Also they will taking any settlement from legal aid i recieve from my exhusband. Which is 900. All because oversurplus. I dont understand why and how they are allowed to do this.
          If they are not how can i stop them.

          Reply
        2. R Roberts

          I went bankrupt Dec 2016 my spouse did not the trustee is going to do my taxes can she go a head as usual and file her taxes without my net income because they want me to include her net income for 2016 when i send my tax slips to trustee

          Reply
          1. J. Douglas Hoyes Post author

            Yes, your wife will file her taxes as per normal. All she needs to do is put your social insurance number and total income on the return, so that CRA can cross-check it with your return (because benefits like child tax credits are based on family income). If you have already sent your slips to your trustee, phone the trustee and ask for your total income so she can include it on her return.

  16. Donna C.

    Hi there,
    I have a situation that i need some answers/and or clarification for.
    I filed for bankruptcy in 2011 and was discharged in the fall of 2013. I have applied for The Disability Tax Credit and have been approved from 2003 forward. I have learned today that i am
    receiving in excess of $14,000.00, but am not receiving a dime. Its all going to the creditors from my discharged bankruptcy. I don’t understand and would appreciate some clarification.
    Thank you in advance.

    Reply
    1. J. Douglas Hoyes Post author

      Hi Donna. Without access to your file, I can’t answer your question. You should contact CRA and your trustee and ask them to explain.

      My guess is that all tax refunds for the years up to and including 2011, the year of your bankruptcy, go to the trustee, so since you are receiving a tax refund covering the period 2003 to 2011, those funds will be automatically forwarded by CRA to the trustee for distribution to your creditors. You should receive the funds for the period after your bankruptcy.

      Reply
  17. Rick

    Hello,

    I filed for Bankruptcy in October 2013 and I was given a 21 month bankruptcy period before discharge. This period ends in June of 2015. My Trustee filed a pre and a post Bankruptcy (as per is paragraph 67(1)(c) of the Bankruptcy & Insolvency Act) for 2013 and I ended up owing Revenue Canada which I paid.

    My quest to you is

    1. Do I need to send my 2014 Tax refund to the trustee or am I entitled to keep that money? As I believe that it is the year of bankruptcy?

    2. Can I wait till April 29th 2015 to file my taxes for 2014 and keep the return that I will be getting since it is close to my discharge date?

    Regards,

    Rick

    Reply
    1. J. Douglas Hoyes Post author

      Hi Rick. These are questions you should ask your trustee. They are familiar with your file, and are in the best position to answer questions based on your specific situation.

      As a general answer, paragraph 67 (1) (c) of the states that as a bankrupt you will lose your tax refund for any prior years not yet received, and

      in respect of the calendar year…in which the bankruptcy became a bankrupt…

      .

      So, if you go bankruptcy in 2013, you lose your tax refund for 2013. There is nothing in the Act that suggests you would lose your tax refund for 2014 or any future years.

      Reply
  18. Angela

    When in doubt, ask your Trustee and listen very carefully to what he says. If you don’t understand, tell him and ask him to explain it until you do!!!

    Reply
  19. Anna

    I also went bankrupt in 2007, discharged 2008. I have now been accepted for Disability Tax Credit for the period 2012 to 2019. I have had my income tax reassessed for 2012 and 2013 and am getting a small credit of approx. $2,100. I am not working and on CPP due to disability. However, CRA has told me that they cannot release this money since I was bankrupt. This does not make sense to me. Can you help me or give me some advice?

    Reply
    1. J. Douglas Hoyes Post author

      That does not make sense to me either. If you were discharged 7 years ago I don’t see why CRA would be holding your tax refund for two years ago. I would suggest that you ask CRA for a letter explaining in detail why they will not give you your refund. You should also contact your trustee and ask them to confirm that they have filed all necessary paperwork to process your discharge.

      Reply
  20. Char

    Hi, I filed for bankruptcy in June 2014 and just received my discharge papers…all of my tax years are filed up to date. But I have not received any child tax credit checks since July 2014 (my trustee told me that it takes a few months for the government to process taxes in these cases). There is not a case of overpayment or earnings in any month of the bankruptcy, so I know they are not being distributed to creditors. Do you have any idea when I could expect to receive these past checks? I could really use them. Thanks!

    Reply
    1. J. Douglas Hoyes Post author

      I have no idea. The child tax credits you would have started to receive in July 2014 would have been based on your 2013 tax return, which presumably you filed before you filed bankruptcy in June 2014. I would suggest the following:

      First, contact CRA and confirm that they received and assessed your 2013 tax return. If they did, ask them why you are not receiving child tax credits. Your bankruptcy should not have impacted this in any way.

      Second, if that doesn’t work, talk to your trustee. They will have contacts at CRA that they can talk to to determine why you aren’t receiving your child tax benefit cheques.

      Reply
  21. Nicole S.

    I filed my bankruptcy in May 2011 and finally received my discharge in May 2014. I received my 2014 tax return but did notice that I had not yet filed a 2007 or 2008 tax return, so I filed this year 2015, and ended up with a credit for both years. Yet CRA tells me they send both refunds to my “trustee”, who is no longer authorized on my CRA account, as I have already been discharged. So why is my trustee still able to take these funds after being discharged?

    Reply
    1. J. Douglas Hoyes Post author

      Hi Nicole. Canada Revenue Agency automatically sends all refunds for all years prior to the year of bankruptcy to the trustee, regardless of when they are filed, and regardless of whether or not the trustee is discharged.

      Reply
  22. kathy

    Hello my husband went bankrupt in 2010 and was discharged after the 9 months and he has now gotten the go ahead for his Disability tax credit that will be applied to his taxes back to 2005.Why does the trustie and creditors get all 6 years when if he had gotten it in those years prior and used it each year they would have never touched it.Also when he filed they only took the year prior and the year post so how then can they go back a full 7 years.

    Reply
    1. J. Douglas Hoyes Post author

      Hi Kathy. This is a question your husband should ask his trustee, since they are familiar with your husband’s file.

      In general terms, when you go bankrupt you lose whatever non-exempt assets you have at the time of your bankruptcy, whether you know about them or not. If a bankrupt has tax refunds that are for the years prior to bankruptcy, in general terms they become an asset of the estate, even if the amended tax returns are not filed until a later date.

      Reply
  23. Theresa Reid

    I filed for bankruptcy Feb 2013 and discharged Nov 2013. BDO completed my 2012 taxes April 2014 and there was a refund of $7755; BDO completed 2 returns for 2013…the first June 2015 with a return of $13,262 and the second on July 2015 with a return of $2,528. At the time of filing my assets were $367k and Liabilites $40k. Can you advise if I will receive any of these refunds? Also I am to receive Child Tax Benefits/Universal Child/Ontario Trillium and GST starting July 2015, the GST already has been sent to BDO…will the others do the same? I was with the understanding that refunds would be sent to my trustee which would pay off my debts owing and anything left remaining would be forwarded back to myself, can you please explain as I am completely confused. Thank you for your help!

    Reply
    1. Ted Michalos

      Unfortunately, it doesn’t sound like you and BDO are communicating with each other. If sufficient funds are collected by your trustee to repay your debts in full then any excess funds will be returned to you. The only way to know if that is likely is to contact BDO and ask them to provide you with a detailed accounting of what they have received in the way of claims and funds towards your debts. They should have all of this on computer and be able to pull it up to give you in 5 minutes…

      Reply
  24. Michael

    Hi, I filed for bankruptcy in March 2014 and received my NOA last week with a balance owing due to a revised CPP amount; higher than the trustee’s calculation. CRA is claiming that the CPP (Line 421/Schedule 8) is to be calculated based on the entire years income (pre and post return just for CPP) and not just the income for the post period. Is this correct? If not, and I need to file an objection are there any case precedence’s I can cite? If so, where can I find them to include in the objection?

    Reply
    1. Ted Michalos

      CPP is payable based on your entire year’s income – eventually that is to your advantage as it will increase your CPP benefit when you retire (assuming we still have CPP, but that’s a different conversation). If you have concerns about the way your tax return was prepared and filed I suggest you contact your trustee directly and ask them to review it.

      Reply
  25. Mal

    Why has my question not been asked and instead it says at the top of it “your comment is awaiting moderation” – what does that mean?

    Reply
    1. Ted Michalos

      Your question was not answered because you posted far too detailed and specific a question for a free website. Use the links on the site to contact a trustee office directly and ask them your questions, or contact a lawyer for an opinion since you are already dealing with a trustee and you obviously have some serious issues.

      Reply
  26. Nancy W.

    I filed for bankruptcy in August 2014. My discharge application has been sent to the court for discharge. My child who is still a minor has been diagnosed with a disability and I was told to apply for disability credits. If I’m approve, the cra can back pay me back since he was born base on my taxes from previous years. If I’m backdated, will that money go to my trustee or come to me for my child?

    Reply
    1. J. Douglas Hoyes Post author

      Hi Nancy. This is a question you should ask your trustee, since the individual facts of your case will determine the answer.

      In general, all tax refunds that are owing to you for the bankruptcy period, and all prior periods, are property of your bankruptcy estate, and will be forwarded by CRA to your trustee. You would be entitled to receive the credits for future periods.

      Again, this is a complicated area of the law, so you should discuss this directly with your trustee.

      Reply
  27. Greig

    I just want to thank you for the kindness and compassion your firm has shown me through this process. My phone has stopped ringing!

    Reply
  28. mike

    I had been accepted for the consumer proposal and I am discharging my obligations on a monthly basis. Recently I have been approved for the Disability Tax Credit for the period 2005 to 2014. It is estimated that I would get a very substantial tax refund. Will my refunds, if any, go directly to the trustee? Your response would be appreciated, please.

    Reply
    1. J. Douglas Hoyes Post author

      Hi Mike. In a consumer proposal you keep your assets, including your tax refunds, so in most cases you do not surrender your tax refunds, or disability credit refunds. In fact, in a consumer proposal you file your taxes yourself, so in most cases the tax refunds are not going to your trustee. The only exception would be if you owed CRA taxes for those years; they may apply those refunds against the tax arrears. We suggest you discuss this with your consumer proposal administrator who can give you a more complete answer based on your situation.

      Reply
  29. Martin

    I filed for personal bankruptcy in March 2014 and early this year around February 2015 received a Quebec return and thought that this covered the 2014 year.
    In July 2015 I stopped getting the monthly tax solidarity benefit from Quebec and when I went to the tax office they said they had never received the post bankruptcy return. Once they got that I would get everything retroactive. Only recently did I find out that there is a pre and post return, this was not explained to me by the trustee during my meetings. When I informed them of this a few weeks ago they said they do not do the post return, and gave me a list of accountants I could contact to have this completed.

    My question is , since I am receiving social assistance, can I complete this return myself using income tax software ? I always filed my own returns prior to bankruptcy.

    Thanks

    Reply
    1. J. Douglas Hoyes Post author

      Hi Martin. In general, yes, you could complete the return yourself, but you must note on the tax return that it is a post bankruptcy return, and note the date of bankruptcy. Your trustee can explain how this is done.

      Reply
  30. WJ

    I am thinking of applying for Bankruptcy this year (2016), I am expecting a few thousand dollar tax return for the Tax Year of 2015 which I plan to file in February 2016 and receive in March 2016. If I apply for Bankruptcy immediately after receiving my tax return in March 2016 can the trustee have this refund? If so, how long after my tax return is received should I file for bankruptcy so this 2015 tax refund is entirely mine.

    Reply
    1. J. Douglas Hoyes Post author

      Hi WJ. Once you get your tax refund, it’s yours, so it is very common for people to file bankruptcy immediately after receiving their tax refund. That’s why there are fewer bankruptcies filed in January and February, and more filed later in the spring each year after tax refund season.

      Reply
  31. J.K

    Hi…I’m just wondering if I filed bankruptcy in March 2015 for the 9 months and now got my discharge papers and paid up to date, when I file my income tax this year for 2015, and usually get a refund, will I be getting it back? I brought this up to my trustee twice (once before I proceed with bankruptcy and another time during) if I would lose it and he said IF lose any it would little but I keep hearing that I will lose it all, what is right??

    Reply
    1. J. Douglas Hoyes Post author

      Hi J.K.

      When you file bankruptcy, you lose your tax refund for the year of bankruptcy. You filed bankruptcy in 2015, so you will lose your tax refund for 2015, even though your tax return for 2015 will be filed in 2016, and even though it is being filed after you are discharged.

      Reply
      1. JK

        I know it doesn’t have to do with my trustee but why would he say twice that I wouldn’t lose it all (once during and looking at my file)?! If I got my clearance papers from bankruptcy and it’s now closed, they take my refund and give it to creditors? The reason I get it back it because i’m a single parent and claim my dependent.
        Also, I know you can’t make over a certain amount income or it would put you in a different bracket so when I pass my paystubs in don’t they go by your gross? That would include the taxes, correct?
        sorry just a little confuse, now even more that i’m hearing different answers!

        Thanks!

        Reply
        1. J. Douglas Hoyes Post author

          Hi JK. To answer your second question first, surplus income is based on your net income, not your gross income, so it is your after tax income. You can read more in our article on surplus income limits for 2016.

          As for your taxes, I can’t speak for your trustee, because I don’t know what they told you. You lose your tax refund for the year of bankruptcy, regardless of when your bankruptcy ends. So if you file in March 2015, you lose your tax refund for all of 2015, even though you may be discharged from bankruptcy before it is time to file your 2015 taxes.

          Reply
  32. Brenda

    i filed for bankruptcy in august 2014….it is my second bankruptcy.if i get a refund this year 2016 will the bankruptcy trustee get the money or will i get it.

    Reply
    1. J. Douglas Hoyes Post author

      Hi Brenda. That is a question you should ask your trustee. In most cases you only lose your tax refund for prior years, and the year of bankruptcy, so if your year of bankruptcy was 2014 you should receive your 2015 tax refund.

      Reply
  33. Kat

    I filed for Bankrupcy ( first time with some surplus income) in Jan 2016 and will be paying $200 mos for the period of 21 months. I have just had my taxes done for 2015 and owe CRA $3000.. Obviously I don’t have the money to pay it outright. Can any of this be worked into my Bankrupcy plan with the Trustee, or do I deal direct with CRA for a payment plan ?

    Reply
    1. J. Douglas Hoyes Post author

      Hi Kat. This is a question you should ask your trustee, since they are responsible for ensuring that all taxes are filed, and that all creditors are notified.

      They will tell you that yes, taxes for the year prior to bankruptcy are included in your bankruptcy, so since you filed bankruptcy in 2016 your 2015 taxes are included in your bankruptcy.

      Reply
  34. Desiree

    Hi there, we were issued a conditional discharge – once we pay off surplus income we will receive an absolute discharge.
    We were in bankruptcy from 2013-2016 and didn’t do tax returns for 2014-2015 yet
    Does our refund go directly to the trustee!?
    Can we put it towards the amount we need to pay for discharge!? Or do we receive it and can do what we like with it?

    Reply
    1. J. Douglas Hoyes Post author

      Hi Desiree. If the only condition in your conditional discharge was to finish paying the surplus income, you should be entitled to your tax refunds from the period 2014 and forward. Your trustee can give you a definitive answer, based on the conditions of your court order.

      Reply
      1. Sharon

        We will be just below the threshold to not have to pay surplus income, thus being discharged within 9 months versus the 21 months. We are expecting a tax refund for the year 2016 (year of bankruptcy). Can this tax refund amount increase our income threshold, therefore, put us over the limit and not get discharged until the 21 months and be required to pay surplus income??? If so, is there a way around this?

        Reply
        1. J. Douglas Hoyes Post author

          Hi Sharon. No, your tax refund for the year of bankruptcy does not increase your income, because you don’t get it; it goes directly to the trustee, so unless there are other factors you should still be discharged in 9 months.

          Reply
  35. Michelle

    I got a student loan back in 1999. That same year i had a severe spinal cord injury and could not continue my studies. My Canada Student Loan was forgiven, but not my Ontario Student loan. It was hard times for me, but i got interest relief for the first couple of years while i wasn’t paying. My situation did not change after my interest relief ran out, so my loan went into default. I recently filed for bankruptcy in 2015, with the impression that my OSL would be part of it, as that’s what i was told because it was more than 7 years old. I am still getting letters from CRA that i have this outstanding debt, and that my income tax will be taken to repay it. This is now in the hands of a collection agency ARO. I have contacted them to ask them why they haven’t let CRA know of the situation, because they are the ones that have to let CRA know so they don’t continue to take my income tax. My trustee has also contacted them to tell them the same thing. They are giving me the run around. What else can i do? Any feedback would be greatly appreciated

    Reply
    1. J. Douglas Hoyes Post author

      Hi Michelle. I would suggest you contact your trustee, every week if necessary, until this is resolved. “The squeaky wheel gets the oil”. Dealing with the government is frustrating, and I have no doubt that your trustee is being given the run-around, but the only solution will be for them to keep contacting ARO and CRA until this is resolved.

      Reply
  36. Belinda W.

    Good afternoon
    I am very confused and have spoken with my trustee but still do not understand. I went bankrupt in early April of 2015, for 9 months. So I understand they have received all my refunds and credits for my 2015 taxes, then they did my 2016 taxes. So Im confused that now they continue to receive any refunds or credits I receive until 2018? Why would they receive all my refunds for 2 years, when my bankruptcy was 9 months? Im just told it us until my discharge, so it has been almost 17 months already, why does a discharge take this long, or two years? Can you please explain what is happening in simple terms?
    Thank you
    BCW

    Reply
    1. J. Douglas Hoyes Post author

      Hi Belinda. I am also confused. Section 67 (1) (c) of the Bankruptcy & Insolvency Act says that you will lose:

      (c) … any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year

      So, if you went bankrupt in 2015, you would lose your tax refund for all of 2015 (and all prior years). So since the trustee would file your taxes in April 2016 for 2015 you are losing your 2015 tax refund, even though it is filed in 2016.

      I have no idea why you would lose your 2016 tax refund.

      You should ask your trustee to explain what is happening.

      If you are unsatisfied with the response, you can contact the Office of the Superintendent of Bankruptcy who can either explain or investigate.

      Reply
  37. Debbie

    Hi,there
    I was wondering if you could help me.I had someone do my taxes in previous years, however this year, I had a community volunteer do my tax return for 2016: but I think,he failed to do it properly.There were 3 things that I feel he neglected to do properly,
    1) I supplied him with all receipts for my dependent children’s dental and medical expenses but he did not include any of them
    2) He did not factor in that I was eligible for the Working Income Tax Benefit here in BC. My earnings were above the required amount of 3000.00
    3) Because I’m considered to be running a business as a part time casual house cleaner and I had been paying into cpp in previous years. The volunteer had left that entry blank. My basic refund was 75.00 that I received in June.
    In July, I declared personal bankruptcy. My question, should I file an amended return to correct the errors now or wait and would any refund that I might get, go to the creditors?
    Thanks!

    Reply
  38. Mark

    Hello,

    I have just received a phone call from my trustee that I owe approximately $2k from a tax return I received in 2017. I was discharged from bankruptcy in 2015. The amount was apparently delivered in error to me instead of the trustee. The trustee filed returns for 2014 and 2015. I filed for 2016 and received this credit well over a year ago. The trustee is claiming no fault and I filed in a proper manner. If they’re correct and it is a CRA mistake, what are my options?

    Reply
    1. Ted Michalos

      Mark – sorry for the delay in responding. If CRA paid a refund to you that should have gone to your bankruptcy then even though the government made a mistake you’ll likely have to repay the money. Think of it like a bank error. If your bank deposited $2,000 into your account in error they’d want it back when/if they discovered the error. Having said that, I suggest you speak directly with your trustee to see if there is any flexibility in their request.

      Reply
  39. James

    Hi, I would like to ask a question. I was laid off in December 2017. I filed bankruptcy in March 2018 while being on EI and later on in July 2018 received a check from my previous employer (that was about to go bankrupt) for deferred salary, vacation and severance. Check hasn’t been cashed or deposited yet. Who will be entitled to this funds, creditors or me?

    Also, by issuing this payment company most likely produced a T4. Even though, I am still on EI will this affect my 9 month bankruptcy and it will become a 21 month bankruptcy?

    Reply
    1. Ted Michalos

      The best thing to do James is to contact your trustee. The payment you received from your old employer is definitely “income” so it may impact your payments in bankruptcy. One of your duties while in bankruptcy is to report your income to your trustee so they may determine if you are required to make any “surplus income” payments. If you are then your bankruptcy will be extended from 9 to 21 months.

      So, contact your trustee so they can do the math and let you know how much of the severance cheque you are entitled to keep, and how much, if any, will be paid into your bankruptcy for your creditors.

      Reply

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