Can You Declare Bankruptcy on CRA Debt?

Can You Declare Bankruptcy on CRA Debt?

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By Bromwich+Smith Staff | 504 words | Reading Time: 2 minutes and 31 Seconds | Date: 2022/03/24

Owing money to the CRA (Canada Revenue Agency) can be very stressful. There are many ways you can wind up in tax debt, such as not filing your personal income tax returns, failing to pay taxes on business income, HST payments for the self-employed, or inadequate payroll deductions from your employer if you work multiple jobs.

When you owe the CRA money, they will charge penalties and interest on unpaid amounts. This also includes a late filing penalty of 5% plus 1% of your balance owing each month. If you’re afraid that you are going to owe the government money, don’t delay filing your taxes. As you could incur harsher penalties, and end up paying more in the end. 

Given the collection powers of the CRA, that include: garnishing your wages, seizing your bank accounts, or even registering a lien on your home the quicker you act on CRA debt, the better. Fortunately, filing for bankruptcy in Canada allows you to include tax debt, thereby stopping CRA collection actions.

What Happens Once You File for Bankruptcy?

Once your bankruptcy is filed, there is an immediate “stay of proceedings”. This means that unsecured creditors cannot begin or continue lawsuits, wage garnishees, or even contact you to request payment.

Within five days of the bankruptcy starting your Licensed Insolvency Trustee will send a copy of the bankruptcy paperwork to creditors, so they can file a claim.

The trustee will file outstanding tax returns up to the date of bankruptcy. Any outstanding taxes or penalties owed to CRA (Canada Revenue Agency) will be included.

You will have certain obligations that you will have to fulfill including a monthly income statement along with attending credit counseling sessions.

  • Filing bankruptcy immediately halts most creditors from taking your wages.
  • Your Trustee will deal with your unsecured creditors on your behalf.

Does Bankruptcy Clear Tax Debt in Canada?

When you file for bankruptcy, your CRA debt will be cleared along with relief from all or other unsecured creditors. There are some exceptions to this rule,  including those who owe over $200,000 in taxes. Otherwise, as a general rule, if you owe the CRA, declaring bankruptcy will definitely help. 

Your CRA Debt Options

If you are experiencing CRA debt issues, speaking with one of our Licensed Insolvency Trustees to review your options, is a great first step. They will examine your financial situation with you and provide the best solution for your specific needs. 

Bankruptcy can be intimidating, but with the thoughtful, knowledgeable, and helpful team at Bromwich+Smith you can make a fresh start and get busy rebuilding your credit right away. So, don’t delay if you find yourself in tax debt it's important to see help as soon as possible from a credible source.  

At Bromwich+Smith we offer an initial free, no obligation, confidential consultation by phone 1-855-884-9243 or video. You can also request a call back at our contact us page. Our team of Debt Relief Specialists are here to assist you with unbiased and nonjudgmental support, ensuring you find the right solution that will help you conquer your debt and rebuild your worth today.

 

 

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