Can You Declare Bankruptcy on CRA Debt?
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By Bromwich+Smith Staff | 1187 words | Reading Time: 5 minutes and 56 Seconds | Date: 2023/03/23
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 are in debt to the Canada Revenue Agency, are you able to file bankruptcy on Canada Revenue Debt? We know that when you are in debt, it affects every aspect of your life. Financial stress can take a toll on your mental health and physical health, affect your appetite, sleep and your relationships. We also know that owing money to the CRA (Canada Revenue Agency) can top the list of stressful debt. There are many ways you can end 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 to name a few of the most common.
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. We suggest reaching our to HR Block to help, and all Bromwich+Smith clients are eligible to file their taxes at a reduced rate by using this link.
Canada Revenue is able to make collection on debt owed with a variety of methods including: garnishing your wages, seizing your bank accounts, or even registering a lien on your home. So, the quicker you act on debt you owe to the CRA, the better. Fortunately, there are debt relief options in Canada that allow you to include tax debt, thereby stopping CRA collection actions.
What options do I have?
The two options that are available through a Licensed Insolvency Trustee include a Consumer Proposal or a Bankruptcy.
How Can a Consumer Proposal Help Me?
A Consumer Proposal is a powerful debt relief option that can assist with reducing your CRA debt. If you reach out to a Licensed Insolvency Trustee to explore how a Consumer Proposal can get rid of your CRA debt you will learn what other debt can be included in your proposal.
- All debts to CRA such as income taxes, business GST/HST and source deductions.
- Credit card, and store credit card/ line of credit debt
- Personal lines of credit
- Unsecured loans
- Student debt Over seven years old
Consumer Proposals and Bankruptcies are the only solutions in Canada that can be settle government debts. Both options include your debt being reduced, but a Consumer Proposal will allow you to pay back a portion of the debt while you keep your assets.
Consumer Proposals are not the right option for everyone, and not everyone will qualify. Your Licensed Insolvency Trustee will be able to guide you through your options, and help determine what is the right fit for your financial situation.
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 or Consumer Proposal Clear Tax Debt in Canada?
When you file for debt relief with a Licensed Insolvency Trustee, 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.
Why Will CRA Only Decrease or Forgive Debt through a Licensed Insolvency Trustee?
The Canada Revenue Agency is not willing to enter into an informal debt settlement, nor will they accept a debt management plan through a credit counselling agency for less than the full amount owed. Simply stated, for any CRA debt to be absolved, you must file for a debt relief program through a Licensed Insolvency Trustee, including a consumer proposal or bankruptcy. Otherwise the full amount will continue to be owed to CRA.
Will CRA debt affect my credit score?
If the CRA takes legal action such as starting the collection process, going to court for a judgement or placing a lien on your property you will see a negative impact on your credit score. Filing for Bankruptcy, or a Consumer Proposal will also have an impact on your credit score. Keep in mind that every time you miss a payment your are impacting your credit score. Continuing the cycle of missed payments will prolong how long your score is impacted, and in the end you may see less of an impact by enrolling in a debt relief program.
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 assess your financial situation with you and provide the best solution for your specific needs.
Bankruptcy can be intimidating, but with the compassionate and knowledgeable team at Bromwich+Smith you can put an end to the sleepless nights, brought on by overwhelming debt. Lets work together and rebuild your worth, and credit today. We can put an end to accumulating debt today, don’t delay. If you find yourself in tax debt it's important to see help as soon as possible from a credible source.
If you are struggling with CRA debt, bankruptcy may be an option to consider. 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.
Q. Can I file bankruptcy on CRA debt only?
A. Yes, you can file bankruptcy on CRA debt only.
Q. What happens to my CRA debt in bankruptcy?
A. CRA debt is treated like any other unsecured debt in bankruptcy.
Q. How does bankruptcy affect my tax refunds?
A. Tax refunds may be affected in bankruptcy, but a licensed insolvency trustee can help you maximize your refunds.
Q. Can I include tax debt in a consumer proposal?
A. Yes, tax debt can be included in a consumer proposal.
Q. What happens if I don't file bankruptcy on CRA debt?
A. If you don't file bankruptcy on CRA debt, CRA can take collection actions and you may face consequences such as wage garnishments, liens, or seizure of assets.