So “can you declare bankruptcy on CRA debt?” It's never easy to face the reality of being deep in tax debt. Owing money to the government can be particularly stressful, and finding a way to settle any tax dues on your record becomes a priority.
How Does Your CRA Debt Accumulate?
CRA debt accumulates when you fail to pay taxes on your business income and personal tax returns. It includes unpaid harmonized sales tax for self-employed individuals and payroll deductions from multiple jobs. These dues can quickly escalate if not managed promptly.
CRA Debt: How Do You Know If You Have One?
A CRA debt refers to the money you owe the Canada Revenue Agency (CRA). The CRA is known for its aggressive collection methods, which can severely impact your financial stability. Many people find themselves stressed when they receive a notice from the agency.
To determine if you have outstanding agency dues, contact the agency directly. You should check for overdue student loans or overpayments on Employment Insurance (EI) and the Canadian Pension Plan (CPP).
Getting Out of CRA Debt
Once you’ve confirmed that you owe the CRA, you must find the best way to resolve the debt. Handling this kind of debt requires careful consideration of your options.
Requesting a Payment Plan
Negotiation is not an option when dealing with CRA debt—you will have to pay it eventually. Requesting a payment plan is a viable choice. The agency can help you manage your finances by splitting your dues into more manageable payments. Remember that interest will accumulate while you’re on the payment plan, requiring you to continue paying until your dues are cleared.
Declaring Bankruptcy
If the pressure of paying the CRA becomes too overwhelming, declaring bankruptcy is an option. Contrary to what some might think, it is possible to include tax dues when filing for bankruptcy in Canada. Proper paperwork and supporting documents are necessary to file correctly. Once you declare bankruptcy, unsecured creditors and the agency can no longer contact you for payment.
Consulting a Licensed Insolvency Trustee
Another option is consulting a Licensed Insolvency Trustee (LIT). These professionals can help you explore opportunities to pay your dues. A LIT can assist you in preparing a consumer proposal, consolidating your dues into a single, more manageable payment. They can negotiate with the agency and other creditors on your behalf.
Does Bankruptcy Clear All of Your CRA Debt?
Bankruptcy can clear your agency's debt with some exceptions. For instance, you might not get a total exemption if you have outstanding tax dues exceeding $200,000. While bankruptcy can relieve you from agency dues, it doesn't absolve all your debts. You must weigh whether bankruptcy is a better option than a payment plan with assistance from a LIT.
Ways the CRA Collects Debt
The CRA has several methods to collect dues if bankruptcy isn't your option. These methods vary depending on your financial situation and dues amount, and the agency often prefers settlement agreements.
Freezing Bank Accounts
The CRA has the authority to freeze your bank accounts. After a specific period, your bank may be required to transfer your funds to the CRA. This action can severely impact your financial situation, making it crucial to settle your dues before the agency takes such measures. Consulting with an LIT can help you avoid account freezes.
Garnishing Employment Income
The CRA can garnish your employment income, taking 50% to 100% of your earnings if you don’t pay your tax debt. This collection method can be devastating, particularly for those in freelance or contract work. It’s essential to settle your debt to avoid this drastic measure.
Collecting and Selling Your Assets
The CRA can also seize and sell your assets, including properties, cars, and residences, to settle your dues. A court enforcement officer would handle the sale of these assets. Working with an LIT allows you some control over the sale process, offering alternative options to pay your dues.
Stopping CRA Debt Collections Once and for All
Now that you understand the CRA's collection methods, you might seek ways to prevent these actions.
Paying Your Debt in Full
Paying your debt fully is the most straightforward way to stop agency collection actions. Grab the funds through legal means to settle your dues quickly.
Proving That Debt Collection Is Causing You Harm
If agency collections are causing undue hardship, you can try to prove this with the help of a bankruptcy lawyer. A strong case might halt the agency's collection activities.
Get Professional Assistance If You Can
Seeking professional assistance is always a beneficial idea when dealing with financial issues. Licensed Insolvency Trustees can help you file for bankruptcy or prepare a consumer proposal to manage your dues. Their expertise can lift the burden of heavy payments and help you regain financial stability.
A reliable LIT can guide you through the process, whether it's preparing for bankruptcy or negotiating a consumer proposal. Here’s a deeper dive into these options and additional strategies to manage your CRA dues effectively.
Exploring a Consumer Proposal
A consumer proposal is a legally binding agreement between you and your creditors to pay back a portion of what you owe through monthly payments over up to five years. Unlike bankruptcy, a consumer proposal allows you to retain your assets. Here's how it works:
- Assessment by a Licensed Insolvency Trustee: Your LIT will review your financial situation, including income, expenses, and total dues. This assessment helps determine a feasible repayment plan.
- Proposal Preparation: Your LIT drafts a proposal outlining how much you can pay each month. This proposal is then submitted to your creditors, including the CRA.
- Creditor Voting: Creditors vote on the proposal. If the majority accepts it, the proposal becomes binding on all creditors.
- Payment Schedule: You make the agreed payments to your LIT, who then distributes the funds to your creditors.
A consumer proposal stops all collection activities, including wage garnishments and bank account freezes, providing relief and a clear path to becoming debt-free.
Additional Strategies to Manage CRA Debt
Besides bankruptcy and consumer proposals, there are other strategies to manage your CRA debt:
Negotiating with the CRA
While the CRA typically doesn’t negotiate on the amount owed, they may be willing to discuss the repayment terms significantly if you can demonstrate genuine financial hardship. Open communication with the agency can sometimes lead to more favorable terms.
Taxpayer Relief Provisions
The CRA offers taxpayer relief provisions for those experiencing extreme financial hardship, medical issues, or natural disasters. Relief can come in the form of interest and penalty waivers. To apply, you need to submit a request to the agency explaining your situation and providing supporting documentation.
Seeking Professional Financial Advice
Beyond LITs, consider consulting with a financial advisor who can help you create a budget and financial plan to manage and eventually eliminate your tax dues. Now you ask again, “Can you declare bankruptcy on CRA debt?” Advisors can offer personalized strategies to optimize finances and avoid future tax issues.
Being in debt is a situation we all don’t want to find ourselves in.
But when the going gets rough, you’re not left with many options.
Sometimes, you really need to borrow some money or even apply for a loan.
The next thing you’ll need to worry about after is to find debt help and pay off that amount.
To Stop Interest Payments and Wage Garnishments
Once your proposal has been accepted, the accumulation of interest will stop.
https://baneylaw.com/preparing-bankruptcy-attorney-consultation/They ask such question to identify what bankruptcy chapter in the Bankruptcy Code will give you the debt relief you want, whether it’s Chapter 7 13
