Can you declare bankruptcy on CRA debt? If you find yourself in a CRA debt, you might think there’s no option left for you, but there are ways to deal with it.
You find yourself stuck with having a debt to Canada Revenue Agency but can you declare bankruptcy on CRA debt? The CRA is very aggressive when collecting loan money, and it’s something you want to avoid.
Owing a considerable amount can be very stressful, and you can never ignore having a CRA debt. If you don’t fix the loan early on, you’ll get into more trouble, such as with your taxes and other payments.
One thing to note is that plenty of other resources can help get you back on track with your payments. You can’t expect back taxes from the CRA, but they will negotiate and even accept pre-arranged payments until you’ve entirely paid off what you owe.
CRA Debt: What Are the Consequences?
When you have an outstanding debt with the CRA, you need to pay interest and charge penalties. Fees include the 5% filing penalty and 1% per month on balance due.
To avoid getting yourself into more debt and more payments, make sure to keep up with your taxes. If you fail to pay your taxes, you might get more penalties for the delayed payment. The amount might not seem painful, but incurred loan over time is heavy.
You would want to prevent the CRA from collecting your loan because of their control. They are capable of seizing bank accounts, taking payment from wages, and even registering a lien on properties.
Should You Declare Bankruptcy?
You can file for bankruptcy or a consumer proposal even though you have an outstanding CRA loan. However, it’s also important to remember that there are certain exceptions to the rule. These exceptions include those having $200,000 in taxes owed, which represent over 75% of their proven loans.
When you file for bankruptcy, you must follow a “stay of proceedings.” It’s to stop unsecured creditors from deducting from your wage, continuing lawsuits, or even contacting you to request payment.
You will need to contact a Licensed Insolvency Trustee or LIT to guide you and check your documents. The LIT is also responsible for providing your bankruptcy documents to your current creditors.
CRA Debt: What Are Your Options?
Even if you feel like you can’t do anything to pay off your debt, there are many options you can pick. These options depend on your capability to pay off your outstanding loan and your current financial situation.
- Filing Personal Bankruptcy
You can file a bankruptcy if you feel overwhelmed by your CRA debt and tax payments. It’s an option you go for when you can’t find any other way to pay off your loan. A LIT will be assigned to you to give you advice on how to proceed with the bankruptcy.
LITs are also in charge of managing the creditor's meeting and paying off the creditor. You won’t have to worry since bankruptcy is a regulated process that is safe for honest debtors. It gives you a way to create new financial beginnings.
- Filing a Consumer Proposal
When you file for a consumer proposal, you will also need the assistance of a LIT. A consumer proposal can also help you with tax debt relief and protection from collecting agencies. You won't have to worry about deductions from your wage, property seizures, or frozen accounts.
Whether it’s CRA or an unsecured loan, you can trust that a LIT will guide you through the process. In addition, a consumer proposal stoops interest charges and penalties to help you consolidate loans into one monthly payment.
- Taxpayer Relief Provisions
What are taxpayer relief provisions? The CRA provides these as grant relief for those with interests or penalties in their loan. It’s applicable when the loan can prove they cannot meet their tax obligations.
You can gain taxpayer relief provisions if you’re in a situation that prevents you from paying the amount. Financial hardship can also be a reason to acquire the provisions. If specific actions or the CRA have prevented you from paying, you can also use it to gain relief provisions.
- Debt Consolidation
Another great solution if you find yourself in a tricky situation to pay back what you owe, is through debt consolidation. It’s when you take out a bigger loan to pay the other smaller debts on your list. That can also include loans with the CRA.
One thing to note about this solution is that you must qualify for low-interest-rate loans. You can pay at lower interest rates than having too many loans. Debt consolidation also allows you to pay off your loans more gradually.
- Arranged Payment
It’s still possible to contact the CRA when you’re willing to make arranged payments. You do this to control your payment, especially when you lack funds. Setting payments assures the creditor that you will pay back your remaining loan in an agreed schedule.
You will need to have your financial information thoroughly checked by the CRA. They will then contact you whether they agree, and you begin to negotiate the arrangement. The option is usually for the debtor to regularly repay their loans in multiple smaller portions.
- Partial Payment
Partial payments are the same as arranged payments, but your payment will have to cover your oldest tax loan. However, it also depends on what you request to pay for and what the CRA wants you to prioritize paying.
You will have to propose the partial payment plan to the CRA and set up a schedule. The debtor must continue making payments until the debt is paid in full. It would also include paying for any interest rates accumulated throughout the debt.
- Full Payment
Probably the most advantageous option for any debtor is paying back the CRA in dull. When you can pay the amount in full, you can avoid any financial and legal consequences owed to the CRA.
Paying in full also helps you avoid any incurring interest charges. That’s why when you can pay your debt in full, go for it, especially with the CRA. You will end up with fewer costs on penalties and interest rates once it’s done.
Is Bankruptcy Beneficial?
It can be challenging and emotional to think about filing for bankruptcy. Only some people are ready to file for bankruptcy, and you always need enough time and effort to start your filing process. You’ll have to prepare a significant number of documents and files.
The good thing about filing for bankruptcy is that it can help you get out of financial issues. Once you file for bankruptcy, creditors will stop calling or harassing you to pay. You can also repossess some properties you lost and even avoid foreclosure.
Bankruptcy can also protect some of your property from being sold. You also avoid getting more debt since you won’t have to worry about unpaid interest rates anymore. If you can declare bankruptcy on CRA debt, yes, you can when you follow the procedure correctly.
