Navigating Finances: Can You Declare Bankruptcy on CRA Debt?

If you ask, “Can you declare bankruptcy on CRA debt?” It's always challenging to face the reality of being deep in tax debt. Nobody wants to owe the government, and settling any kind of tax that appears on your record is a priority for most. One common question is whether you can declare bankruptcy on Canada Revenue Agency (CRA) debt. 

This article explores the nuances of debt, how it accumulates, and the various strategies available for managing and potentially discharging this due through bankruptcy.

How Does Your CRA Debt Accumulate?

CRA debt could accumulate when you fail to pay taxes on your business income and personal tax returns. This includes payments for harmonized sales tax (HST) for self-employed individuals and payroll deductions if you have multiple jobs. 

The dues can build up quickly, and the agency is known for its aggressive collection methods, which could severely impact your financial situation.

CRA Debt: How Do You Know If You Have One?

A CRA debt is the money you owe to the Canada Revenue Agency. The CRA's collections are notably rigorous, and failing to address these dues can significantly disrupt your income flow. To determine if you have outstanding dues, you could contact the agency directly. 

It's essential to check for overdue student loans, overpayments on Employment Insurance (EI), and Canadian Pension Plan (CPP) contributions.

1. Getting Out of a CRA Debt

Once you confirm that you owe the CRA, the next step is to explore ways to resolve the dues. It’s crucial to consider your options carefully, as dues are not something you could easily ignore.

2. Requesting a Payment Plan

Negotiating with the CRA isn’t an option; eventually, you must pay the dues. One viable solution is to request a payment plan. The agency can help you manage your finances by splitting the dues into more manageable payments. This approach allows you to control your money flow, although it's important to remember that interest will continue to accrue until the dues are fully paid.

3. Declaring Bankruptcy

If the pressure of paying the CRA becomes overwhelming, bankruptcy might be an option. Contrary to popular belief, you can include tax dues in a bankruptcy filing in Canada. Proper paperwork and documentation are essential to support your claim. Once you file for bankruptcy, both the agency and unsecured loan services are prohibited from contacting you for payment.

4. Consulting a Licensed Insolvency Trustee

Another alternative is to consult a Licensed Insolvency Trustee (LIT). These professionals can help you explore options to pay your dues and clear your dues faster. A LIT could assist in preparing a consumer proposal and consolidating your dues into a single payment plan. They can negotiate with the agency and other creditors to streamline the repayment process.

5. Does Bankruptcy Clear All of Your CRA Debt?

Bankruptcy can discharge most dues, but there are exceptions. For instance, if you owe more than $200,000 in taxes, you might not be eligible for an exemption. While bankruptcy could relieve you from dues, it doesn't clear all existing dues. Therefore, you must weigh whether bankruptcy is a better option compared to gradually paying off your dues with the help of a LIT.

Ways the CRA Collects Debt

The agency has several methods for collecting unpaid dues, depending on your financial situation and the due amount. These measures can be severe, highlighting the importance of addressing your dues promptly.

1. Freezing Bank Accounts

The CRA can freeze your bank accounts, directing your bank to forward your funds to the agency. This action could be financially debilitating, making it critical to settle your dues before the agency resorts to such measures.

2. Garnishing Employment Income

In some cases, the CRA can garnish a portion of your employment income, ranging from 50% to 100%. This could be particularly challenging for freelancers or contract workers who rely on their income for daily expenses.

3. Collecting and Selling Assets

The CRA can seize and sell your assets, including properties, vehicles, and other valuable possessions, to recover the debt. Working with a LIT might provide alternatives, but it's crucial to act before the CRA takes such drastic steps.

4. Stopping CRA Debt Collections Once and For All

Understanding how to permanently halt the severe actions the CRA can take to collect dues is crucial. Besides filing for bankruptcy, there are other strategies to prevent or halt CRA collection actions.

5. Paying Your Debt in Full

If you're able to pay your debt in full, this is the most straightforward way to stop the CRA from pursuing you. If you can generate the required funds through savings, loans, or other legal means, doing so could immediately stop collection efforts. Once your dues are settled, the CRA will cease all collection activities.

Proving That Debt Collection Is Causing You Harm

Another method to halt CRA collection activities is to prove that their efforts are causing you undue hardship. This requires a solid case and often the assistance of a bankruptcy lawyer. 

If you could demonstrate that the CRA’s collection activities are severely impacting your ability to maintain basic living standards, there may be grounds to suspend the collection actions temporarily.

Get Professional Assistance If You Can

It’s never too late to seek help when dealing with financial issues. If bankruptcy appears to be the only solution to stop the CRA from collecting from you, getting help from Licensed Insolvency Trustees (LITs) can be a wise move. They assist you in preparing your claim and guide you through the bankruptcy process.

However, if you feel you can still manage your debt, LITs can help you prepare a consumer proposal. This alternative aims to consolidate your dues into a single, manageable payment plan, reducing the financial strain. A reliable LIT could provide the expertise needed to decide whether declaring bankruptcy on debt is the best option for your situation.

Can You Declare Bankruptcy on CRA Debt?

While it is possible to declare bankruptcy on debt, it’s a decision that requires careful consideration. The CRA’s collection methods could be aggressive, and the consequences of unpaid tax dues can be severe, including frozen bank accounts, garnished wages, and seized assets.

Deciding the best approach to handle debt will depend on your financial situation, the number of dues, and your ability to make payments. Can you declare bankruptcy on CRA debt? 

Whether through bankruptcy, a payment plan, or a consumer proposal, taking steps to address your CRA debt is crucial to regaining financial stability and peace of mind.

Can You Declare Bankruptcy On CRA Debt Quickly And Easily?

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.