CRA Collection Process: Is It Stopped By Going Bankrupt?
Dealing with debt is often a stressful process, but it can be even more stressful when you’re dealing with the Canada Revenue Agency.
Receiving a notice from the CRA can be upsetting, but it’s important that you understand your rights to understand what you can do if you receive a notice from CRA.
In this article, we tell you more about CRA debt collection and what your options are to help you manage your collections.
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What is the Canada Revenue Agency responsible for?
The Canada Revenue Agency is responsible for collecting various government debts, including:
- Student loans;
- Income tax;
- HST;
- Overpayments of benefits;
- Payroll deductions.
Being unable to afford these payments can be difficult, putting a lot of strain on your finances and on your mental health too.
Fortunately, there are solutions in place that can help you with these payments and leave you with peace of mind once again.
How CRA collects payments
If you have outstanding debts, then there are various ways that the Canada Revenue Agency can collect money.
Some of their collection methods include:
Set-off rights
There are multiple departments within the Canadian government, and it is possible to owe one money while being owed by another.
In this situation, the CRA reserves the right to set off a debt to one department by using a repayment due by another.
They can also use payments owed to you to pay off debts from previous years – a situation that can be unexpected and problematic.
Registering your debt
If it chooses to do so, the CRA can register your debt with the Federal Court.
This means that they can confirm the debt and take legal action against you to make sure it’s paid.
It also means that your debt becomes public record in the same way as a court judgment order.
Garnishment
A garnishment can be issued by the federal government, without the need for a court order, which gives them the power to seize payments due to you by another party.
This can include requesting a CRA garnishment of your pay, and money in your bank account.
If a ‘requirement to pay’ is issued to your employer or your bank, then they’re obligated by law to pay money to the CRA.
Register a lien
The CRA can register your debt against your assets, such as your home or car.
They could issue a tax lien to try and reclaim debts owed, although this is typically done after other methods have been exhausted.
Seize assets
Finally, if repayments aren’t made, the CRA could choose to seize your assets and sell them to pay off the debts owed.
How bankruptcy can stop the Canada Revenue collection process
Through the Bankruptcy & Insolvency Act, a form of federal legislation, could be one way to override the CRA.
A bankruptcy order would stop CRA collections, and put an end to the debt too.
It’s important to consult with an insolvency trustee who can help you navigate the different exceptions and ensure that you qualify for where needed.
File before a lien
It’s important to file for bankruptcy before the CRA issues a lien on your assets.
As a secured debt, a lien could mean that the debt isn’t discharged during the insolvency procedure.
File your taxes to confirm debts
Submitting a consumer proposal will help the CRA to settle your debt.
But in order to do this, you’ll need to confirm the debts owed by filing any of your outstanding tax returns.
Student loans
If you have outstanding student loan debts, they can be recovered by the CRA.
If you apply for bankruptcy, however, you could have the debt cleared provided you’ve been out of education for at least 7 years.
Dealing with debts that you can’t afford to repay can be crippling.
But fortunately, there is help available to you.
A Licensed Insolvency Trustee will be able to help you cancel your debts by putting an end to CRA collections.
If you’re facing a tricky CRA situation, get in touch with us today.
Our team will be happy to discuss the options available to you so that you ease your tax debt situation and get back on your feet.
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