Does Claiming Personal Bankruptcy Clear Income Tax Debt To The CRA
When faced with financial difficulties, it is common for individuals to wonder, “Do Income Taxes Owed To CRA Get Written Off In Personal Bankruptcy?”. This question is often met with confusion, largely due to the different bankruptcy laws in various countries. In this article, we will delve into this topic in the context of Canada and provide a comprehensive understanding of its implications.
Understanding Bankruptcy: A Basic Overview
Before we dive into the specifics of how income taxes and bankruptcy interrelate, let’s first understand what bankruptcy is. Bankruptcy is a legal proceeding initiated by an insolvent debtor or their creditors, with the aim of settling their debts.
Canadian Bankruptcy Laws: A Brief Discussion
The Canadian bankruptcy laws differ significantly from those in other countries such as the USA. In Canada, bankruptcy proceedings are governed by the Bankruptcy and Insolvency Act (BIA).
“The BIA provides a framework for the orderly and fair distribution of property among the bankrupt’s creditors.”
Income Taxes and Bankruptcy: The Canadian Scenario
Unlike some countries, where income tax debts are generally not released in bankruptcy proceedings, Canadian laws take a different stand. In Canada, all debts, including those owed to the Canada Revenue Agency (CRA), are generally discharged in a bankruptcy.
Exceptions to the Rule
While income tax debts are generally discharged in a bankruptcy, there are a few specific types of debts that are exempt from this rule. These include:
- Alimony and child support;
- Fines and penalties imposed by a court;
- These debts are specifically listed in the BIA and are therefore not released in a bankruptcy.
Exception
The CRA and Debt Settlement
It is important to note that the CRA does not have the authority to settle a debt for a lesser amount under the Income Tax Act. However, debtors can settle their debts to the CRA through Consumer Proposals.
Consumer Proposals: An Alternative to Bankruptcy
A consumer proposal is an alternative to bankruptcy. It is a legal process through which a debtor agrees to pay a portion of their debts over a certain period of time. This can often result in a significantly lesser amount owed compared to the original debt.
Contacting a Professional
If you find yourself in a situation where you are unsure about your financial situation, it is always a good idea to seek professional advice. You can contact a Licensed Insolvency Trustee who can provide you with the necessary information and guide you through the process.
Conclusion
So, in response to the question, “Do Income Taxes Owed To CRA Get Written Off In Personal Bankruptcy?”, the answer is yes, in Canada, they generally do. However, certain exceptions apply, and it is always advisable to seek professional advice to understand the best course of action for your specific situation.
This article provides a comprehensive answer to the question, “Do Income Taxes Owed To CRA Get Written Off In Personal Bankruptcy?”. However, it is always important to remember that every situation is unique and it is advisable to seek professional advice.