Does Bankruptcy Cover Canada Revenue Agency Debts?

Understanding Bankruptcy and the Role of Canada Revenue Agency (CRA)

When it comes to financial struggles, bankruptcy is often considered as a last resort. A common question that arises is: Does a bankruptcy cover Canada Revenue Agency debts? This article aims to shed light on this important concern.

1. What is Bankruptcy?

Bankruptcy is a legal process that provides relief to individuals who are unable to pay their debt. It’s regulated by the Bankruptcy and Insolvency Act and provides a fresh financial start to debt-ridden individuals, albeit with certain consequences.

2. Canada Revenue Agency (CRA) and Bankruptcy

The Canada Revenue Agency (CRA) is the body responsible for administering tax laws and collecting debts owed to the government. This includes income taxes, Goods and Services Tax (GST), and employee remittances. If you owe money to the CRA, you may be wondering if these debts can be included in a bankruptcy.

3. Does Bankruptcy Cover CRA Debts?

The simple answer is yes, bankruptcy can cover debts owed to the CRA. However, certain conditions must be met for these debts to be discharged.

3.1 Conditions for Discharge

Generally, a discharge of debt is granted if the individual has fulfilled their responsibilities under the Bankruptcy and Insolvency Act. This includes completing all required filings and installment payments under the Income Tax Act.

 

Please note: If the CRA has taken steps to recover the debt but has been unsuccessful, they may register as a secured creditor against your assets, such as real estate or personal property.

 

4. What if Your Tax Debt Exceeds $200,000?

In cases where personal income tax debt exceeds $200,000, and that debt represents more than 75% of the proven unsecured claims in your bankruptcy estate, a formal discharge hearing must be held.

4.1 Formal Discharge Hearing

During this hearing, the Registrar in Bankruptcy will set terms of discharge. These terms could include the requirement to pay additional money to your bankruptcy estate or delay your discharge from bankruptcy.

5. What if the CRA Opposes Your Discharge?

In certain cases, the CRA may file a specific opposition to your discharge from bankruptcy. This will also lead to a formal discharge hearing.

5.1 Factors Considered by the Registrar

The Registrar will consider several factors before determining the terms of discharge. These include your payment and compliance history with income tax filings, size of debt, age, income, and income prospects.

6. Understanding Your Rights

Knowing your rights is crucial when dealing with CRA debts and bankruptcy.

 

Pro Tip: It’s always advisable to consult with a professional who can guide you through the complexities of bankruptcy and CRA debts.

 

7. Conclusion

While bankruptcy can cover CRA debts, the process is complex and requires careful consideration. It’s important to understand your financial situation, the consequences of bankruptcy, and to seek professional advice before making a decision.

8. Further Reading

For more information on bankruptcy and CRA debts, refer to the following resources:

 

Bankruptcy and Insolvency Act

Income Tax Act

Canada Revenue Agency

9. Contact Us

For a no-obligation consultation on your specific situation, feel free to contact us. We offer flexible hours, including late evenings and weekends, to accommodate your needs.

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