Navigating Government Debt within Bankruptcy or Consumer Proposals
There’s a vast range of debt types and debt relief measures available to Canadians. However, not all are equivalent. General consumer debts such as credit card debt, line of credit balances, overdrafts, or payday loans can be dealt with through various debt management options such as consolidation loans, Consumer Proposals, or bankruptcy. Nonetheless, when it comes to government debts, only two legislated debt solutions can provide you with debt forgiveness.
A surprising fact for many is that you can collaborate with a Licensed Insolvency Trustee to file bankruptcy or a Consumer Proposal that encompasses government-related debts. This is possible because of the specialized qualifications and regulations of Licensed Insolvency Trustees, allowing them to assist you in accessing solutions provided under Canada’s Bankruptcy and Insolvency Act.
This article will explore common government debts that can be forgiven using these debt resolution methods:
1. Tax Debt
If you’re contending with Canada Revenue Agency (“CRA”) tax debt, it’s crucial to understand that penalties and interest can accumulate very swiftly, turning even a small initial balance into a challenging debt to settle. The CRA is also a potent creditor who can initiate aggressive garnishments, potentially including wage and asset seizures, almost instantly. Moreover, unlike many other debt types, these government debts are not limited by BC’s Statute of Limitations, implying that they do not expire, and you can’t “wait them out”.
Unpaid debts you owe to the CRA can be included in a personal bankruptcy or consolidated in a Consumer Proposal. This includes balances due for personal income taxes, GST or PST, along with corresponding penalties and interest. All ongoing interest is halted, along with wage garnishments or bank account seizures that may be in progress.
A Consumer Proposal or personal bankruptcy can both effectively stop the priority nature of CRA debts and collections, equating them to the importance of common consumer debts like an unpaid credit card.
Except for bankruptcy, making a Consumer Proposal is the only method to negotiate a reduced balance with the CRA:
- Declaring bankruptcy can permanently eliminate CRA tax debt.
- Filing a Consumer Proposal can consolidate and reduce your CRA tax debt to an amount you can afford to repay, with the remaining balance being forgiven.
Discover More About Managing Tax Debts in a Consumer Proposal or Bankruptcy
2. Medical Services Plan (MSP) Debt
BC MSP premiums were abolished on January 1, 2020. However, if you were obligated to pay MSP premiums and still have an unpaid balance, this remains payable, and collection actions on overdue accounts may still be taken.
MSP premiums were calculated based on your previous years’ income tax returns. If you were behind in tax filings, this could have resulted in you being ineligible for premium assistance and being charged the full premium amounts. MSP’s Retroactive Premium Assistance offers adjustments for previous premiums and may be available to help reduce your balance.
Regardless of premium assistance standings, both your outstanding MSP balance and any compounding monthly interest charges can be eliminated and written-off through filing a bankruptcy or Consumer Proposal in BC.
For a confidential consultation with a Licensed Insolvency Trustee from anywhere in BC, without leaving the comfort and privacy of your home, you can book your free debt consultation today.
3. Employment Insurance (EI) Debt
An overpayment of Employment Insurance benefits can occur for various reasons such as application and reporting errors, or decisions made regarding insurability. The Canada Revenue Agency provides collection services for money owed for EI overpayments, and if you are unable to repay the balance, you may face the same consequences that the CRA imposes for collecting tax debts.
Income garnishments, as well as asset liens and seizures by the CRA, can occur if an EI overpayment is not repaid. You could also expect to have any tax refunds or personal GST credits you were otherwise anticipating be withheld by the CRA and applied to your balance owing.
4. Social Assistance Overpayment Debts
Social assistance overpayment debts, which are provincially governed, are generally forgiven under a bankruptcy or Consumer Proposal.
5. Impact on Future Benefits
It is essential to understand that even if you declare bankruptcy or make a Consumer Proposal to eliminate government debt, you will not be prevented from receiving future government benefits.
Your eligibility for EI benefits, emergency benefits, housing benefits, pensions, and more will not be affected by a prior government debt being included in or written-off as part of your bankruptcy or Consumer Proposal.
Learn About Debt Forgiveness with Personal Bankruptcy: Step-by-Step
6. Student Loans
Whether your student loans are private, provincial, or federal, these debts and related interest charges can also be part of the debts included in a personal bankruptcy or Consumer Proposal filed in BC. Two key considerations that determine how your student loans are ultimately resolved depend on the date your studies ended, as well as the type of student loans you have.
- If more than seven years have passed since your last study date, you can be released from your government student loans using a bankruptcy or Consumer Proposal.
- In the event you have not been out of school for seven years, you would get relief from making payments on government student loans during the period that your bankruptcy or Consumer Proposal is active. Once your bankruptcy or Consumer Proposal is finished, you would then begin repaying these surviving debt balances (less any amounts received through your Consumer Proposal) and any accumulated interest.
- Some people choose to continue making payments on their surviving student loans even while their bankruptcy or Consumer Proposal is in progress. This is your option.
- If only five years have passed since you last attended school, it may be possible for you to apply under a hardship provision to BC court to have your government student loans discharged like the other debts included in your bankruptcy or Consumer Proposal.
- Under this provision, your student loans may be released where you can satisfy the court that you acted in good faith in your obligation to repay your student loans, and you have experienced, and will continue to experience, financial difficulties that would prevent you from repaying these debts.
- Privately (bank) held student loans and other student financing debts will be treated as any other type of general consumer debt (such as a credit card) and can be eliminated in both a bankruptcy or Consumer Proposal.
In situations where your recent government student loans only form part of your overall debts, declaring bankruptcy or making a Consumer Proposal can still be beneficial debt options since all your other debts (tax debt, credit cards, overdrafts, etc.) may be wiped out, making the surviving student loans more manageable.
Read More Tips for Repaying and Discharging Student Loans
7. ICBC Debt
ICBC debts may be categorized in a number of different ways such as: claims, “motor vehicle indebtedness” including outstanding AutoPlan insurance payments or unpaid Driver Penalty Point Premiums, Driver Risk Premiums, unpaid fines for offences, or motor vehicle related offences under the Criminal Code such as unpaid speeding tickets.
A Licensed Insolvency Trustee can assist you in investigating the type of ICBC debt you have and how each may be dealt with if you decide to make a Consumer Proposal or file bankruptcy – both of these options can result in ICBC debt forgiveness or having the overall balance reduced.
Most ICBC debts will be forgiven under a Consumer Proposal or bankruptcy – even in a motor vehicle accident where you are found to be at fault and ICBC pays a settlement to another party, you may still be able to get relief from the resulting debt.
There could be portions of your overall balance owing to ICBC that fall into categories of debts that can survive these processes; if your Licensed Insolvency Trustee suspects this may be the case, they will (with your permission) communicate with ICBC directly to clarify how a debt is categorized and determine any portion that might survive before you commence your debt relief process.
Temporary restrictions may be placed by ICBC, such as:
- Temporary denial of license, insurance renewal, or subsequent license plates:
- During the period of your bankruptcy prior to your discharge, ICBC may retain their right to prevent you from licensing or insurance (generally renewals). Some of the criteria by which ICBC may review your individual circumstances includes:
- The circumstances under which the debt arose.
- Whether your ICBC debt was a significant portion of your overall debt load.
- Hardships that may result from the refusal of these renewals.
- The impact of a refusal on your employment, education, or ability to obtain medical treatment.
- In situations where your employment is dependent on you holding a driver’s license, your employer may be able to write an official letter to ICBC stating such – this may result in a reversal of ICBC’s decision.
- During the period of your bankruptcy prior to your discharge, ICBC may retain their right to prevent you from licensing or insurance (generally renewals). Some of the criteria by which ICBC may review your individual circumstances includes:
- Temporary denial of access to AutoPlan monthly insurance payments, resulting in you needing to renew insurance in prepaid 3, 6, or 12-month increments.
ICBC generally will not refuse licenses and insurance after your eligible debts have been discharged through your bankruptcy, or your filed Consumer Proposal has been accepted by your creditors.
Addressing an unmanageable balance owing from the provincial or federal governments of Canada can be overwhelming and stressful. While some types of government debts are simple to resolve, others involve complex and ever-changing bodies of law – it is important to find out the facts and options for your situation as soon as possible. If you are struggling, the best course of action is to contact a Licensed Insolvency Trustee to get advice about how to manage government debts, as well as any other types of debts you may have. Licensed Insolvency Trustees are the only Canadian professionals legally able to provide debt solutions to work with all creditors on your behalf; consultations are always free, confidential – and at no obligation.
Stop debt-stress and get a plan to be debt-free today. Book your free confidential debt consultation to connect with a caring non-judgmental BC Licensed Insolvency Trustee.
