What I Keep, & don’t Keep in Bankruptcy? Your province or territory sets the assets you can keep in a bankruptcy or consumer proposal.
Most people in bankruptcy are surprised to find they cannot keep some of their tax refunds. This is because they are not exempt assets set by your province of territory.
Tax refunds outstanding, as at the date of the bankruptcy, belong to the trustee for the benefit of the creditors. Income Tax law requires a bankrupt to file two tax returns for the year of the bankruptcy. The first (pre bankruptcy tax return) covers the period January 1st through to the date of bankruptcy. The second (post bankruptcy tax return) covers the period starting with the date of the bankruptcy and ending December 31st. Pre and Post bankruptcy tax rebates vest in the trustee for the benefit of the creditors.