Can Tax Debt Be Included in Bankruptcies, Consumer Proposals & Tax Debt?
- 1 Can Tax Debt Be Included in Bankruptcies, Consumer Proposals & Tax Debt?
- 1.1 What are Bankruptcies?
- 1.2 What are Consumer Proposals?
- 1.3 How Consumer Proposals and Bankruptcies Solve Tax Debt Problems
- 1.4 Debt Settlement Resources & Articles
- 1.5 Is There Any Way to Make Tax Debt Easier to Pay?
- 1.6 What is Requirement to Pay (RTP) CRA Notice
- 1.7 Your Credit Score Could Be Changing Without You Doing Anything Different
Tax debt owed to the Canada Revenue Agency (CRA) can be difficult to deal with. The CRA charges compound daily interest, which increases the amount you owe every day you do not pay. If you don’t cooperate with the CRA or you can’t come to a payment arrangement, the agency can even take serious action against you to collect the debt. The CRA can garnish your wages, freeze your bank account, and even register your tax debt in court then seize your assets.
Obviously, you don’t want any of these actions to happen to you.
In some specific situations, you may be able to apply for taxpayer relief. These provisions only apply to instances where a taxpayer has been prevented from meeting their tax obligations. Situations that may warrant relief include actions of the CRA that resulted in delays or errors, circumstances beyond a taxpayer’s control (such as natural disasters, civil unrest, or serious illness or accident), or significant financial hardship (such as cases where paying the interest and penalties will cause a prolonged inability to afford the basics of life).
It’s important to remember that, even if the CRA agrees to grant relief, this relief only applies to the interest and penalties charged on your tax debt. It does not reduce the actual amount you owe. In fact, the CRA will never agree to a payment arrangement that sees it receive less than is owed to it.
What are Bankruptcies?
Most people have heard of bankruptcies, but they may not be familiar with the specifics. Also, there are a lot of misconceptions about bankruptcies.
Bankruptcies are designed to give people who are overwhelmed by debt an option to eliminate these debts and start their financial lives over. It doesn’t mean that you lose everything you own or that your financial life is ruined forever. While you may lose some assets, depending on what you own, provinces and territories in Canada allow people to keep certain assets that are required to live a basic lifestyle or earn an income. These assets are considered exempt.
Depending on your income, you may be required to make monthly payments to your creditors. This will be discussed before you decide if you wish to proceed with the bankruptcy.
Once your bankruptcy is complete, you are able to start rebuilding your credit and improving your financial life without the burden of your previous debts. Tax debt can be included in bankruptcies.
What are Consumer Proposals?
Consumer proposals are legal processes through which an offer is made to a person’s creditors to pay a portion of the outstanding debt. Consumer proposals are sent to all of a person’s unsecured creditors and then they vote on whether they want to accept the proposal. If those that are owed the majority of the debt vote to accept the proposal, then all the creditors are bound by its terms. For example, if you owe $20,000 in debt, and a creditor or combination of creditors that are owed more than $10,000 choose to accept the proposal, then the terms apply to all the creditors. This means you could have your tax debt included in a proposal and only pay a portion of what you owe.
If the proposal is accepted, a person must make monthly payments as outlined in the proposal terms. Once all the payments have been made, the remaining outstanding debt is eliminated.
Tax debt can be included in consumer proposals.
How Consumer Proposals and Bankruptcies Solve Tax Debt Problems
As mentioned, the CRA will never accept less than the full amount of tax debt owed to it. However, bankruptcies or consumer proposals allow people to deal with their debts without having to pay the full amount owed. While these options aren’t for everyone, and they do have potential downsides as well as benefits, they can be the right choice for people in certain situations.
Debt Settlement Resources & Articles
Tax debt owed to the Canada Revenue Agency (CRA) can be tough to deal with. Here are some options that can make handling it easier.
If a CRA Requirement to Pay has been sent to your bank or employer, let Local Income Tax help you deal with your tax debt to get it resolved.
Information on how your important FICO credit score could change and what you can do to avoid being hit hard.
Help with your financial needs