Is Bankruptcy Your Only Tax Reconciliation Solution?
There are times when some individuals become so debt ridden which includes a large debt to the CRA that they feel they have no other option but to claim bankruptcy. This is a serious decision and not one that should be made out of panic, or without thoroughly researching other possible solutions.
One thing to keep in mind is if you are thinking of claiming bankruptcy just to avoid paying your tax bill then the CRA has the power to challenge your bankruptcy.
When you owe a debt to the Canada tax department they have a lot of power in regards to being able to collect that debt. They can take actions such as garnishing your wages, take money from your bank account, or even put a lien on your property. Any of these actions could be taken without their having to go through a court of law to obtain permission to do so.
Although the CRA certainly wants what is owed to them, they do have a system set up where they will try to work with a delinquent tax payer to help resolve the issue. You may be able to work out a payment plan with them. Or if there is extenuating circumstances you may be able to apply for tax payer relief to help reduce some of the money owed. If you aren’t sure how to go about this, then an experienced tax accountant can guide you in the right direction.
If you have tried these steps and are unable to come to a satisfactory conclusion regarding your debt then you should seek out a reputable licenced trustee. This trustee may recommend filing a consumer proposal. What this does is disallows the CRA as an unsecured creditor from garnishing your wages or putting a lien on your property. The CRA is now compelled to deal directly with your trustee regarding your tax debt. However, the CRA does have the option of petitioning the courts to become a secured creditor against your assets.
With the consumer proposal you will still be paying your debts including that which you owe the CRA, but the negotiations for doing this would be made through the trustee and your creditors.
There are a lot of rules and regulations and even limitations when it comes to consumer proposals and bankruptcy. It is not a financial solution that comes easily and whenever possible negotiation to settle your tax debt is probably your best solution.