# Personal Bankruptcy



## dogleg1 (Jul 4, 2016)

Is it possible for an individual who is in debt to CRA and has no assets and no ability to pay to erase that debt through a personal bankruptcy declaration?


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## al42 (Mar 5, 2011)

yes.

https://bankruptcy-canada.com/bankruptcy-blog/can-you-declare-bankruptcy-on-taxes-owing/


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## twa2w (Mar 5, 2016)

Agree with al42.
However be aware that there may be more to the story.
Have you disposed of assets in the last Xx years. You will have to declare this. Also the trustee will do a budget and you may have to make a monthly payment into the bankruptcy. You may lose out on any tax refunds for the next year or so if you are expecting any( which you would have forgone anyway I guess)
There is a cost to declare bankruptcy both in terms of the fee and in terms of credit rating.
You may offer CRA a settlement as either a lump sum or a repayment schedule for a portion of the debt.
Your decision should be based on the amount owing, your income, your need for credit in the future, your personal circumstances among other things.
Good luck.


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## Mukhang pera (Feb 26, 2016)

dogleg1 said:


> Is it possible for an individual who is in debt to CRA and has no assets and no ability to pay to erase that debt through a personal bankruptcy declaration?


The prospect of "erasing" the debt are small, unless the bankrupt is well and truly a pauper, perhaps living on welfare or such. The courts are becoming less and less sympathetic to tax-driven bankruptcies. Generally discharge from such a bankruptcy is granted only on a conditional basis. Here's a typical example:

BANKRUPTCY — Discharge — Conditional discharge — Bankrupt, 43, married with two young children and sole supporter of family, entering bankruptcy owing income tax debt of $232,086 and other debt of $120,153 — Tax debt incurred in respect of income earned abroad which bankrupt failed to declare, despite being advised by CRA that he was a Canadian resident for tax purposes and required to file returns in Canada — Bankrupt having secure employment, earning approximately $73,000 per annum with monthly surplus income during course of bankruptcy of approximately $350.00 — Court ordering discharge conditional upon payment of $65,000 to trustee, in minimum monthly installments of $400.

Simpson, Re, 2015 BCSC 1803

http://www.courts.gov.bc.ca/jdb-txt/SC/15/18/2015BCSC1803.htm


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## dogleg1 (Jul 4, 2016)

Thanks for the info. I am trying to help a person whose life is in a mess the least of which it seems to me is CRA. He owes about $18k plus about $4k in penalties. But he is dead broke. How much does a bankruptcy cost typically? Are there other avenues open to him? Evidently I can deal directly with CRA on his behalf if he signs certain papers. Would that be a help or a waste of time?


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## Mukhang pera (Feb 26, 2016)

Probably not worth making an assignment in bankruptcy for a debt of only $22k. He'll end up paying trustee's fees and expenses in the range of $2,000.

We have little detail about your friend, age, income and its sources, how the tax debt arose and when, prospects for employment or receipt of income, etc.

He (or you on his behalf) can try to cut a deal with the CRA to pay less than the full amount, either by way of a one-time lump sum payment or a payment by instalments. If negotiations fail, there is bankruptcy as a fall back. 

You can call a local trustee in bankruptcy and probably get some suggestions/advice, without making a commitment.


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## dogleg1 (Jul 4, 2016)

Thanks. I haven't seen any of his paper work from CRA yet but he tells me he didn't file from 2002 to 2006. Evidently CRA did an 'arbitrary assessment' for those years. He claims their assessment is no where even close to what he earned in those years and as I recall he was off work and in hospital for a lot of that time. He believes they based those earnings on what he had made in previous years when his home life and health was in tact. Anyway ,what to do about it and whom to appeal to is the question I guess. From what I can see so far it is a grossly unfair process. (This gentleman is in his early to mid fifties , had a fairly good, small contracting business and through a failed marriage etc. lost everything it appears.)


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## Mukhang pera (Feb 26, 2016)

dogleg1 said:


> Thanks. I haven't seen any of his paper work from CRA yet but he tells me he didn't file from 2002 to 2006. Evidently CRA did an 'arbitrary assessment' for those years. He claims their assessment is no where even close to what he earned in those years and as I recall he was off work and in hospital for a lot of that time. He believes they based those earnings on what he had made in previous years when his home life and health was in tact. Anyway ,what to do about it and whom to appeal to is the question I guess. From what I can see so far it is a grossly unfair process. (This gentleman is in his early to mid fifties , had a fairly good, small contracting business and through a failed marriage etc. lost everything it appears.)


In that case, I think a logical starting point would be to prepare the "missing" tax returns to see what the actual tax liability, if any, should be.


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## Mortgage u/w (Feb 6, 2014)

Yeah, I wouldn't be too quick on replying 'yes' to the question. Rarely have I seen government debt being erased as easily as a retail debt. CRA will hold you to the debt as much as they can. They have first rights on any liquid assets you may posses and if you are still working, they will ensure they get paid before the you do.


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## dogleg1 (Jul 4, 2016)

M u/w: I don't know beans about it but from what I read there is millions in corporate and private debt that CRA has written off. But I guess they go after the little guy because there are so many of them and the bigger players can afford to fight. Everyone should pay their taxes but they should be fair and accurate. So goes life!


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## sags (May 15, 2010)

A consumer proposal or bankruptcy will erase CRA debt. 

The CRA doesn't have the mandate to negotiate taxes owed. They can negotiate interest and penalties.

I would suggest they seek advice from a bankruptcy trustee, who will consider their finances and explain their options.


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## ian (Jun 18, 2016)

Good advice.


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## dogleg1 (Jul 4, 2016)

Thanks to all. Is there something to learn about selecting a bankruptcy trustee or are they all about the same in terms of cost and knowledge. What are there qualifications?


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## Mukhang pera (Feb 26, 2016)

sags said:


> A consumer proposal or bankruptcy will erase CRA debt.
> 
> The CRA doesn't have the mandate to negotiate taxes owed. They can negotiate interest and penalties.
> 
> I would suggest they seek advice from a bankruptcy trustee, who will consider their finances and explain their options.


Given that it seems the CRA will be the only entity voting on a consumer proposal, I would think it unlikely that the CRA would vote for a proposal paying no cents on the dollar. Or when you say "erase" the debt, do you mean erase in part only? Yes, a proposal or bankruptcy can certainly achieve that result. But a total striking out, such that if bankruptcy is pursued, there would be a grant of an absolute discharge? That's what I was referring to when I said, above, that erasure of the debt was unlikely. Myself, I have never seen an absolute discharge in a tax-driven bankruptcy, but I will accept that you have more experience in these matters than I.

When you say that the CRA has no "mandate" to negotiate taxes owed, that is no doubt true. I am sure no such "mandate" can be found in the legislation. But do you mean the CRA has no authority to accept less than the full principal amount? If so, that comes as a total surprise to me. Also, I am sure, it will surprise those who are giving advice to the contrary here:

https://www.bankruptcy-canada.ca/tax-debt-solutions

Under item #3 they have written:

"The CRA will accept a compromise on the principle (sic) amount of your debt as well as your interest and penalties."

That is in keeping with what I have long understood.

In any event, the OP suggests that the CRA is all wet and has pulled figures from the air. Any approach to the matter, bankruptcy, proposal, whatever, will almost certainly require the filing of the absent returns. I might be nuts, but if it were me, I would prepare the returns as a starting point. That way I would have have some reasonable assurance of what the net taxes should be, before any interest or penalties. Only then would I consider myself in a position to consider a discussion with the CRA, an appeal, a proposal, a bankruptcy or anything else.


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## dogleg1 (Jul 4, 2016)

Your reply creates some questions from me. Could you explain the 'mechanics' of a bankruptcy hearing please. Who are involved and who decides the outcome? Is it like a small claims court?


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## dogleg1 (Jul 4, 2016)

I have just started to look through some of the web sites suggested. Is a 'consumer proposal' an option in this person's case?


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## Mukhang pera (Feb 26, 2016)

dogleg,

The website to which I referred contains, I believe, some helpful information. However, sags, supported by Ian, speaks with some conviction, suggesting some of the information on that site is just plain wrong. I suspect those two have more in-depth knowledge of bankruptcy law and practice than I can supply, so perhaps they'll come back to this thread and provide more detail for you.

As for the practice point to which you refer, I believe discharge from bankruptcy usually is "automatic" after 9 months if no creditor opposes. If there is opposition, the application is heard in Supreme Court chambers. In BC, judicial officers called "masters" usually preside over bankruptcy hearings. I have access to and have read all the BC Supreme Court decisions on the topic since 1979 and it is usual for the CRA to oppose an absolute discharge where the CRA is the principal creditor. Almost invariably, the court orders discharge conditional upon making some payment. Bankruptcy law is federal and I would expect some degree of uniformity in court decisions across the country. My knowledge is decidedly based on what happens in BC. Probably sags and Ian can elaborate from a broader perspective. I'll defer to them.


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## sags (May 15, 2010)

*As per the linked website:*

_The CRA will often agree to let you pay over time, but ultimately:

You will pay the full amount owed,
The CRA will continue to charge interest until the debit is paid in full,
The CRA will typically not accept a payment plan in excess of one year.

_

*As per the linked website under consumer proposals :*

_The CRA will accept a compromise on the principle amount of your debt as well as your interest and penalties.

_


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## sags (May 15, 2010)

The initial visit to a bankruptcy trustee is free so there is no reason not to discover the options available.


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## sags (May 15, 2010)

I believe Mukhang Pera is correct on several points, notably that a consumer proposal approval is unlikely if the CRA is the only or majority debt.

They generally vote against proposals, because they have greater powers of collection than other debt holders.

If a consumer proposal is accepted by a majority of the debt holders, the CRA is forced to accept the same % reduction of debt as the other debt holders.


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## Eclectic12 (Oct 20, 2010)

dogleg1 said:


> ... I haven't seen any of his paper work from CRA yet but he tells me he didn't file from 2002 to 2006.
> 
> Evidently CRA did an 'arbitrary assessment' for those years. He claims their assessment is no where even close to what he earned in those years and as I recall he was off work and in hospital for a lot of that time. He believes they based those earnings on what he had made in previous years when his home life and health was in tact. Anyway ,what to do about it and whom to appeal to is the question I guess ...


File the missing tax returns, with all available documentation. A co-worker did this, where when filed properly - there were small adjustments as a few mistakes were made on the returns but the big difference was the cascade of changes. Documenting that no taxes were owing wiped out the tax bill which then wiped out the penalties plus interest for the owing amounts. I believe CRA would have applied a "late filing" penalty but as he had contacted CRA to outline his challenges (a flood in his basement trashed some of the documentation such as T4 forms etc.) and once he started working on the returns, he kept going until his was done - CRA waived those penalties as well.

As you mention the hospital, I believe illness is on the grounds for appealing to have some/all of the penalties waived.
https://www.canada.ca/en/revenue-ag...disputes/cancel-waive-penalties-interest.html




dogleg1 said:


> ... From what I can see so far it is a grossly unfair process. (This gentleman is in his early to mid fifties , had a fairly good, small contracting business and through a failed marriage etc. lost everything it appears.)


From what my co-worker has said, the arbitrary assessment happened years and years after the tax return was due, where there were a ton of letters asking him to file so I don't see what's so unfair. Some things are important to be on the priority list or to get help with.


Cheers


*PS*

I would think the missing tax returns would be the easiest to deal with and possibly the biggest bang for his effort. The challenge may be having documentation to support what he is reporting.


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## dogleg1 (Jul 4, 2016)

Thanks again to all, this information is invaluable I think. My 'take' on all the input is,1. File for years missing and 2. Get an interview with a bankruptcy trustee and go from there. Is this about it for a consensus of opinion?


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## al42 (Mar 5, 2011)

sags said:


> I believe Mukhang Pera is correct on several points, notably that a consumer proposal approval is unlikely if the CRA is the only or majority debt.
> 
> They generally vote against proposals, because they have greater powers of collection than other debt holders.
> 
> If a consumer proposal is accepted by a majority of the debt holders, the CRA is forced to accept the same % reduction of debt as the other debt holders.


I have a friend that just went through this process. 80K in CRA debt with no other debt. Trustee filed it for him with no issues.
I think the trustee cost him $1200.00 to do this and recommended he pay $200.00 per month. I think he told me he has paper work to fill out every month for 6 or 9 months showing his income and where he is spending his money and after that it's suppose to be done. He started this process 4 or 5 months ago and so far no more calls from the CRA and they took the hold off of his bank accounts.


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## dogleg1 (Jul 4, 2016)

al42: Do you happen to know if he got any reduction in the principal amount and penalties or does he pay the $200. a month until it is all paid off? Thanks.


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## twa2w (Mar 5, 2016)

dogleg1 said:


> al42: Do you happen to know if he got any reduction in the principal amount and penalties or does he pay the $200. a month until it is all paid off? Thanks.


Normally the payment is made until discharge from bankruptcy - 9 to 18 months normally.


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## twa2w (Mar 5, 2016)

Given the additional information provided, the tax payer should approach CRA for a short extension to allow him time to prepare and file the missing tax returns, assuming he has the information to do so. CRA will reassess the tax returns once received and the taxpayer can then make arrangements for any payment. CRA can be very flexible if you work with them. As stated by other posters, they will accept a reasonable payment plan or may even arrange a settlement amount. In fact there may be little actually owing.

Bankruptcy is a last choice which has lasting repercussions in terms of credit etc.

The cost of a trustee varies but for a simple bankruptcy 1200 to 2000 would be a rough estimate.

Steps are roughly as follows.
Meet with trustee. If decision is made to file, trustee will go over a number of documents including list of assets and liabilities and a household budget. The debtor will have to talk about any asset sales and large payments made in last Xx years.
Don't lie, the penalties are nasty.

The trustee will send a notice to all creditors with a date for first meeting of creditors.

Creditors will file claims with trustee. If they don't file, they get nothing.

At first meeting CRA and other creditors may or may not show up. If they do, they have the right to question the debtor. Usually this is just a formality and no one shows up in simple bankruptcies. I have seen a trustee go through 15 first meetings in a day. For more complex bankrupties the meeting can take days.

The debtor would then commence any required monthly payment to the estate of bankruptcy. Any tax refunds go to the trustee as do any surplus earnings such as winning the lottery. 

The trustee after, usually nine months in a simple bankruptcy, will file an application for discharge. This can be opposed by any creditor. 

Eventually the discharge will be approved and payments to trustee will stop and funds will be distributed to creditors.

This is very crude and I admit my experience is dated so perhaps other more current posters can correct me if procedures have changed or if I inadvertantly missed a step.


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## al42 (Mar 5, 2011)

From what I understood the 80K CRA debt will gone. The 200 per month is for the trustee's fee for filing it for him.


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## dogleg1 (Jul 4, 2016)

na


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