If you are having difficulty paying down your debts, there are likely a number of options available to you. However, when it comes to tax debt, there are only a few options that can help reduce what you owe. Personal bankruptcy is one of those options. Tax debt from the Canada Revenue Agency (CRA) can be difficult to pay down. This is especially true if you have a large amount of tax debt. The CRA can garnish wages, freeze bank accounts and even seize assets if you do not pay your taxes. Filing for personal bankruptcy can reduce the amount of tax debt that you have to pay. In rare instances, the CRA may grant relief from penalty or interest. However, it does not reduce the overall amount owing. This relief is only granted to people who are in situations that prevent them from meeting your tax obligation. These situations include:
- Instances where the CRA’s actions resulted in penalties or interest being charged. This means situations such as processing delays that caused payments to be late.
- Extraordinary circumstances that caused you to miss payments or make payments late. This includes natural disasters, illnesses and other such situations.
- Situations of particular financial hardship at a level approaching poverty. In some cases, the CRA may reduce or waive the interest owing and penalties charged if you can prove financial hardship. However, this situation does not result in a reduction of your overall amount owing.
It is also important to note that these relief programs can take up to two years to resolve. The process is a lengthy one that can be difficult to complete.
Tax Debt & Personal Bankruptcy
If you are unable to pay the amount of tax debt that you owe, personal bankruptcy could be an option for you. When you file for personal bankruptcy, you can include all of your unsecured debts. This includes tax debt, as well as credit card debt, personal loans, unsecured lines of credit and other similar debt. Student loans can only be included in a bankruptcy if you have been out of school completely for at least seven years. In order to determine if personal bankruptcy is an option for you, you should speak with a licensed insolvency. This is a person who has been trained and is registered to review financial situations and provide details on the available options. A trustee can review your personal financial situation and let you know what options are available. One of these options may be personal bankruptcy. It is then your decision if you would like to proceed with this legal process. If you do, your trustee will assist you in completing all of the required forms and provide you with specific details on the bankruptcy process.
Other Tax Debt Solutions
As mentioned, informal debt settlement and debt management plans cannot reduce the overall amount owing when it comes to tax debt. At best, you may be able to get a reduction in interest or have the interest and penalties waived. However, a consumer proposal can also help reduce the amount of tax debt that you will need to pay. Like personal bankruptcy, a consumer proposal is a legal process that is handled by an insolvency trustee. In a consumer proposal, you make a formal offer to all of your unsecured creditors to pay back a portion of your debt over a specific period of time. Once the proposal is complete, all remaining outstanding debt is forgiven. You can include tax debt owed to the Canada Revenue Agency in a consumer proposal. When you meet with an insolvency, he or she will let you know if a consumer proposal is an option for you after having reviewed your financial situation. A consumer proposal may work for you if you have a large amount of outstanding tax debt and do not wish to file for personal bankruptcy.