Personal Bankruptcy and Income Taxes – What You Need to Know

When filing a personal bankruptcy, income tax debts are discharged in the same as any other unsecured debt, like credit cards and personal loans. As such, despite popular belief, income tax debt relief & debt forgiveness exists in Canada.

Your Trustee will prepare your income tax return for the year of bankruptcy and will split your income tax return into two returns, pre-bankruptcy and post-bankruptcy income tax returns.

The pre-bankruptcy tax return will cover your income and deductions, from January 1 of the year of bankruptcy up to your date of bankruptcy. Your Trustee will receive any income tax refund from the pre-bankruptcy return; to be deposited to your bankruptcy estate for the benefit of your unsecured creditors.

If you previously owed the Canada Revenue Agency (“CRA”) money, CRA will have the right to keep any income tax refund from your pre-bankruptcy income tax return to pay this debt.

If you owe on this income tax return, it is included in your bankruptcy, so you will not have to pay this debt.

The post-bankruptcy income tax return covers your income and deductions from your day after bankruptcy to December 31. Your Trustee will receive any income tax refund from the post-bankruptcy return and it will be deposited to your bankruptcy estate for the benefit of your unsecured creditors.

If there is an amount owing on your post-bankruptcy income tax return, you will be responsible for paying this debt as it was incurred after you went bankrupt.

If you are struggling with income tax debt or your wages are being garnished, you should seek professional assistance from a Licensed Insolvency Trustee.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.