At this time of year, many people ask us if their tax debts can be included in personal bankruptcy or a consumer proposal.
The answer: yes. Tax debts are usually included in a bankruptcy or proposal.
Most people do not realize that tax debts (Revenue Quebec and Revenue Canada) are treated like credit card debt, line of credit, etc. In fact, a large proportion of bankruptcies in Quebec and Canada include a portion of tax debts.
Note however that your tax debts may not be forgivable if it is a case of fraud or a fine. Otherwise, interest and penalties on your legitimate tax debts may be included in the bankruptcy or proposal.
If your tax debts are more than $ 200,000 (including principal, interest and penalties) and account for more than 75% of your total debts, you will not get an automatic release and you will have to go to a release hearing. . This additional step serves to prevent abuse of the insolvency system. (Read the article of the Law)
So, if your tax debts do not stem from fraud, you can get out of it without any problem thanks to the bankruptcy or the proposal. And if you have more than $ 200,000 in tax debts or if they represent more than 75% of your total debts, you will have to go to court and the court will decide on your release.
The consumer proposal and the tax debts
In case you file a consumer proposal, your tax debts will be included in the terms of the proposal.
Tax debts are unsecured debts in the same way as credit card debts. This means that the Canada Revenue Agency and/or Revenu Québec will be included in the agreement, like any other unsecured creditor. They will vote on the proposal. If it is accepted by the majority of the creditors, they will be obliged to respect the terms of the agreement.
Once you have fulfilled all the conditions of the proposal, you will be released from all your unsecured debts, including tax debts.
Bankruptcy and tax debts
In the event that you declare bankruptcy, your tax debts will automatically be included in the bankruptcy, unless they result from fraud or fines. Once your bankruptcy is complete (click here to see the durations), you will be free of all your debts, including your tax debts.
As explained above, if your tax debts represent more than $ 250,000 or 75% of your total debts, before you get your release, you will have to be present for a hearing at the Court. Unless the court finds that you have abused the system voluntarily, you should obtain your release.
For personalized advice according to your unique situation, do not hesitate to contact us for a free and confidential evaluation.