Bankruptcy and Taxes
Many people are relieved to discover that during bankruptcy the taxes you owe to the Canada Revenue Agency can be discharged.
Prior to filing for bankruptcy or a consumer proposal, the Canada Revenue Agency (CRA) has the power to garnish your wages, take money out of your bank accounts, or place a lien on any property you own without having to go through the court system (as your other creditors must). Once a proposal has been filed by a licensed trustee, all unsecured creditors, such as the CRA, must deal directly with your trustee and can no longer garnish wages or remove funds from your accounts.
If you have unfiled tax returns, any outstanding taxes you owe for those years will NOT be discharged during your bankruptcy and you will still be responsible for paying them. For this reason, it is important to provide accurate tax information to your bankruptcy trustee, who can arrange to have your tax returns completed prior to filing for bankruptcy.
The Canada Revenue Agency does have the option of applying to a federal court to become a secured creditor against any assets (car, house, furniture, jewellery, etc.) that you may own. If the CRA reviews your financial history and decides that you are filing for bankruptcy solely as a means to avoid paying taxes, it may challenge your bankruptcy.