Personal Bankruptcy and Income Taxes – What You Need to Know


Bankruptcy and Income Taxes – What You Need to Know

Bankruptcy and Income Taxes – What You Need to Know

Personal Bankruptcy and Income Taxes – What You Need to Know

When filing a personal bankruptcy income tax debts are discharged the same as any other unsecured debt, such as credit cards and personal loans.

Your Trustee in bankruptcy 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 in bankruptcy 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 already owe Canad Revenue Agency money, Canada Revenue Agency will have the right to keep your 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 date of bankruptcy to December 31. Your Trustee in bankruptcy will receive any income tax refund from the post-bankruptcy return; which will be deposited to your bankruptcy estate for the benefit of your unsecured creditors.  

If there is an amount is owing on your post-bankruptcy income tax return, you will be responsible for paying this debt that 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 for 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.