Tag: Canada Revenue Agency

BANKRUPTCY OF THE COMPANY: OUR ENTREPRENEUR’S COMPREHENSIVE GUIDE TO REBUILDING AFTER BANKRUPTCY

Post author By Brandon Smith
Post date December 9, 2024

bankruptcy of the company

Bankruptcy of the Company: Introduction

Imagine being at the helm of a thriving business, only to watch the bankruptcy of the company. As an insolvency professional, a Canadian licensed insolvency trustee (formerly called a trustee in bankruptcy), I have witnessed the rollercoaster of emotions that come with financial failure, often paired with the entrepreneur’s sense of guilt and loss that can feel insurmountable.

Recovering from the bankruptcy of the company is challenging but possible. By understanding the impacts, assessing finances, creating a strong recovery plan, and rebuilding credit and reputation, business owners can rise again with resilience and prepare for future growth.

This is not the end. It’s a transformative stage that opens doors to rethinking, reconstructing, and revitalizing your future. Let’s explore the roadmap to recovery together, filled with actionable advice and insightful anecdotes.

Bankruptcy of the Company: Understanding Business Bankruptcy

Canadian law offers two primary types of bankruptcy for addressing the insolvent company corporate bankruptcy process:

Liquidation

Liquidation is the process of closing a business and selling its assets to generate funds. The proceeds from these sales are then used to pay off creditors. While it represents the conclusion of the company’s operations, understanding this process can help you navigate the winding down of a business effectively.

Reorganization

This initiative aims to thoughtfully reshape the company’s financial and operational structures, ensuring its ongoing success and stability. Reorganization presents a valuable opportunity for businesses facing financial difficulties, allowing them to effectively address and potentially overcome their economic challenges. Typically, this process is carried out through a commercial proposal under the Bankruptcy and Insolvency Act. For larger corporations with debts of at least $5 million, reorganization can take place under the Companies’ Creditors Arrangement Act.

Let’s take a closer look at each of these options to better understand how they can help.

Liquidation under bankruptcy of the company

Liquidation is the process of winding up a company that can no longer meet its financial obligations. It follows a structured corporate bankruptcy process outlined in the BIA, which bears similarities to Chapter 7 of the US Bankruptcy Code. Corporate bankruptcy is also called commercial bankruptcy.

Here’s a step-by-step breakdown of liquidation:

The decision to file:
The board of directors makes the difficult decision to file for bankruptcy and appoint a person to sign the official bankruptcy documents.
Assignment in Bankruptcy: A director, or the sole director, signs the required bankruptcy documents to make the company’s assignment into bankruptcy.
Appointment of the Licensed Insolvency Trustee: An insolvency trustee is appointed to oversee the process.
Asset Transfer: All corporate assets are transferred to the Licensed Insolvency Trustee, which then manages and sells them.
Distribution to Creditors: Proceeds from asset sales, after the cost of the corp bankruptcy proceedings, are distributed to creditors based on a predetermined legal priority.
Secured creditors, such as lenders with liens on company assets, generally have priority over unsecured creditors.
The company ceases to operate: Once assets are distributed, although the bankrupt corporation is not legally dissolved, it no longer operates.

Depending on whether the company is federally or provincially incorporated, eventually, the appropriate government authority will cancel the company’s charter due to the bankruptcy of the company.

Liquidation can be a complex process, but it offers a clear and organized approach to closing a company that is experiencing significant financial challenges. This process ensures that assets are distributed fairly among creditors, helping to bring some resolution to a difficult situation. If you find yourself in this position, rest assured that there are steps in place to manage the process as smoothly as possible.

“The closure of a business doesn’t just impact balance sheets, it impacts lives.”

Reasons for Bankruptcy of the Company

Financial Challenges

Cash Flow Management: Many companies struggle to manage their cash flow effectively, leading to a buildup of debt and ultimately, the bankruptcy of the company. This can be due to a variety of factors, including poor budgeting, delayed payments from customers, or over-reliance on credit.
High Debt Levels: Companies that take on too much debt can quickly become overwhelmed by their financial obligations. This can be particularly true for companies that have taken on debt to finance expansion or acquisitions.
Inefficient Use of Assets: Companies that fail to optimize their use of assets, such as inventory or equipment, can struggle to generate sufficient revenue to meet their financial obligations.
Poor Financial Planning: Companies that fail to plan for the future or make poor financial decisions can quickly find themselves in a difficult financial situation.

Operational Issues

Inefficient Operations: Companies that fail to streamline their operations or make inefficient use of resources can struggle to remain competitive and profitable.
Lack of Scalability: Companies that may not be fully attuned to shifts in the market or industry can find it difficult to scale their operations effectively. By staying adaptable and responsive to changes, businesses can better meet growing demand and seize new growth opportunities.
Poor Management: Companies that are poorly managed or lack effective leadership can struggle to make sound business decisions and ultimately, may force the bankruptcy of the company.
Failure to Innovate: Companies that fail to innovate or adapt to changes in the market can quickly become obsolete and struggle to remain competitive.

External Factors

Economic Downturn: Companies that operate in industries that are heavily reliant on consumer spending or are sensitive to economic fluctuations can be particularly vulnerable to bankruptcy during economic downturns.
Regulatory Changes: Companies facing evolving regulations or laws may find it challenging to adapt. However, with the right strategies and support, they can navigate these changes effectively and avoid potential difficulties. It’s important to stay informed and seek assistance to thrive in a dynamic regulatory environment.
Competition: Companies that operate in highly competitive industries can struggle to remain profitable and may force the bankruptcy of the company if they are unable to differentiate themselves or compete effectively.
Natural Disasters: Companies that are affected by natural disasters, such as hurricanes or wildfires, can struggle to recover and may ultimately be forced into bankruptcy.

Understanding the Ripple Effects of Bankruptcy

The bankruptcy of the company can turn your business life upside down. But understanding its effects can help you navigate this rough terrain. What are the immediate and long-term consequences?

Understanding The Immediate Effects on Your Credit Score

It’s important to know that your business’s credit score is separate from your credit score. The company is considered a distinct legal entity, meaning that, generally, its financial activities do not directly impact your credit score. However, as an entrepreneur, if you’ve personally guaranteed any bank loans or lines of credit for your business, this could affect you personally. If the company is unable to repay those loans, the bank will look to you to cover any outstanding amounts.

Additionally, as a director of the company, you hold responsibility for any unremitted employee source deductions and unremitted HST owed to the Canada Revenue Agency. Being aware of these obligations can help you manage your financial responsibilities more effectively and protect your credit standing. If you have questions or need further clarification, don’t hesitate to reach out for assistance.

So although the bankruptcy of the company does not directly affect your personal credit score, depending on what your financial position is now and how it is affected by the bankruptcy of the company, it could very well have a negative impact on your credit score.

The bankruptcy of the company gets reported to the two Canadian credit bureaus, TransUnion and Equifax. Depending on how your financial situation is affected by the bankruptcy of the company, your credit score may then suffer. It usually suffers in two ways:

Loss of borrowing capacity: You might find it challenging to get credit lines or loans.
Higher interest rates: If you do get offers, they may come with steep rates.

Loss of Trust Among Stakeholders

Trust is hard to regain once lost. After filing for corporate bankruptcy, if you wish to start up a new business, suppliers may hesitate to extend credit, leaving you in a bind. Customers might question your reliability, and partnerships can falter.

Legal Limitations Post-Bankruptcy

Additionally, there are legal limitations that follow the bankruptcy of the company. If you are applying for a job or credit for a new business, there could be a question to answer like “Have you ever been a director of a company that filed for bankruptcy”. Your answer could include restrictions on the types of businesses you can operate or positions you can hold.

Understanding these ripple effects is crucial. As financial advisor Jamie Carter wisely said,

“Bankruptcy can be a valuable lesson if you are willing to learn from it and adapt.”

Remember, the impacts extend beyond finances to reputational damage and legal constraints. You can emerge stronger if you take the time to understand these dynamics.

Reflecting on Financial Health Post-Bankruptcy

Understanding Your Financial Landscape

Recovering from the bankruptcy of the company can feel overwhelming. But remember, it all starts with understanding your financial situation. You can’t chart a path forward if you don’t know where you stand. So, how do you begin?

1. Gather Your Financial Documents

Start by collecting all of your financial statements and paperwork.
Make sure to include documents that reflect your current cash flow, outstanding debts, and assets.
Having this information organized will give you a clear understanding of your current financial position, making it easier to assess your situation effectively.

2. Create a List of Assets and Debts

Take the time to write down what you own and what you owe. Having a clear picture of your financial reality is crucial.

Total Debts: $200,000
Remaining Assets: $50,000

This exercise can feel daunting. But it’s necessary for redefining your reality. Consider this: how can you build a new foundation without understanding the ground underneath? Remember that you may have given personal guarantees to a lender to the company.

3. Set Realistic Financial Goals

Having a goal gives you direction. Break your recovery journey into achievable steps:

Short-term goals: Focus on income generation, budget management and expense reduction.
Long-term goals: Aim for debt reduction and credit score improvement.

Your goals should be tangible and reflect your new financial reality. It’s about letting clarity drive your recovery.

Using Financial Statements as a Roadmap

Your financial statements will serve as a roadmap throughout your recovery journey. They provide essential guidance when making decisions. For example, if you see a consistent cash flow issue, it might be time to revisit your business strategy.

Visualizing Your Financial Position

Understanding your debts versus assets is vital. The chart below visualizes your financial health:

Financial Element	Amount ($)
Total Debts	$200,000
Remaining Assets	$50,000

Preparation involves a meticulous assessment of your financial landscape. It’s about clarity, honesty, and setting yourself up for real change.

Crafting a Proactive Recovery Blueprint

Recovery is not merely about surviving; it’s about thriving. You can turn challenges into opportunities with the right proactive plan. Let’s break down some essential steps.

1. Establishing a Comprehensive Budget

Creating a detailed budget is crucial. It serves as your roadmap. Think of it as a financial GPS that helps guide your decisions.

Forecasting Cash Flows: This allows you to anticipate income and expenses. By understanding your cash flow, you can eliminate any surprises. Wouldn’t it be great to know your financial future better?
Identifying Fixed and Variable Costs: Understanding the difference between fixed and variable costs is essential for effective planning. Fixed costs, such as rent and salaries, remain constant regardless of production levels, while variable costs fluctuate based on your business activity.
By recognizing these distinctions, you can make more informed decisions and enhance your financial strategy.

2. Exploring Cost-Cutting Avenues

The goal here is to reduce costs without sacrificing quality. It’s a delicate balance.

Assess your needs and look for ways to get better deals.
Cut unnecessary expenditures.

How much could you save by embracing smarter practices?

3. Implementing Financial Management Systems

Robust financial management systems help ensure future stability. They make monitoring and adjusting your budget easier. They are available to everyone at a reasonable cost.

Adopt accounting software: This can automate processes and save time.
Conduct regular financial reviews: Staying updated allows for timely adjustments.

“Failing to prepare is preparing to fail.” – John C. Maxwell

These strategies don’t guarantee instant success, but they set a solid foundation for recovery. It’s about making informed decisions today to secure a better tomorrow.

Rebuilding Business Credit: It’s a Marathon, Not a Sprint

Getting into a new business requires building your business credit and access to financing after hardship is a journey. It’s a marathon, not a sprint. Why rush? Quick fixes can lead to long-term pain. Instead, focus on long-term strategies. Patience is your best friend here.

1. Opening New Credit Lines Responsibly

Start slow. Open new credit lines when you can manage them. This is your stepping stone. Think of it like planting seeds. You need to nurture them to grow. Responsible borrowing can improve your credit utilization ratio. This, in turn, boosts your credit score.

Choose accounts that report to credit bureaus.
Start with secured credit cards or smaller loans.

2. Using Secured Credit Cards

Secured credit cards are excellent tools for growth. They require a deposit, but they report your payments to credit bureaus. This means you’re building a positive credit history, one payment at a time. It’s about creating a solid foundation for your credit profile.

3. The Importance of Timely Payments

Let’s take a moment to discuss the significance of making payments on time. Your financial reputation is important, and timely payments play a crucial role in demonstrating your responsibility and stability. Think of it as essential for maintaining a healthy credit score – just like breathing is for your well-being.

If you happen to miss a payment, it can negatively impact your score, so it’s important to stay consistent. By prioritizing timely payments, you’re setting yourself up for financial success!

“Rebuilding credit will require discipline and strategy but can lead to an empowered financial future if handled well.”

4. Learning from Others

Many businesses have successfully navigated this path. Their stories are inspiring. They show that it’s possible to come back stronger. Embrace the lessons from those who have rebuilt their credit. Their experiences can guide you.

Remember, this isn’t just about fixing credit. It’s about creating a healthier future for your business. Stay focused on these long-term strategies to ensure lasting impact and success.

Repairing Your Company’s Image: The Reputation Rehabilitation

Repairing Trust through Transparent Communication

After a reputation setback, you might wonder how to regain trust. The answer lies in transparent communication. Regularly update your stakeholders about your journey. Share not just successes but also hurdles. This honesty shows integrity.

Consider this: Wouldn’t it be easier to trust someone who is open about their difficulties? When your audience perceives you as authentic and genuine, it becomes much simpler to reconnect with them.

Leveraging Digital Platforms for Positive Narratives

In today’s connected world, digital platforms play a crucial role. Use social media and your company website to share uplifting stories. Highlight how you’re improving and what your team is excited about.

Share success stories from employees or customers.
Post updates on community involvement and corporate social responsibility initiatives.
Engage with your audience through polls or Q&A sessions.

“Your brand is a story unfolding across all customer touchpoints.” – Jonah Sachs

As this suggests, every interaction is an opportunity to shape your narrative.

Documenting Changes to Restore Confidence

Last but not least, it’s vital to document and showcase changes. This can be anything from new management practices to enhanced product quality. Displaying tangible improvements can effectively demonstrate your commitment to recovery.

Regular updates not only remind stakeholders of your progress but also instill confidence. Keep in mind, that restoring your reputation is a journey, not a sprint.

So, how ready are you to engage fully in your reputation rehabilitation? Embracing these strategies can set your business on the right path.

Innovating Your Way Back to Success: Growth Beyond Recovery

With a foundation grounded in recovery, you’re now in a position to think bigger. The journey ahead is about more than just bouncing back; it’s about redefining your business potential. Let’s explore some key strategies you can adopt.

1. Identifying New Markets and Opportunities for Diversification

After any setback, understanding where to pivot is essential. Ask yourself: Are there untapped markets waiting for your offerings? Consider the possibilities:

Geographic expansion: Could your product resonate in a different region?
New demographics: What about targeting younger or older audiences?
Product diversification: Have you considered exploring complementary products or services that could enhance your offerings? This could be a great way to provide more value to your customers!

2. Investing in Tech and Innovative Practices

In today’s fast-paced environment, standing still is not an option. Innovation is power. Investing in technology can provide you with a competitive edge. For instance:

Automation: Streamline processes to save time and costs.
Data analytics: Leverage data to make informed decisions.
Digital marketing: Boost your online presence to engage and attract new customers effectively.

3. Building Alliances and Partnerships

Alone, you might find challenges hard to overcome. But together? You can achieve new heights. Consider forming strategic alliances. It could mean collaborating with other businesses to:

Share resources, which can lower costs.
Access new audiences through shared marketing efforts.
Mutual growth leads to stronger foundations for both parties.

“In today’s interconnected world, collaboration is the new competition.”

The Importance of Innovation

Absolutely! It’s important to recognize that innovation goes beyond just technology – it’s fundamentally about our mindset. By adopting an innovative approach during recovery phases, we can create opportunities for sustainable growth. Embracing this perspective can truly make a difference!

As you explore these avenues for growth, keep a sharp focus on your core mission and values. This will reignite your passion and drive for business.

Measuring Progress and Celebrating Wins Along Your Journey

Recovery is a journey filled with small victories. To make your path clear and effective, you need to start by establishing Key Performance Indicators (KPIs). These are measurable values that demonstrate how effectively you’re achieving your recovery goals. Think of them as signposts that guide you along the way.

Establishing KPIs to Monitor Your Recovery Journey

Choose KPIs that resonate with your specific recovery objectives. Here are a few ideas:

Credit score improvements
Reduction in outstanding debts
Revenue growth
Customer retention rates

Why is it important to track these KPIs? Regular updates and adjustments to your recovery strategy are essential. When you notice patterns in your progress, you can adapt your plan accordingly. Are you hitting targets? Celebrate that achievement! Are numbers not improving? Analyze what might need to change.

Acknowledging Small Milestones

It’s crucial to acknowledge and celebrate small milestones. Each small win is a step forward. Taking a moment to recognize these successes not only boosts morale but also motivates you to keep pushing onward. Think about what you have accomplished—each step is proof of your progress.

Incorporating these practices—setting KPIs, adjusting strategies as necessary, and celebrating your successes—can transform your recovery journey. By implementing effective tracking and celebrating your achievements, you can maintain a positive outlook and remain committed to your goals.

“Documenting progress not only keeps you accountable but also energizes your journey forward.”

Remember, recovery from the bankruptcy of the company is not just about bouncing back. It’s about moving forward stronger and more resilient than before. Embrace the journey, celebrate each victory, and you’ll find the path to success becomes much clearer. Keep pushing your limits, and don’t shy away from recognizing the efforts that take you further along your journey.

Bankruptcy of the Company FAQ

1. What happens when my company goes bankrupt?

In Canada, the bankruptcy of the company can be taken down one of two main paths: liquidation and reorganization.

Liquidation involves closing the business, selling its assets, and using the proceeds to pay off creditors. It signifies the end of the company’s operations.
Reorganization, typically through a proposal under the Bankruptcy and Insolvency Act, aims to restructure the company’s finances and operations to enable its continued existence.

The specific process and outcome will depend on the chosen path and the company’s individual circumstances.

2. How does company bankruptcy affect my personal credit score?

Generally, the bankruptcy of the company doesn’t directly impact your personal credit score. Companies are considered separate legal entities. However, there are exceptions:

Personal Guarantees: If you personally guaranteed any of the company’s debts, you become liable for those debts if the company can’t pay. This can negatively affect your credit score.
Director Liabilities: As a director, you are responsible for unremitted employee source deductions and HST owed to the CRA. Failure to remit these could impact your creditworthiness.

While the bankruptcy of the company isn’t a direct hit, the resulting financial strain from personal guarantees or liabilities can indirectly affect your creditworthiness.

3. What are the immediate consequences of bankruptcy beyond finances?

The impact of the bankruptcy of the company extends beyond just the financial aspect. You might experience:

Loss of Trust: Stakeholders like suppliers, customers, and potential partners might hesitate to work with you due to the bankruptcy of the company.
Reputational Damage: The bankruptcy of the company becomes a public record, potentially affecting your future business prospects.
Legal Limitations: You might face restrictions on the types of businesses you can operate or positions you can hold.

These consequences highlight that bankruptcy’s impact can be far-reaching and affect your ability to rebuild.

4. How can I understand my financial situation after company bankruptcy?

Start by:

Gathering Financial Documents: Collect all personal and business financial statements, including cash flow statements, debt records, and asset documentation.
Listing Assets and Debts: Create a comprehensive list of what you own and what you owe, including any personal guarantees for company debts.
Setting Realistic Goals: Define achievable short-term goals (income generation, budgeting) and long-term goals (debt reduction, credit score improvement).

This process helps you understand your current financial position and create a roadmap for recovery.

5. How do I rebuild business credit after bankruptcy?

Rebuilding business credit takes time and strategic effort. Focus on:

Responsible New Credit Lines: Start small with secured credit cards or loans that report to credit bureaus, gradually building a positive credit history.
Timely Payments: Consistently making payments on time demonstrates financial responsibility and is crucial for improving your credit score.
Learning from Others: Seek advice and inspiration from other businesses that successfully rebuilt their credit after bankruptcy.

Remember, patience and responsible financial management are key to rebuilding business credit.

6. How can I repair my company’s reputation after bankruptcy?

Focus on:

Transparent Communication: Openly communicate with stakeholders about the bankruptcy of the company, your recovery plan, and progress made. This honesty builds trust.
Leveraging Digital Platforms: Utilize your website and social media to share positive stories, highlight improvements, and engage with your audience.
Documenting Changes: Showcase tangible improvements in your operations, management practices, and product quality to demonstrate your commitment to recovery.

By actively managing the narrative and showcasing positive change, you can gradually rebuild trust and restore your company’s reputation.

7. What are some strategies for growth after recovering from bankruptcy?

Consider these strategies:

Identifying New Markets: Explore untapped markets by expanding geographically, targeting new demographics, or diversifying your product/service offerings.
Investing in Innovation: Embrace technology and innovative practices through automation, data analytics, and digital marketing to gain a competitive edge.
Building Partnerships: Form strategic alliances with other businesses to share resources, access new audiences, and achieve mutual growth.

Growth after the bankruptcy of the company involves strategic planning and proactive efforts to explore new opportunities and redefine your business potential.

8. How do I measure my progress and stay motivated during recovery?

Utilize these methods:

Establish KPIs: Define key performance indicators (KPIs) that align with your recovery goals, such as credit score improvement, debt reduction, revenue growth, etc.
Track and Adjust: Regularly monitor your KPIs and adjust your recovery strategy as needed, celebrating successes and addressing areas requiring improvement.
Acknowledge Milestones: Celebrate even small wins and acknowledge your progress to maintain motivation and a positive outlook throughout the recovery journey.

By actively tracking your progress and celebrating achievements, you can stay focused and committed to rebuilding your business stronger than before.

Bankruptcy of the Company: Conclusion

I hope you enjoyed this bankruptcy of the company Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.

Brandon Blog Post

WHAT DOES BANKRUPTCY PROTECTION MEAN? THE ABSOLUTELY IMPORTANT THINGS YOU NEED TO KNOW

Post author By Brandon Smith
Post date October 28, 2024

what does bankruptcy protection mean

What does bankruptcy protection mean? Canada’s Bankruptcy & Insolvency Act

What does bankruptcy protection mean? Bankruptcy protection is a legal status granted to individuals or businesses under Canada’s Bankruptcy and Insolvency Act (BIA). This protection shields debtors from creditor actions while working towards a fresh financial start, whether through bankruptcy or a consumer proposal.

Common questions are:

How does bankruptcy protect my assets?
What is the difference between a Consumer Proposal and bankruptcy?
How does bankruptcy protect my income?
Can I file for bankruptcy if I have no assets or income?
What happens to my debts after bankruptcy?
Do I need a bankruptcy lawyer to file for bankruptcy?

In this Brandon’s Blog, I demystify the concept of bankruptcy protection, shedding light on its significance and the various forms it can take. I answer these and other questions to explain “What Does Bankruptcy Protection Mean?“.

What Does Bankruptcy Protection Mean? Legal Framework of Bankruptcy Protection

The legal framework of bankruptcy protection is rooted in the BIA in Canada. This act provides a structured process for individuals and business debtors facing overwhelming debt to seek relief and a fresh financial start.

Here’s a breakdown of the key elements:

Automatic Stay: Upon filing for bankruptcy or a Consumer Proposal, an automatic stay comes into effect. This legal measure serves as a shield against creditor actions. It immediately halts all collection attempts, including legal actions, wage garnishments, and asset seizures.

Exempt Assets: Contrary to the misconception that bankruptcy leads to complete asset forfeiture, provincial laws designate certain assets as exempt. These assets, encompassing essential items like household goods, a vehicle, limited home equity, tools of the trade, and certain RRSPs, are protected during bankruptcy proceedings. The specific value allowances for these exemptions vary by province.

Asset Protection Mechanisms: Even if an individual possesses assets exceeding the prescribed exemption limits, there are options to retain them. The repurchase of a person’s equity in the assets allows individuals, such as a family member, to keep an asset by paying the non-exempt portion of its value into the bankruptcy estate.

Alternatives to Bankruptcy: Consumer Proposals offer an alternative path to bankruptcy while still protecting through an automatic stay. In a Consumer Proposal, individuals negotiate a reduced debt repayment plan with their creditors, preserving their assets.

Income Protection: Bankruptcy filings protect income from creditors, effectively preventing wage garnishments and bank account freezes. This protection extends to most creditors, including the Canada Revenue Agency, with exceptions like ongoing child or spousal support payments. During bankruptcy, earned income goes directly to the individual. Depending on the income level, a person may need to pay over a portion using monthly payments for the benefit of the creditors.

It’s worth mentioning that bankruptcy protection laws can be quite complicated. It’s a good idea to consult with qualified professionals, like a licensed insolvency trustee (formerly known as a bankruptcy trustee or a trustee in bankruptcy), who can offer tailored advice and assist you in understanding the process.

What Does Bankruptcy Protection Mean? Types of Bankruptcy Protection

The BIA is a federal law that covers bankruptcy protection. Provincial laws determine which assets you can keep when filing for bankruptcy. Here are the main types of bankruptcy protection in Canada:

*Canadian L**iquidation Bankruptcy (known in the United States as a Chapter 7 bankruptcy)*

This is a legal process available to both companies and individuals. The company or the person declares themselves unable to repay your debts when filing an assignment in bankruptcy. This results in a stay of proceedings that prevents creditors from taking action against you or your property. A licensed insolvency trustee will be appointed to manage your bankruptcy.

The bankrupt person or company may be required to surrender some assets to the Trustee, who will then sell them and distribute the funds to your creditors. However, for individuals, certain assets are protected under provincial law. For a first-time bankrupt person with no surplus income, you will be discharged from bankruptcy, usually within nine months, after which your debts will be wiped out, with limited exceptions.

Consumer Proposal (known in the United States as a Chapter 13 bankruptcy)

A consumer proposal is a financial restructuring bankruptcy alternative for people who owe $250,000 or less, other than for any debts registered against your principal residence. In a consumer proposal, you offer your creditors a partial repayment of your debt through a licensed insolvency trustee. If your creditors accept the proposal, your debts are consolidated into one settlement, and you make payments over some time, typically up to five years. Your assets are not affected by a consumer proposal, and you are protected from creditor actions while the proposal is in effect.

Commercial Proposal (known in the United States as a Chapter 11 bankruptcy)

Companies, or people who owe more than $250,000, can get bankruptcy protection, restructure their finances and avoid bankruptcy through the commercial proposal section of the BIA.

Restructuring under the Companies’ Creditors Arrangement Act (this is the closest we have to a US Chapter 11 bankruptcy protection filing)

Companies that owe $5 million or more, can gain bankruptcy protection and restructure their operations and finances using federal legislation called the Companies’ Creditors Arrangement Act.

All of the above bankruptcy protection alternatives require a licensed insolvency trustee to administer the process.

What Does Bankruptcy Protection Mean? Key Concepts of Bankruptcy Protection

Automatic Stay

What is a stay of proceedings and how does it work? A stay of proceedings is a legal measure triggered by filing for bankruptcy or a Consumer Proposal for financial restructuring. It immediately halts all creditor actions against you, including collection calls, legal proceedings, and asset seizures. This provides relief from creditor harassment and safeguards your assets and income while navigating the process.

Debt Restructuring through bankruptcy or consumer proposal

Two primary methods for debt restructuring in Canada are bankruptcy and consumer proposals. People understand how consumer proposals are for debt restructuring because that is exactly what it does. But how can personal bankruptcy be a debt restructuring tool?

Both options provide legal protection from creditors and offer a path toward financial stability.

Bankruptcy process

Filing for bankruptcy initiates a legal process and invokes the stay of proceedings. That halts all creditor actions, including collection calls, lawsuits, and wage garnishments. This protection extends to most creditors, including government agencies like the Canada Revenue Agency, with a few exceptions, like family support payments.

A common misconception is that bankruptcy leads to the loss of all assets. However, there are provincial laws in Canada that intersect with federal bankruptcy laws. One such provincial statute is the Ontario Execution Act, R.S.O. 1990, c. E.24, which designates certain assets as “exempt”. These exempt assets, based on liquidation value, not original cost, are protected during bankruptcy and can include:

Household furnishings and appliances – $13,150
Equity in a vehicle – $6,600
Home equity up to $10,000
RRSPs, other than for contributions made in the 12 months before filing bankruptcy
Medical aids and devices that are required to assist with a disability or a medical or dental condition
Cash surrender value of life insurance policies where a spouse or family member is an irrevocable designated beneficiary

Even if an asset exceeds the exemption limit, options exist to retain it. These options include repurchasing the asset by paying the non-exempt value into the bankruptcy estate or including that value in calculating what you need to pay for a successful consumer proposal instead.

To file for bankruptcy, you need to owe at least $1,000. You need debts to file; it doesn’t require any assets or income to be eligible! Individuals with minimal or no assets can still file for bankruptcy and benefit from its protections.

Consumer Proposal

A consumer proposal is a formal arrangement between a debtor and their creditors, arranged through a licensed insolvency trustee. This option helps debtors combine their debts and propose to repay creditors a portion of what they owe, typically between 20% and 50% of the total debt.

Consumer proposals offer several advantages:○

You do not lose your assets, making it suitable for those with significant non-exempt assets.
Interest charges stop accruing.
Creditors are legally prevented from starting or pursuing further collection actions due to the “stay of proceedings”.
Although a consumer proposal isn’t technically bankruptcy, it provides similar legal protections and debt relief benefits.

Both bankruptcy and consumer proposals are complex legal processes. Consulting with a licensed insolvency trustee, the only professional authorized to administer these proceedings is crucial to determine the most suitable option for individual circumstances. We can assess your financial situation, explain the implications of each choice, and guide you through the process.

What Does Bankruptcy Protection Mean? Rights and Responsibilities of Debtors

Rights of Debtors:

Stay of Proceedings
Asset Protection
Options For Non-Exempt Assets
Income Protection: Bankruptcy shields debtors’ income from most creditors, protecting them from wage garnishments and bank account seizures. This includes protection from the CRA. There are some specific cases where income protection is not available, such as ongoing child or spousal support payments.
Eligibility Regardless of Assets or Income
Consumer Proposals as an Alternative: Consumer proposals provide a bankruptcy alternative, allowing debtors to consolidate debts and negotiate a reduced repayment plan with their creditors10. While offering similar creditor protection through a stay of proceedings, consumer proposals do not impact assets, making them attractive for individuals with significant non-exempt equity.

Responsibilities of Debtors:

While the sources primarily focus on the rights and protections offered by bankruptcy and consumer proposals, there are certain inherent responsibilities:

Full Disclosure: Debtors are obligated to provide accurate and complete financial information to their licensed insolvency trustee, including all assets, debts, income, and expenses.
Cooperation: Debtors must cooperate with their Trustee throughout the bankruptcy or proposal process, attending meetings, providing requested documentation, and adhering to the terms of their agreement.
Compliance with Legal Requirements: Debtors must fulfill the specific legal requirements of their chosen debt relief solution, which may include attending financial counselling sessions or making agreed-upon payments.

Choosing the Right Path

Deciding between bankruptcy and a consumer proposal requires careful consideration with the guidance of a licensed insolvency trustee. The Trustee’s expertise helps determine the most suitable option based on individual circumstances, ensuring debtors understand their rights and obligations.

What Does Bankruptcy Protection Mean? The Role of Bankruptcy Courts

In Canada, bankruptcy courts play a crucial role in the administration of bankruptcy and insolvency proceedings. Here are some key responsibilities of bankruptcy courts in Canada:

Hearing Bankruptcy Applications: Bankruptcy courts hear petitions filed by individuals or businesses seeking to be declared bankrupt be it personal or business bankruptcy. The court determines whether the applicant is eligible to be declared bankrupt and whether the petition is valid.
Approving Reorganization Plans: In cases where a company is seeking to restructure its debt through BIA or CCAA reorganization plans, the bankruptcy court must approve the plan. The court ensures that the plan is fair and reasonable and that it provides for the payment of creditors in a timely manner.
Approving Asset Sales: Bankruptcy courts have the authority to approve asset sales conducted by the Trustee. This ensures that the sales are conducted fairly and reasonably and that the assets are sold for a fair price under the circumstances.
Hearing Creditors Appealing the Trustee’s Disallowance of Their Claim: Bankruptcy courts hear appeals of claim disallowances against the bankrupt’s estate. The court determines if the Trustee’s decision on the validity and priority of each claim is correct or not if appealed.
Approving Settlements: Bankruptcy courts can approve settlements between the Trustee and creditors, ensuring that the settlement is fair and reasonable.
Overseeing the Administration of the Bankrupt’s Estate: Bankruptcy courts monitor the administration of the bankrupt’s estate, ensuring that the Trustee is performing their duties following the BIA and that the estate is being managed fairly and reasonably.
Making Rulings on Disputes: Bankruptcy courts make rulings on disputes that arise during the bankruptcy process, such as disputes between the Trustee and creditors, or between creditors themselves.
Providing Guidance: Bankruptcy courts can guide the Trustee, creditors, and other stakeholders on the interpretation and application of the BIA and other relevant laws in response to such a motion.
Bankrupt’s opposed discharges: The Court hears all opposed applications for discharge of the bankrupt person and rules on what kind of discharge the person is entitled to.
what does bankruptcy protection mean

What Does Bankruptcy Protection Mean? The Role of the Office of the Superintendent of Bankruptcy Canada

The Office of the Superintendent of Bankruptcy Canada (OSB) is a federal agency that manages bankruptcy and insolvency proceedings across the country. The OSB is essential for enforcing the BIA and making sure the insolvency system runs smoothly and fairly. Here are some of the main responsibilities of the OSB:

Regulation and Oversight: The OSB regulates and oversees the activities of trustees, receivers, and other insolvency professionals to ensure that they comply with the BIA and other relevant laws.
Licensing and Registration: The OSB licenses and registers trustees, receivers, and other insolvency professionals, ensuring that they meet the necessary qualifications and standards.
Monitoring and Investigation: The OSB monitors and investigates complaints and concerns related to the administration of bankruptcy and insolvency proceedings, including allegations of misconduct or fraud.
Enforcement: The OSB enforces the BIA and other relevant laws, including issuing warnings, fines, and penalties to individuals and companies that violate the law.
Guidance and Education: The OSB provides guidance and education to stakeholders, including trustees, creditors, and debtors, on the BIA and other relevant laws and regulations.
Research and Analysis: The OSB conducts research and analysis on insolvency trends, statistics, and best practices, which help inform policy decisions and improve the effectiveness of the insolvency system.
Policy Development: The OSB develops and recommends policies to the Minister of Justice and Attorney General of Canada, which helps shape the direction of the insolvency system.
Public Education: The OSB provides public education and awareness campaigns to inform Canadians about the insolvency system, the consequences of bankruptcy, and the importance of financial literacy.
Collaboration with Other Agencies: The OSB works closely with other government agencies, such as the CRA and the Financial Consumer Agency of Canada (FCAC), to ensure a coordinated approach to insolvency and debt management.
Reporting and Accountability: The OSB is responsible to Parliament and reports directly to the Minister of Justice and Attorney General of Canada. This structure ensures transparency and accountability in its operations and decisions.

In summary, the OSB is essential for maintaining the integrity and efficiency of Canada’s insolvency system and safeguarding the rights of creditors, debtors, and other parties involved.

What Does Bankruptcy Protection Mean? Impacts of Bankruptcy Protection

Financial Relief for Debtors

Bankruptcy provides an opportunity for debt relief. While it does not require the debtor to have any assets, it might involve surrendering non-exempt assets to the bankruptcy estate. However, debtors can explore options like a family member repurchasing assets by paying the non-exempt value or filing a Consumer Proposal, which allows for debt consolidation and partial repayment to creditors without surrendering assets.

Bankruptcy allows individuals and businesses struggling with debt to restructure or eliminate their debts and rebuild a stable financial future. After the personal bankruptcy process, debtors receive a discharge, typically within nine months for a first-time bankrupt person, marking the end of their bankruptcy and the elimination of eligible debts. In corporate bankruptcies, there is not a discharge process.

Effects on Credit Scores

Filing for bankruptcy becomes a matter of public record and is reported to credit bureaus. This information remains on your credit report for a significant period, typically six to seven years in Canada, though this can vary based on provincial laws and the type of bankruptcy protection filed. This negative mark on your credit history will likely result in a significant drop in your credit score.

Lenders use credit scores to assess the risk associated with lending money. A low credit score resulting from bankruptcy makes it difficult to obtain new credit, such as loans, credit cards, or mortgages. Even if you do qualify for credit, you may face less favourable terms, including higher interest rates and lower credit limits.

While not directly related to credit scores, bankruptcy can impact other aspects of your financial life. For instance, some employers and landlords may consider credit history when making hiring or rental decisions.

What Does Bankruptcy Protection Mean FAQ

Here is our what does bankruptcy protection mean FAQ:

What does “Bankruptcy Protection” mean? Bankruptcy protection refers to the legal safeguards provided to individuals or companies when they file for bankruptcy. It essentially halts all debt collection activities, legal actions, and wage garnishments by creditors. This protection is activated through an “automatic stay” upon filing for bankruptcy.
What does Bankruptcy Protection protect? Bankruptcy protection is designed to help you keep your assets safe from creditors. It provides a legal way to either reorganize your finances or sell off assets in an orderly fashion under court oversight. Many people think that filing for bankruptcy means you have to give up everything, but that’s not the case. Some laws allow you to keep important items such as your home, car, and personal possessions.
How does the automatic stay work? The automatic stay is a court order that takes effect immediately upon filing for bankruptcy. It acts as a legal shield, prohibiting creditors from taking any further action to collect debts incurred before the bankruptcy filing. This includes stopping lawsuits, wage garnishments, bank account freezes, and even harassing phone calls.
Does filing for bankruptcy mean I will lose all my assets? Not necessarily. While bankruptcy may involve liquidating some assets to repay creditors, the bankruptcy code provides exemptions that allow you to keep certain assets deemed necessary for your livelihood. These exemptions vary by state but generally include a homestead exemption for your primary residence, a vehicle exemption, and exemptions for personal property like clothing, furniture, and tools needed for your profession.
How does bankruptcy protection help me keep my assets? Bankruptcy protection helps preserve your assets in two primary ways:
Automatic Stay: It prevents creditors from seizing your assets while you reorganize your finances or create a repayment plan. Exemptions: These legal provisions shield specific assets from liquidation, ensuring you retain essential possessions.
What is the difference between Bankruptcy and a Consumer Proposal? Bankruptcy means selling off non-exempt assets to repay creditors. It’s generally an option for individuals or businesses that are struggling with low income and limited assets. On the other hand, a consumer proposal is a way for individuals with a steady income to suggest a repayment plan to their creditors that lasts up to five years. This option lets you keep your assets while getting rid of your debt.
How can I learn more about bankruptcy protection and whether it’s right for me? If you’re looking to learn more about bankruptcy protection and whether it’s the right choice for you, it’s important to talk to a licensed insolvency trustee. They can provide insights tailored to your financial situation, explain the various bankruptcy options available, clarify how it might affect your assets, and help you navigate the legal steps involved.
What are some misconceptions about bankruptcy? You will lose everything: While some assets may be liquidated, exemptions exist to protect essential belongings. It will ruin your credit forever: While bankruptcy negatively impacts credit scores, it is possible to rebuild credit over time with responsible financial management. It is a mark of shame: Bankruptcy is a legal process designed to provide individuals and businesses with a fresh financial start.

What Does Bankruptcy Protection Mean Conclusion

Navigating the world of bankruptcy protection can feel daunting, but fear not! It’s a valuable safety net designed to help both individuals and businesses get back on their feet during tough financial times. Think of it as a wonderful opportunity to reorganize debts and embrace a fresh start.

By familiarizing yourself with the different types of bankruptcy, understanding the implications of filing, and discovering how it may affect your credit score, you’ll be well-equipped to make smart choices for your financial future. While bankruptcy isn’t the perfect fit for everyone, it can truly be a lifesaver for those in need of a financial reboot. So take a deep breath and explore your options—you’ve got this!

I hope you enjoyed this what does bankruptcy protection mean Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring due to distressed real estate or other reasons? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

Tags bankruptcy estate, bankruptcy filings, bankruptcy laws, bankruptcy lawyer, bankruptcy process, bankruptcy protection, business bankruptcy, Canada Revenue Agency, corporate bankruptcies, exempt assets, filing bankruptcy, filing for bankruptcy, Ira Smith Trustee, legal proceeding, licensed insolvency trustee, personal bankruptcies, reorganization plan, types of bankruptcy

Brandon Blog Post

BANKRUPTCY AND CRA DEBT STRATEGIES: A COMPREHENSIVE GUIDE ON NAVIGATING DEBT MANAGEMENT AND TAX RELIEF

Post author By Brandon Smith
Post date May 6, 2024

bankruptcy and cra debt

bankruptcy and cra debt

Bankruptcy and CRA Debt Introduction

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.

At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.

Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.

This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.

Definition of Bankruptcy and CRA Debt

Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.

CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.

bankruptcy and cra debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.

Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

What is bankruptcy?

Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.

Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.

*Bankruptcy law**s in Canada*

Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.

In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.

If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.

In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.

Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.

bankruptcy and cra debt

Bankruptcy and CRA Debt

Overview of the CRA

The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).

Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.

The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.

Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.

Types of debt owed to the CRA

Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.

The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.

Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.

Consequences of CRA debt

Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.

The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.

You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.

*Debt Re**payment Plan*s

CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.

If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?

Bankruptcy as a Debt Relief Option

Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.

Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.

bankruptcy and cra debt

Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:

The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
The creditors are owed financial obligations by the debtor.
The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.

Preparing for Bankruptcy

To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.

The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.

If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.

Filing for Bankruptcy

Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.

Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.

It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.

Duties and Responsibilities during Bankruptcy

The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.

Bankruptcy and CRA Debt Discharge Considerations

Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.

If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.

For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.

Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.

As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*

I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.

The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.

These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.

Next, it is important to start rebuilding credit in a few different ways:

Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.

It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.

bankruptcy and cra debt

Bankruptcy and CRA Debt FAQs

Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:

Is it possible to file for bankruptcy solely for CRA debt?

When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.

What happens to my CRA debt in bankruptcy?

In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.

How does bankruptcy affect my tax refunds?

Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.

Can I include tax debt in a consumer proposal?

Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.

What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.

Bankruptcy and CRA Debt Conclusion

I hope you have enjoyed this bankruptcy and CRA debt Brandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

An image of a woman holding her head in her hands with an image of a building with a Canadian flag behind her to represent a woman worrying about her bankruptcy and CRA debt. — *bankruptcy and cra debt*

Brandon Blog Post

CERB CLARITY: A COMPREHENSIVE GUIDE TO ELIGIBILITY AND REPAYMENT

Post author By Brandon Smith
Post date March 11, 2024

Overview of the Canada Emergency Response Benefit

In the unprecedented times of the pandemic, one of Canada’s COVID-19 Economic Response Plan by PM Justin Trudeau and the Federal Government was the rolling out of the Canada Emergency Response Benefit (CERB) to provide financial aid to those affected by the COVID-19 pandemic. However, the eligibility requirements and repayment process have left many Canadians confused and frustrated.

In this Brandon’s Blog, we will dive deep into the intricacies of CERB eligibility and repayment, providing you with a comprehensive guide to navigate through the confusion. Let’s unravel the mysteries surrounding this together!

Explanation of what CERB was

The CERB has been a source of confusion for many Canadians, particularly when it comes to eligibility and repayment. Despite efforts to clarify the rules, there is still a lack of understanding among the public.

The first step towards clarity is understanding whether you were eligible for this benefit program. The program was designed to support individuals who lost their jobs or experienced a significant reduction in income due to the pandemic. However, the program was rolled out so fast that even those charged with administering the program did not fully understand the eligibility requirements.

With so many government civil servants not understanding the program, no wonder that ordinary Canadians were and are still uncertain about their eligibility status. In this section, we will break down the eligibility criteria, providing you with a clear understanding of who qualified for it and who did not.

Understanding Eligibility Requirements for CERB

Many Canadians are still facing uncertainty and confusion regarding their eligibility for the CERB application process. The ever-changing criteria and requirements had left individuals unsure about whether they qualified for this crucial financial assistance. Let’s delve into the key points causing confusion among applicants. The eligibility requirements were:

Employment Status: To be eligible for CERB, you must have stopped working or experienced a significant reduction in your employment or self-employment income due to COVID-19. This includes individuals who have been laid off, furloughed, or had their business operations suspended.
Income Threshold: The income requirement was that it must have been at least $5,000 in the previous 12 months or 2019. This income can come from employment, self-employment, or certain benefits related to maternity or parental leave.
Residency Requirement: You must be a resident of Canada and have a valid Social Insurance Number (SIN) to qualify. Non-residents, temporary workers, and international students were not eligible.
Exhaustion of Other Benefits: If you were already receiving other benefits, such as Employment Insurance (EI), you were not eligible for CERB. However, if you had exhausted your EI benefits, you could have been eligible.

Purpose of providing financial assistance during the COVID-19 crisis

The benefit was rolled out quickly by PM Justin Trudeau and his Federal Government and there was a lot of confusion about who was eligible for it. It was created to help those in Canada who the COVID-19 pandemic directly impacted. The program provided financial assistance to employees and self-employed workers. The benefit was worth a maximum of $2,000. Eligibility periods were every 4 weeks for up to four months.

The issue that troubles me is that the benefit was mostly paid to people who otherwise would not have been able to afford rent or food during their eligibility periods. The CERB benefit money was spent immediately and a long time ago. So if Canada Revenue Agency (CRA) and Service Canada have now determined that some people should not have gotten that benefit, what are those people supposed to do if CRA demands the money back?

Criteria for Eligibility Not Clearly Communicated

The criteria for qualifying for CERB have been subject to changes and updates by the Federal Government since the program’s inception until it closed. While the intention behind those adjustments may have been to accommodate a broader range of individuals in need, the frequent modifications have created additional confusion. Applicants struggled to keep up with the evolving requirements, making it challenging for them to determine if they were eligible for the benefit.

Moreover, the language used to communicate the eligibility criteria was complex and difficult for the average person to comprehend. The technical jargon and legal terms used in official documents and announcements further exacerbated the confusion, leaving many applicants feeling overwhelmed and uncertain about their eligibility status.

The shifting landscape of eligibility requirements added another layer of complexity for Canadians seeking financial support. As the government responded to changing economic conditions and societal needs, the criteria for qualifying were adjusted to reflect these shifts. While these changes were intended to ensure that those most affected by the pandemic received assistance, they also resulted in confusion among applicants.

For instance, updates to the eligibility criteria regarding income thresholds and employment status left many individuals questioning whether they still qualified for CERB. The evolving nature of these requirements meant that what may have been true one week could be outdated the next, creating challenges for applicants trying to navigate the system.

The confusion surrounding eligibility continues to be a significant issue impacting many Canadians who needed financial assistance during those uncertain times. The reason it continues is because CRA is now demanding repayment from many Canadians alleging that they never qualified for it in the first place.

Clear and transparent communication of the criteria, consistent updates on changes, and accessible language are essential to help individuals understand their eligibility status and navigate the application process effectively.

Understanding CERB Repayment and its Real-Life Challenges

While CERB provided much-needed financial relief to millions of Canadians, it is crucial to understand that the money received through the program was not a grant but a taxable benefit. This means that it needed to be included in each recipient’s income tax return for the taxation year it was received. Failure to do so results in serious consequences. Let’s delve into the repayment process as that was also not properly communicated.

Repayment Deadline: The original deadline for repaying CERB was December 31, 2022. It was essential to plan your finances accordingly to meet this deadline and avoid any penalties or interest charges. As mentioned above, the problem was that everyone used the funds for rent and food. They did not have the money to repay.
Repayment Options: The CRA provides various repayment options to make the process easier for Canadians. You can repay the amount in full, in installments, or through your income tax return. It is crucial to choose the option that best suits your financial situation. However, at this stage, if not repaid immediately upon CRA advising of ineligibility, penalty and interest will be added to the amount paid. This is causing much hardship to many Canadians today.
Avoiding Misunderstandings: Many Canadians have found themselves in a situation where they received the benefit without realizing they were ineligible. CRA is now demanding repayment to rectify the situation.

Answers to the CERB Repayment FAQs

Q: What are some common issues people are facing when it comes to repaying the CERB?

A: Some common issues people face when repaying the CERB include confusion about eligibility criteria, difficulties navigating the repayment process, challenges in understanding tax implications, and concerns about financial strain due to the repayment amount. Additionally, delays in receiving communication from the government regarding repayment arrangements and lack of clarity on repayment deadlines are causing stress and uncertainty among recipients.

Q: How is the government addressing the repayment problems faced by Canadians who received the CERB?

A: The Canadian government has implemented various measures to address the repayment issues faced by Canadians who received the CERB. This includes allowing individuals to set up payment plans, extending the deadline for repayment, and providing flexibility in terms of repayment options. Additionally, the government has introduced measures to waive interest charges on outstanding balances for a certain period and has simplified the process for individuals who may have difficulty repaying the benefit. These efforts aim to alleviate the financial burden faced by Canadians and ensure a smoother repayment process.

Q: Can I appeal a decision regarding the CERB Repayment?

A: Yes, you can appeal a decision regarding the Canada Emergency Response Benefit Repayment by contacting the Canada Revenue Agency and providing any relevant documentation or information to support your appeal. It is recommended to review the specific reasons for the repayment request and provide a clear explanation or evidence to support your case during the appeal process. You will need documents to prove your position and may require professional advice from a tax accountant or tax lawyer.

Q: Are there any options available for individuals who are struggling to repay the CERB due to financial difficulties?

A: Individuals who are struggling to repay the benefit due to financial difficulties can contact the CRA to discuss repayment options. The CRA may be able to work out a payment plan or provide assistance based on individual circumstances. It is important to communicate with the CRA as soon as possible to avoid any penalties or further financial burden.

Q: What are the consequences for individuals who are unable to repay the CERB on time?

A: Individuals who are unable to repay the CERB on time may face consequences such as having to pay penalties or interest on the overdue amount, having their tax refunds withheld by the government, or being subject to legal action to recover the debt. It is important to communicate with the Canada Revenue Agency if you are unable to make payments on time to explore potential options for repayment.

Q: What are the acceptable methods for repaying the Canada Emergency Response Benefit?

A: As of now, the CRA has not announced specific repayment methods. However, individuals who have received the benefit but are not eligible or have received more than they were entitled to will be required to repay it. The CRA may provide further guidance on repayment methods in the future, but for now, individuals can contact the CRA to discuss repayment options.

It is just like paying any other amount to CRA. You can do so online, at your bank or by mailing a cheque to CRA. Make sure you include the payment advice stub with your payment and write your social insurance number and how the payment should be directed on the back of your cheque or in the appropriate boxes if paying online.

Q: Can I access financial counselling services for assistance with CERB repayment?

A: Yes, you can access professional advice in the form of financial counselling services for assistance with repayment. Many non-profit organizations and financial institutions offer free counselling services to help individuals navigate their finances and manage any debt repayment, including assistance with repaying CERB funds. It is recommended to reach out to these organizations for personalized guidance on your specific situation.

Q: Can I file either a consumer proposal or bankruptcy to eliminate the CERB repayment debt demanded by the CRA?

A: You can include the CERB repayment debt in a consumer proposal or bankruptcy, but it is advisable to seek professional advice from a licensed insolvency trustee in Canada to understand the specific implications and requirements of each option to your unique financial situation. Each individual’s financial situation is unique, so it’s crucial to receive personalized guidance on the best course of action to address the this repayment debt, your other debts and the effect on your assets.

We have helped several individuals eliminate their CERB repayment debt through both successful consumer proposals and bankruptcy.

CERB Conclusion

The Federal Government has taken steps to address confusion surrounding this program by updating guidelines, improving communication, and providing resources for repayment assistance. However, the CERB part of PM Justin Trudeau’s Canada’s COVID-19 Economic Response Plan seems to be extending the confusion and angst that existed during the COVID-19 crisis itself.

Navigating the complexities of eligibility and repayment is overwhelming, but with the right information, you can ensure a smooth process. By understanding the eligibility criteria and repayment options, you can avoid confusion and potential financial hardships in the future. Remember, it is always better to be proactive and seek clarification if you have any doubts regarding your CERB eligibility or repayment status. Together, we can navigate the confusion and emerge stronger on the other side. Stay informed, stay compliant, and stay financially secure.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.

A person wearing a traditional Canadian red and white plaid shirt, surrounded by stacks of paper and envelopes from the Canada Revenue Agency. They look terrified and overwhelmed as they try to figure out how to repay the money they owe. The scene is set against a gray, ominous background with looming shadows representing the fear and stress the person is feeling. The person's facial expression and body language should convey a sense of desperation and hopelessness.

Tags application process, Canada Revenue Agency, Canada's COVID-19 Economic Response Plan, Canadian government, cerb, COVID-19 crisis, eligibility periods, eligibility requirements, Federal government, financial health, income requirement, income tax returns, Ira Smith Trustee, justin trudeau, professional advice, self-employment income, Service Canada

Brandon Blog Post

CERB CANADA: THE ENORMOUS DEBT PROBLEM NOW FACING CANADIANS

Post author By Brandon Smith
Post date June 13, 2022

The Canada Emergency Response Benefit (CERB Canada) has been closed but is not over

The government is ramping up its efforts to verify CERB Canada eligibility for payments made under the Canada pandemic support program. Many Canadians have been told to return some or all of the funds received in the past. The Canada Revenue Agency (CRA) and Employment and Social Development Canada are working together to ensure that those who received COVID-19 pandemic individual benefits were eligible for them. CRA also announced that they are sending out Notices of Redetermination to Canadians who were ineligible for some or all of the CERB Canada benefits they received.

The CERB Canada benefit was rolled out quickly and there was a lot of confusion about who was eligible for it. It was created to help those in Canada who the COVID-19 pandemic directly impacted. The program provided financial assistance to employees and self-employed workers. The benefit was worth a maximum of $2,000 every 4-week period for up to four months.

The issue that troubles me is that the benefit was mostly paid to people who otherwise would not have been able to afford rent or food. The CERB Canada benefit money was spent immediately and a long time ago. So if CRA and Service Canada have now determined that some people should not have gotten that benefit, what are those people supposed to do if CRA demands the money back?

In this Brandon’s Blog, I discuss what the options may be for people who receive a demand for repayment of the CERB Canada benefit.

Who was eligible for CERB Canada?

To qualify for the CERB payment from the government support program, you must have met certain conditions during the period you applied. The Government of Canada stipulated the following eligibility criteria:

You did not look for or receive, CERB Canada or Employment Insurance benefits from Service Canada for the same qualification period.
You did not stop your work willingly on your own. You were forced to stop your work by someone else.
You are a Canadian resident who is at least 15 years old.
You must have earned at least $5,000 (before taxes) in the preceding 12 months, or in 2019, from one or more of the following:
- job income
- self-employment income earnings
- benefits relating to pregnancy or parental leave from the province

The program was designed to help Canadian employees and self-employed Canadians who lost their jobs or saw a significant decrease in income due to the COVID-19 pandemic and the COVID-19 lockdown order resulting in business shutdowns. The program came to an end on December 2, 2020. cerb canada

Sending your CERB Canada payment back

If you have received a letter from Service Canada asking you to repay an overpayment, the CRA says you need to follow the instructions on the letter to return the payment.

You will have the opportunity to provide more evidence to support your claim that you were entitled to the CRA’s full CERB benefit payment. Based on your responses, you may need to repay the full amount you received.

If you received any CERB Canada payments and they now say you didn’t fit into the group of eligible workers, you have the option to pay back what you owe in full right now or over time. They expect you to repay it in full either way.

Now consider this. The federal government paid nearly $12 million in CERB Canada payments to more than 1,600 people with foreign addresses during the first seven months of the pandemic! How did that happen if one of the criteria of this program was you had to be a resident of Canada?

The way the CERB Canada benefit is taxed is by taking it out of your paycheque – wasn’t that enough?

The CERB Canada benefit was not a grant or any other kind of freebie. Anyone who received it had to include it in their taxable income. That is fair because the benefit was meant to replace lost income.

In April 2020, Prime Minister Trudeau announced that the Government of Canada would be taking extensive and decisive action to support Canadians and businesses who were struggling due to the COVID-19 global pandemic through an expansion of this program.

The Prime Minister went on to say that no Canadian should have to choose between protecting their health, putting food on the table, paying for their medication or caring for a family member. He said this is why the government introduced the CERB Canada Benefit, a taxable benefit.

There have even been CRA, Employment and Social Development Canada and court decisions confirming that the CERB Canada payments are taxable and that it was definitely not a free ride. The demand for repayment of benefits from Canadians who CRA and Service Canada now feel were not eligible workers seems totally anti-social. The program was rolled out hastily and under unclear, confusing circumstances, and Canadians have been paying income tax on the benefits they received. Surely our federal government has better places to spend its time clawing back wasteful spending. cerb canada

Mom was shocked when her maternity leave benefits were cut in half due to the CERB Canada benefit

A mother was shocked to see that her most recent parental benefits instalment had been cut in half. She said that maternity and parental benefits are paid to parents so they can take time off from paid work to do another kind of work: care work.

She was receiving half of her parental leave benefits for three weeks, which were already about half of her regular earnings. The reason for the reduction was because it was determined that the CERB Canada benefit she received for every four-week period, increased her income to the point where the reduction was warranted.

Then she received a demand for repayment. She hadn’t expected to have to repay the benefit. Shortly after the COVID-19 outbreak hit in March 2020, she was let go from her work because there wasn’t enough work to go around. She thought she qualified under the eligibility requirements for the CERB Canada benefit.

She couldn’t repay the full amount in one shot so she tried to arrange a repayment plan with CRA. She said that she had to fax about a dozen documents and field several questions from federal government employees to prove she is experiencing “financial hardship” in order to qualify for a payment plan. I don’t understand why payment plans have to be approved rather than just being automatically set up. These are not rich people that they are demanding repayment from, so why make them jump through hoops?

The British Columbia court has ruled that the CERB Canada payment must be deducted from the damage award for wrongful dismissal

Here is another example that the CERB Canada benefit is not a tax-free payment or a non-taxable grant. In Reotech Construction Ltd. v Snider, 2022 BCSC 317 the trial judge awarded the employee damages for a 4.5-month reasonable notice period and declined to deduct his CERB Canada payments.

After reviewing the case, the Supreme Court of British Columbia decided that the original trial judge was incorrect in choosing not to reduce the damage award by the $9,000 in benefits received. The court decided that these payments should be deducted from the award.

There was no indication that the employee would have to repay the CERB Canada benefit to the government. If the CERB payments are not deducted, then the employee would be in a better position than if there had been no breach of the employment contract. The employee would not have received the benefit if he had not been dismissed, making the benefit an indemnity for the wage loss caused by the dismissal. cerb canada

How to repay the CERB Canada benefit

If you received the CERB Canada and now find out that you did not meet the eligibility requirements, as shown above, you must repay the money. There are a few different ways that you can repay the amount demanded.

The easiest way to repay the CERB Canada amount is through your online service CRA My Account. You can log into your account and select “Repay CERB” under the “My Account” tab. If you do not have a CRA online account, you can repay the amount you owe either by sending a cheque through Canada Post to the CRA mailing address you can find online. You can also pay it at your financial institution using the government-issued remittance form.

But what if you are just one of the many hard-working Canadian workers living paycheque to paycheque? What if you do not have the money to repay what they say you owe, either all at once or by taking an amount out of each of your future paycheques that CRA will agree to?

What if you cannot repay because the government stepped up its efforts to verify CERB Canada payments and made demands on you?

As stated above, if you cannot afford to repay the full amount being demanded of you all at once, you can hopefully convince CRA that you deserve a payment plan over time due to “financial hardship”. This assumes that the government is right that you were not originally entitled to the amount that you received for the CERB Canada benefit. But what if you cannot afford to repay it at all, no matter what sort of payment plan you can enter into?

The outcome will depend on if you are insolvent. Being insolvent doesn’t necessarily mean bankruptcy. Insolvency (aka financial failure) is a financial condition that occurs when a person or company doesn’t have enough assets to pay off all debts if they were to be liquidated. It also means that the person or company has stopped paying their bills on time in the normal course.

If the person is NOT insolvent, they are expected to sell assets or use cash on hand to pay their bills.

If you’re insolvent, you can take advantage of Canadian insolvency legislation, the Bankruptcy and Insolvency Act (Canada) (BIA). The debt to repay the CERB Canada benefit is an ordinary unsecured claim that will be eliminated through a successful financial restructuring under either a consumer proposal or a Division I proposal. As a last resort, you could also file for bankruptcy.

I would rather refer you back to some of my earlier Brandon’s Blogs that go over the requirements for each insolvency option, rather than go through all of them individually here. They are:

Consumer proposal –CONSUMER PROPOSAL TORONTO: THE COMPLETE #1 WAY TO ELIMINATE DEBT IN ONTARIO
Division I Proposal –THE EASIEST WAY TO ACTUALLY LIKE WHAT IS A DIVISION i PROPOSAL ONTARIO
Personal bankruptcy – BEYOND BANKRUPTCY SERVICES: OUR BEST PERSONAL INSOLVENCY FAQ 2 JUMPSTART YOUR FINANCIAL LIFE

CERB Canada: Canadian workers now under fire

In summary, CRA now says it’s “time to pay up” for Canadians who were paid the CERB Canada benefit during the pandemic. Although CRA has a right to claw back the amount if it is correct that the person was not eligible, what CRA’s insistence means for many Canadian workers is they now have to choose between paying back their CERB or paying for food, rent or medicine.

This is so ironic because the benefit payments were designed to help those people in making those payments when their incomes dried up. The amounts were taxed so the government earned income that way. Now they are causing unneeded stress and worry to the people they aimed to help.

I hope this Brandon’s Blog was helpful to you in understanding more about this problem now facing many Canadians. If you or your company has too heavy a debt load, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.

Brandon Blog Post

TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

Post author By Brandon Smith
Post date November 8, 2021

calculate hst

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

***Calculate HST* Amounts in Sales and *Purchase Documents***

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
About 17% of small businesses in Canada have sales that are half or less of what they should be.
Four in five businesses are using one or more sources of funding to cope with COVID-19.
In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
Scaling back federal relief programs comes too quickly for most business owners.
According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst

***Calculate HST* but if you don’t pay, it is a *deemed trust***

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

garnish bank accounts, accounts receivable, and all other sources of income;
confiscate and sell assets; and
pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

Solvent and viable.
Solvent but not viable.
Insolvent and viable.
Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Even though we are licensed insolvency trustees, we have found that not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Brandon Blog Post

EXECUTOR DUTIES ONTARIO: OUR COMPLETE GUIDE TO MAKE A 1ST TIME EXECUTOR LOOK LIKE A PRO

Post author By Brandon Smith
Post date October 4, 2021

executor duties ontario

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Executor duties Ontario: What is an executor or estate trustee?

Executors, or Estate Trustees as they are now called in Ontario, are people named in a Will to become the personal representatives of the deceased. Executor duties Ontario is a complicated process.

The Estate Trustee accepts the role, authorizes the liquidation of the estate assets and the payment of money. The Executor directs and administers the deceased estate both in accordance with provincial and federal laws while abiding by the declared wishes of the deceased.

Executors are people who are legally responsible for the estate of someone who has died. They are required to manage the estate according to the wishes of the deceased person. To be an executor, you must meet certain minimum legal requirements. You should:

have already turned 18;
be financially stable;
reside in Ontario;
have good organizational skills;
be able to keep complete records of all the estate’s transactions;
have a good knowledge of financial matters; and
be able to make effective decisions about the estate.

Suppose there were no Will? What happens? Without a Will, a court can appoint an Estate Trustee Without A Will.

Through our other business, Smith Estate Trustee Ontario, my Firm acts as a Court-appointed Executor/Estate Trustee. Far too often, the person who ends up with the responsibility of settling the estate of a deceased family member or friend is unprepared to do so. This commonly leads to emotional stress, confusion, and financial hardship.

From this Brandon Blog, you’ll learn everything you need to know about effectively fulfilling your duties as an Estate Trustee in Ontario. You will learn how to handle the estate settlement process in Ontario and properly fulfill the duties using our Executor duties Ontario checklist.

Executor duties Ontario: What does an Executor/Estate Trustee Do Right Away?

Executors are people who are appointed to carry out the Will or trust of a person who has died. They are given the authority to make decisions on behalf of the deceased, as long as those decisions are consistent with the wishes expressed in the deceased’s Will or trust. There can be as many Estate Trustees as are indicated in the Will or trust document. When there is a Will, in Ontario, the role is one of Estate Trustee Under A Will.

Once you are notified that you are named as the Executor or one of the Estate Trustees, the first thing you need to do is to decide if you wish to act. Are you capable of doing the job and are you free from any conflict of interest? It is possible to recuse yourself before taking any steps to act as the Executor. However, once you start acting as the Executor, it is very difficult to resign.

An Executor will obtain a copy of the Will as one of the first things they do. As a result, the person’s most recent Will automatically becomes the last Will of the deceased. Some people are unaware that a Will is only as good as its Executors and how they perform their Executor duties Ontario.

Executor duties Ontario: Follow this guide to look like a professional Estate Trustee

Action #1 – Funeral Arrangements and other Day 1 action

If the family is not taking care of this themselves, then you must arrange for the funeral immediately after death. Religious observance of the family and the wishes of the deceased should be your guide. Other things Executor duties Ontario include are:

Arrange for organ donation if applicable.
Find the Will.
Coordinate with family members to notify friends and family of the passing.
Request multiple copies of the Proof of Death Certificate from the funeral director.
Apply for a provincial Death Certificate.
Make necessary arrangements for the ongoing care for dependents/minor children and pets.
Contact the deceased’s bank to ensure that all amounts on deposit are safeguarded, access to any safety deposit box is secured and change signing authorities to Executor(s) so that necessary payments can be made.
Confirm payment to the funeral home.

Action #2 – Submit official paperwork on behalf of the Estate

There are many other notifications that should be made within say, 1 to 2 weeks after the funeral. These Executor duties Ontario consist of:

File the CPP death benefit claim.
Transfer the pension to the spouse by applying for CPP Survivor’s Benefits.
Canada Revenue Agency Notification to Update Record.
Submit OAS/CPP/GIS notifications.
Send the Notice of Death to Equifax and TransUnion, the two Canadian credit bureaus.
executor duties ontario

Action #3 – Protect the hard assets

Concerning any hard assets, as soon as possible after the funeral, Executor duties Ontario include:

Identify and secure all assets: the home, the contents of the home, and other real estate assets.
Direct the post office to forward the mail care of the Estate Trustee.
Inform utilities, landlords, and other service providers.
Review all documents associated with asset ownership, business, investment, including insurance, mortgages, and leases.
Analyze all financial documents, including contracts, divorce papers, or separation agreements, court orders.
Secure personal property, business, vehicles, perishable goods, and safety deposit boxes.
To keep the insurance coverage active, find out what action you need to take if there is a vacant property.
Have all the hard assets appraised.

Action #4 – Protecting financial assets

I already mentioned that I would contact any known financial institution. Other Executor duties Ontario to protect financial assets as soon as possible after the funeral, include:

Gather information about debts and expenses.
Cut off all unnecessary expenses. People rarely think about memberships or subscriptions until the bill or publication arrives in the mail.
The other banks or credit unions, investment advisors, and life insurance companies should be notified.
All credit cards and debit cards should be cancelled.
executor duties ontario

Action #5 – Contacting beneficiaries

Other Executor duties Ontario include:

Completing the inventory of assets and their values on the date of death.
Contacting each of the beneficiaries of Estate individually.
Explaining the Estate administration process to them.
Estate beneficiaries need to know they only receive distributions upon the probate of the Will, completion and filing of all final tax returns, and full payment of the estate’s debts and debts of the deceased. How the estate is handled will also depend on its size and nature.
Depending on the circumstances, the Executor of the estate can make interim distributions.

It is important to keep in mind that Estate Trustees are personally liable. This means if you pay out too much on an interim basis and don’t have enough to cover all the debts, you will be in trouble if you can’t claw back any money.

Action #6 – The probate process

Generally, probate involves completing the necessary Ontario government forms for the confirmation and appointment of the Executor(s), who will manage the estate distribution. The Executor duties Ontario for probate include, say within 30 days after death:

Speak to the estate administration lawyer for assistance.
Calculate the estate administration tax for the Ontario estate.
With the help of the estate administration lawyer, prepare the probate application.
The probate application, along with all relevant documents, should be filed with the deceased’s local probate court. The required documents, including the original Will and payment of the estate administration tax.
executor duties ontario

Action #7 – While you are waiting for the Certificate of Appointment of Estate Trustee With A Will

The court can take many months to respond to your probate application, especially in Toronto. In the meantime, there are things that Executor duties Ontario allow you to do without the need to show the Certificate of Appointment. You can use a copy of the Will. These include:

The deceased’s passport, driver’s license, and Ontario health card can be cancelled.
Meeting with the investment advisor, banker, and insurance agent to gain a better understanding of the estate’s assets.
Finalize the list of assets.
Developing a strategy to liquidate the assets of the estate.
Choose a real estate broker, negotiate the rate and prepare the listing for posting after the grant of probate is received. Be sure you obtain a professional appraisal first to determine the current market value. You don’t want to rely on just the broker’s estimate of market value.
Organize an estate sale to dispose of personal belongings that have not been claimed by the family. When appropriate, arrange donations.
Prepare the property for sale. In almost all cases, minor repairs, painting, cleaning, and staging are necessary.
Prepare life insurance forms (to be submitted once you have your Certificate evidencing the appointment of the Estate Trustee(s)).
Stay in constant contact with the beneficiaries to inform them that you are still waiting for the grant of probate and that things are proceeding normally.

Action #8 – Selling the assets in Estate

Some of the following Executor duties Ontario could be done only with a certified copy of the Will. Some will require a Certificate from the court appointing the Estate Trustee:

Open an estate bank account with your preferred financial institution if you have not already done so.
Merge all bank accounts into the estate account.
List any real property for sale.
Request that all mutual funds, stocks, bonds be liquidated and the funds transferred to the estate
account.
Incorporate all estate sale proceeds and any other cash assets into the estate trust account.
executor duties ontario

Action #9 – Pay all debts and calculate and pay all taxes

To make the final distribution, the creditors and amounts owing to Canada Revenue Agency must be settled in full. In this phase, Executor duties Ontario include:

Clear debts.
Make sure that tax documents are in order.
Prepare all necessary income tax returns, including the estate tax return, with the help of an accountant or other tax specialist.
If your Notice of Assessment has been received and the CRA has been paid all amounts owed, you can request a Tax Clearance Certificate from them.

Action #10 – Final distribution to estate beneficiaries and completion of Estate records

Now it is time to make the distribution to beneficiaries and close your file. These Executor duties Ontario are:

If you are charging a fee, including a care and management fee for having administered the estate, calculate it and pay yourself.
Prepare and issue the distribution to beneficiaries of the remainder of the estate.
Prepare a final accounting and issue it to all beneficiaries.
Get releases from beneficiaries.
Closing the estate bank account.
Terminate the deceased’s social insurance number.
executor duties ontario

Executor duties Ontario: Compensation for estate trustees

The Ontario estate laws and associated regulations provide a framework for the management of a deceased person’s estate and for the distribution of the property. The laws and regulations also deal with the duties and responsibilities of the Executor and compensation for the Estate Trustee.

All Estate Trustees are legally permitted to charge fees. A fee that isn’t in the Will must be an amount that is considered fair and reasonable. The amount depends on the value of your estate and the amount of work your Estate Trustee has to do.

Even though the fee calculation is more complicated than this, for our purposes, you should use as a benchmark 5% of the estate’s value. Additionally, an additional care and management fee of 2/5 of 1% of the average annual value of the assets is sometimes charged.

Executor duties Ontario summary

I hope you found Executor duties Ontario Brandon Blog helpful. If you are concerned because there is an Estate that needs a professional Estate Trustee, Smith Estate Trustee Ontario can help you. Since we are also a licensed insolvency trustee firm, we can also help if the deceased Estate is insolvent. We can also help if you or your business have debt problems.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Tags beneficiaries, beneficiaries of Estate, Canada Revenue Agency, certificate of appointment, credit cards, death certificate, deceased estate, distribution to beneficiaries, estate administration, estate administration lawyer, estate administration tax, estate bank account, estate beneficiaries, estate sale, estate trust account, estate trustee, estate trustee in Ontario, estate trustee with a will, estate trustee without a will, estate trustees, executor, executor duties ontario, executor duties ontario checklist, executors, financial assets, financial institution, grant of probate, inventory of assets, Ira Smith Trustee, list of assets, probate application, probate court, proof of death, release from beneficiaries, smith estate trustee ontario, state settlement process, tax clearance certificate, what does an executor/estate trustee do

Brandon Blog Post

WHAT IS THE POWERFUL CRA LIEN ON PROPERTY TOOL?

Post author By Brandon Smith
Post date September 13, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this CRA lien on property Brandon Blog, please scroll to the very bottom of this page and click play on the podcast.

CRA lien on property: Canada Revenue Agency’s collection powers

The CRA (formerly known as Revenue Canada) assigns “collection officers” to taxpayers who fail to make timely payments or who do not pay in full. For the CRA to agree to a payment arrangement (usually monthly payments), the taxpayer must provide financial disclosure on a monthly basis (details of their expenses, their income, and their assets).

Tax debts that cannot be settled through a payment plan may be registered in Federal Court. Once the debt is certified, the certificate is equivalent to a judgment entered in court. This is called a memorial. If you own property, the CRA can create a lien on your property based on your judgment. A CRA lien on property against your interest in your home is the most common CRA lien on property they register.

This Brandon Blog discusses a recent decision from the British Columbia Supreme Court that confirms that the CRA lien on property becomes secured once they are registered.

CRA lien on property: CRA Super Priority Liens

I previously wrote a Brandon Blog about the legal case of Canada v. Toronto-Dominion Bank. By mentioning this case, I hope that my comments about the recent British Columbia Court decision below will be clearer.

Federal statutes give CRA a creditor powerful tools to collect debts. They can access avenues of collection significantly quicker than other types of creditors. It was not known to Toronto-Dominion Bank (TD) that, as a sole proprietor operating a landscaping business, the borrower had collected GST in the amount of $67,854.

After selling his home, the borrower fully paid off his first mortgage with TD. TD did not lend to or deal with the proprietor’s business. Since there was no CRA lien on property against the house, TD was not aware of the outstanding GST.

The CRA has enhanced security, known as “super-priority”, over most of a tax debtor‘s real property and personal assets, by virtue of deemed trust provisions in the Income Tax Act and Excise Tax Act (ETA). CRA has priority over substantially all secured creditors under the deemed trust concept, which means that the proceeds of the sale from the property subject to the deemed trust will go to CRA. A deemed trust claim is a CRA lien on property and is obtained without any registration.

A demand letter was subsequently sent to TD demanding that a portion of the proceeds be used to satisfy the GST debt. TD refused to pay since they believed their mortgage security ranked higher than CRA’s claim for unremitted GST. Court action was taken against TD by the CRA. The Crown argued that under section 222 of the ETA, the proceeds received by TD on the repayment of the mortgage and line of credit were subject to a deemed trust in favour of the Crown.

The Federal Court held that TD had an obligation to reimburse the CRA for the debt of $67,544, plus interest, owing by the Borrower to the CRA. Super-priority interests can be enforced by the CRA without notifying the secured creditor. TD was responsible for repaying CRA amounts received from a borrower with an outstanding GST/HST bill.

cra lien on property

FCA confirms CRA super-priority over secured creditors on a GST/HST debtors’ property

TD appealed the decision of the Federal Court to the Federal Court of Appeal (FCA). According to the FCA ruling in Toronto-Dominion Bank v Canada, the FCA agreed with the lower Court that TD must pay the CRA proceeds of $67,854 for unremitted GST that it received from a borrower upon the discharge of its mortgage. CRA is considered to hold in trust amounts paid to a secured creditor from a debtor who owes Goods and Services Tax/Harmonized Sales Tax (GST/HST) liabilities.

FCA affirmed the Federal Court’s finding that no triggering event was required and that the deemed trust operates continuously once GST is collected but not remitted. Further, the FCA noted that case law has distinguished between secured creditors and bona fide purchasers of value, such that the two categories are mutually exclusive.

It is best for secured creditors to review their current risk management practices and revise them both at the time of due diligence when vetting new borrowers as well as throughout the term of any secured credit agreement.

If we were talking about unremitted employee source deductions, the result would be the same.

CRA lien on property: Personal income tax debt collection

CRA is a powerful creditor when it comes to personal income tax debt collection. Above I discussed how they can get a CRA lien on property just by way of the statute for unremitted source deductions or unremitted GST/HST. But what about personal income taxes? CRA does not have an automatic lien for unpaid income taxes.

However, they can go to Federal Court and obtain a memorial and then register that CRA lien on property of the tax debtor who fell behind in their payment of taxes. Once they place that lien, they now turned their unsecured claim for unpaid taxes into a secured claim. As I already mentioned, the most common type of property they register against is real property, like the tax debtor‘s home.

If the CRA lien on property goes on the real property before the person who owes unpaid income taxes files either a consumer proposal or bankruptcy, then the CRA lien on property stays on. CRA will not try to go power of sale or foreclosure to throw the taxpayer out of their home based on this tax lien. Rather, they will just wait until the taxpayer either sells the home or tries to renew or refinance a mortgage.

In the case of a sale, they will get their tax lien paid out of the sale proceeds. In the case of a mortgage renewal or refinancing, mortgage lenders will not do a new mortgage loan or a refinancing with the CRA lien on property. This is how they get their money.

Keep in mind that the lien is only against the taxpayer’s interest in the home. So if the tax debtor is the sole owner, it is against 100% of the home. If the taxpayer owns the home jointly with say, a spouse, then the lien is only against the 50% interest.

cra lien on property

CRA lien on property: Can Canada Revenue Agency put a lien on my house?

You should now know that the answer to this question is yes. Licensed insolvency trustees know this. Nevertheless, in the British Columbia case I will describe now, the Trustee tried a novel, but an unsuccessful, approach to try to knock out CRA’s lien on property secured claim to collect taxes owed by the tax debtor. I am referring to Gidda (Re), 2021 BCSC 1460 (CanLII).

The licensed insolvency trustee appealed the decision of the Master as Bankruptcy Registrar dated February 3, 2020, reversing the Trustee’s rejection of a secured proof of claim filed by the federal Crown on behalf of the CRA in the bankruptcy. As well, the Trustee appealed the Master’s ruling that he is personally liable for the costs of the proceeding.

The CRA has taken out a memorial to attach a lien in favour of CRA to the taxpayer’s home due to unpaid income taxes. Then he filed for bankruptcy. So the lien against property holds as it came before the bankruptcy. A secured proof of claim for unpaid income tax was filed by the CRA in response to the memorial and registered tax lien. A secured claim was granted to CRA, which was not directly contested by the Trustee.

In my opinion, this claim, however, was handled by the Trustee in a novel way that wasn’t sustainable. It was so novel that the Judge took judicial notice of the submissions that such a case was never litigated before in Canada. There were also a number of judgments against the title of the property in addition to the memorial. There was no priority among the other judgments.

According to section 70(1) of the Bankruptcy and Insolvency Act (Canada) (BIA), bankruptcy takes precedence over judgments, garnishments, and any collection action. Furthermore, no judgment takes precedence over another.

A memorial is a judgment of the Federal Court, and since all judgments are treated equally as unsecured creditors, the Trustee disallowed CRA’s secured claim. Because the memorial and its registration against the title are secured claims under other federal statutes, it has powers not given to other simple money judgments. Therefore, I believe it is a losing argument. So did the Master.

In addition, the Master believed that the Trustee ought to have been aware of this when disallowing CRA’s secured claim and causing it to appeal the Trustee’s decision. Therefore, the Master awarded the Crown costs to be paid by the Trustee personally.

On both counts, the Trustee appealed the Master’s decision. The Judge who reviewed this found that the Master was correct in upholding the CRA secured claim and dismissed this portion of the Trustee’s appeal. The Judge did, however, let the Trustee off the hook by allowing the costs portion of the appeal. According to the Judge, the costs awarded by the Master will be paid by the bankruptcy estate and not by the Trustee personally.

CRA lien on property: Say goodbye to debt stress

I hope that you found this CRA lien on property Brandon Blog informative. Unpaid taxes and a heavy debt load do not mix well. If you have too much debt, you are considered insolvent. There are several insolvency processes available to you. It may not be necessary for you to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

cra lien on property

Brandon Blog Post

WHAT DOES RECEIVERSHIP MEAN FOR 1 BETTER GUARANTOR BANKRUPTCY DISCHARGE

Post author By Brandon Smith
Post date August 18, 2021

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

what does receivership mean

What does receivership mean: Receivership is for secured claims

What does receivership mean? A receivership is an enforcement proceeding that helps secured creditors recover secured debts on debtor defaults on loan payments from troubled companies. There are two types of receivers and receiverships: Privately-appointed receivers and court-appointed receivers.

As you can tell from the title of this Brandon Blog, I am not going to be writing about receiverships. You can take a look at my April 14, 2021, Brandon Blog titled “WHAT IS A RECEIVERSHIP? OUR COMPLETE GUIDE TO RECEIVERSHIP SOLUTIONS” to read all about what receiverships are.

What does receivership mean? It is a remedy for secured creditors.

I want to go through two more concepts quickly, and then I will get to what I really want to talk to you about today.

What does receivership mean: Bankruptcy vs. receivership

Despite the fact that receivership and bankruptcy sometimes get used interchangeably, they are not the same thing. A bankruptcy proceeding and a receivership proceeding are both legal actions conducted under the Bankruptcy and Insolvency Act (Canada) (BIA) and governed by the Office of the Superintendent of Bankruptcy (OSB). According to the BIA, either a receiver or a bankruptcy trustee in Canada needs to be a licensed insolvency trustee, whose license is granted and whose actions are supervised by the federal government’s OSB.

Here is where the similarities end. In a receivership, a secured creditor would either hire a receiver privately or ask a court to place a company into receivership and appoint one to liquidate the collateral they have against the debtor. According to the Canadian bankruptcy process, either the person or company voluntary files for bankruptcy with a licensed insolvency practitioner, or one or more unsecured creditors apply to the Court for the appointment of an insolvency trustee to administer the bankruptcy Estate.

Licensed insolvency trustees are needed in both cases. The receivership procedure is a secured creditor’s remedy and bankruptcy is an unsecured creditor‘s remedy. To read up more on the bankruptcy process, look at my September 30, 2020, Brandon Blog “DECLARE BANKRUPTCY: A COMPLETE GUIDE ON WHAT IS IT LIKE TO DECLARE BANKRUPTCY“.

What does receivership mean? Not the same as bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

Bankruptcy protection can be gained to try to make a troubled company stable and then return the company to profitability by filing pursuant to either the BIA or the Companies’ Creditors Arrangement Act (CCAA), employees retain their right to unpaid wages, vacation pay, and severance or termination pay. There is no difference between filing and not filing. They are unsecured creditors of a troubled company, and the company directors are personally responsible for amounts owed to employees.

For the company in receivership or bankruptcy, the employees do have greater rights. The receiver of a company in receivership must register with Service Canada under the Wage Earner Protection Program Act (WEPPA) for the Wage Earner Protection Program. This program provides some compensation to eligible employees who are owed money by a bankrupt or receivership company.

To read more about WEPPA, take a look at my February 10, 2020 Brandon Blog, “SEVERANCE PAY ONTARIO & BANKRUPTCY-BARRYMORE FURNITURE UNPAID WORKERS ANGRY“.

So what does receivership mean to an employee with unpaid wages? It means they can claim a priority and get paid by Service Canada.

***What does receivership mean: Receivership – a typical appointment***

Now I will get to what this Brandon Blog is actually about. In Canada, it is the norm for secured creditors advancing loans secured against company assets, to also take a personal guarantee on the same debt from the principals of the company. In all entrepreneurial companies in Canada, that is at least the president running company affairs. If the lender-secured creditor suffers a shortfall from the liquidation of the company assets, the lender then looks to the guarantor(s) of the company debt to make good on the lender’s loss. Many times the company president/guarantor has no choice but to file consumer bankruptcy.

I was involved in a bankruptcy discharge hearing for one of our personal bankrupts in April 2021. He caused his company, being its sole Director, to file for bankruptcy with another Trustee. That same Trustee was also appointed as the company’s private receiver by the secured creditor. The company president provided the secured creditor with a personal guarantee.

Realizing that they would suffer a shortfall from the company situation, rather than suing on their personal guarantee, they approached us to consent to act as the Trustee in a Bankruptcy Application against the company president. We consented and the company president ultimately consented to a Bankruptcy Order being made to put him into bankruptcy with my Firm as the Trustee.

What does receivership mean: The bankruptcy of the guarantor

We administered the consumer bankruptcy. There were some assets to realize upon which we did. One realization required court approval as we were selling seat licenses and the right to purchase tickets for the Toronto Maple Leafs to a related party. The bankrupt person’s largest single consumer creditor was Canada Revenue Agency for unpaid income tax. The company in receivership was also a creditor as the president owed the company money. The secured creditor of the company was also an unsecured creditor of his in his personal bankruptcy for the personal guarantee on the shortfall.

The known creditors each filed their respective proof of claim in his bankruptcy, including the company by its privately-appointed receiver. We believed that the company by its receiver was a creditor for the amount of the shareholder loan owing to the company. The proof of claim they filed was for a much larger amount. As Trustee, we neither admitted nor disallowed any proofs of claim filed in this bankruptcy estate. The Trustee would have to take a cold hard look at the receiver’s proof of claim at some future date it is determined that a dividend will be paid to the creditors in this bankruptcy estate, which is highly unlikely.

What does receivership mean: The receiver opposes a bankruptcy discharge

Only one unsecured creditor opposed the bankrupt’s discharge. That was the receiver, or more correctly, the company in receivership by its privately-appointed receiver. The Trustee had not opposed. The lender, as an unsecured creditor, did not oppose either along with the other consumer creditors.

As I mentioned, in April 2021, the discharge hearing was held before the Master sitting as Registrar in Bankruptcy Court. The court raised a novel issue. Does the receiver have the standing to oppose the bankrupt’s discharge? The court allowed the hearing to be completed and allowed the parties to file further submissions, subsequent to the hearing, on this issue. Submissions were received from us, the
Trustee and from the Receiver in mid-May, 2021. The bankrupt took no position on the issue.

Does the Receiver have standing to oppose the bankrupt’s discharge?

Here is what I wrote to the court.

The security documents under which a privately-appointed receiver is appointed will determine if an unsecured amount owing by a bankrupt debtor is an asset secured by security held by a creditor over the assets of another party. If so, then the privately-appointed receiver has the right to file a proof of claim in the debtor’s bankruptcy as part of attempting to realize upon that asset forming part of the secured creditor’s collateral.

In doing so, the privately-appointed receiver is acting as Agent for the secured creditor. If the privately-appointed receiver files a proof of claim in the bankruptcy that is not disallowed by the licensed insolvency trustee administering the bankruptcy estate, then, in order to oppose the discharge of the bankrupt, the privately-appointed receiver must also be able to be the Agent for the debtor in receivership.

If the security under which the privately-appointed receiver is appointed allows for that receiver to operate the business of the debtor in receivership, then that receiver has the ability to be an Agent of the debtor in receivership and bring a claim in the name of that debtor.

In this matter, of the various pieces of security held by the secured creditor, only the General Security Agreement (the “GSA”), allows a receiver appointed in writing under it to operate the business of the debtor company. Under the GSA, the privately-appointed receiver has the ability to act as both Agent of the secured creditor and Agent of the company. The appointment letter appointing the receiver confirms that the appointment is under all security held, including the GSA.

Therefore, my opinion was that although we have concerns about the amount being claimed, the receiver has the ability to both file a proof of claim in this bankruptcy and oppose the discharge of the bankrupt as an Agent of the company. I believed it aided the administration of this bankruptcy to allow the receiver to oppose because it is able to draw the attention of the court to conduct of the bankrupt of which the court otherwise might not be aware of.

Finally, I advised the court that if there still was concern that it is formal defect or irregularity section 187(9) of the BIA, the court can determine that such formal defect or irregularity will not invalidate the opposition to the discharge of the bankrupt.

What the bankruptcy court decided

The court accepted our submission and agreed with it. The court continued to be skeptical of the amount of the company’s proof of claim filed by the receiver. The court noted that as Trustee, I reported that the bankrupt has fulfilled all statutory duties. Income and expense statements were provided and there was no surplus income payable.

On a general perusal of the Trustee’s s. 170 report, the Trustee does not report any significant misconduct or concerns but reserved its rights as to its position on the discharge pending the hearing and matters disclosed therein. In the court’s view, the Trustee’s non-opposition to discharge is a factor favouring the bankrupt’s discharge. After considering all facts, the court gave the bankrupt an absolute discharge from bankruptcy.

What does receivership mean summary

I hope that you found this what does receivership mean Brandon Blog helpful in describing the role of a privately appointed receiver especially in opposing the discharge of the bankrupt guarantor of the company’s secured debt. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt. You may not need to file for bankruptcy.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Tags Bankruptcy, bankruptcy and insolvency act canada, bankruptcy proceeding, bankruptcy protection, Bankruptcy vs. receivership, BIA, Canada Revenue Agency, Canadian bankruptcy process, CCAA, Companies’ Creditors Arrangement Act, company directors, company into receivership, company voluntary files for bankruptcy, Court-appointed receivership, debtor, defaults on loan payments, Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership, licensed insovency trustee, Office of the Superintendent of Bankruptcy, OSB, personal guarantee, Privately-appointed receivers, receivership, Receivership - a typical appointment, Receivership is for secured claims, receivership proceeding, secured creditor, secured debts, troubled company, troubled company stable, trustee, unpaid income tax, unsecured creditors, Wage Earner Protection Program, Wage Earner Protection Program Act, WEPPA, What does receivership mean

Brandon Blog Post

FROZEN BANK ACCOUNT: DISCOVER MY RUNDOWN OF WHAT RIGHTS YOU HAVE AND WHAT YOU NEED TO DO NEXT

Post author By Brandon Smith
Post date April 19, 2021

We hope that you and your family are safe, healthy and secure during this coronavirus pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of this page and click play on the podcast.

Frozen bank account: Can my bank seize my accounts if I file a consumer proposal or bankruptcy?

A frozen bank account is something people usually worry about when they have unpaid financial debts and need to know. There is plenty of mistaken beliefs worrying Canadians about what legal authority the government or creditors need to seize your chequing or interest-bearing accounts, confiscate various other properties including garnishing your income. This is incredibly troubling for people with too much debt considering filing either a consumer proposal or personal bankruptcy.

I know people freak out about their frozen bank account. Rightly so, but it’s not that bad. In this Brandon Blog, I’m going to give you a basic rundown of what rights you have and what you need to do next.

In this Brandon Blog, I discuss the ins and outs of who and how can your bank accounts can get frozen and how an insolvency filing can help you not only to lift the hold on a frozen bank account. It can also get you complete debt settlement and allow you to move forward debt and stress-free.

Who can freeze your bank account in Canada?

We are always asked the question: “Who can freeze my bank account?” There are essentially three different parties who can create your frozen bank account in Canada. They are:

The bank.
The government.
A creditor with unpaid debt from you sued you and won (the judgment creditor).

The latter two require the cooperation of your bank, which they will give.

What does a frozen bank account mean?

When you have a frozen bank account, it means that the bank has for some reason blocked you from using that account. It can be your personal bank account or something else such as a joint account or a business account. The bank for some reason has either temporarily or permanently made the frozen bank account and seized the cash. You will definitely be wanting to start making phone calls to your banking customer service representative!

You can get your bank accounts frozen due to:

Court action because a judgment creditor has had it seized to get repaid, in whole or in part, for an outstanding debt.
Canada Revenue Agency has seized the funds because you or your business owes them money.
Your bank suspects some sort of and the bank flags suspicious activity running through the account they feel they must investigate. Perhaps they suspect money laundering, other criminal activity or other illegal activities. Something running through your account has piqued their activity to create your frozen bank account.
You owe money to the bank for one or more bank loans that have matured and have not been repaid. The bank agreements and loan agreements that you signed gives the bank the right to offset. So not only can they freeze your accounts, they can without getting a judgment offset any balances held by the bank to your credit against the money you owe them. More on this later.

The exact terms of creating the frozen bank account will vary depending on provincial law. What it does mean is that the account holder cannot take any money out. The funds in the account can still be used by the bank to cover any amount owing to them, but the account holder cannot access the funds.

Unpaid Debts to the Government: Canada Revenue Agency (CRA) caused the frozen bank account

There are some standard reasons why CRA may cause your frozen bank account. They are:

You owe money to CRA for personal income tax debts.
Your proprietorship or partnership owes it money for unremitted HST or employee source deductions.
Your company owes CRA money for the unpaid HST tax debts or employee deductions not turned over to them as they should be.

When the Canada Revenue Agency (CRA) freezes your bank account, it is doing it by one of two mechanisms. It has provided your bank with either a third party demand for any funds payable to you or with a Federal Court Order called a “Memorial“.

Either way, CRA has provided your bank with the official documentation requiring your bank to freeze your bank account and remit all funds payable to the bank account owner over to CRA.

The CRA does this in order to get money owed to them. CRA can freeze any bank account. In Ontario, this includes TFSAs and absent a bankruptcy filing, your RRSP is also subject to seizure.

In this Brandon Blog, I am only talking about a frozen bank account and not property in general. What property is subject to a person’s claim of exemption from seizure is a matter of provincial law. Likewise, wage garnishment is also governed by provincial law and is not the subject of this Brandon Blog.

Unpaid debts through creditors: How can creditors freeze my bank account?

If a creditor is looking to collect from you, once they have run out of patience with you, one of the first steps they will take is to sue you. They begin their litigation against you to get a judgment for the amount you owe. If successful, in Ontario, they then provide that judgment to the Sheriff to freeze your bank account. Once the Sheriff serves the judgment notice on the bank, it suspends your right to use your money or assets held at the bank. If a creditor causes you to have a frozen bank account, you will not be able to access your money until the issue is resolved.

It does not matter what the original debt was for – credit card debts default under your credit card agreements, an unsecured loan, payday loans from one or more payday lenders, damages under a contract or any other type of commercial debt. Once the creditor has obtained a judgment, they can get your bank to have your bank account frozen.

Frozen bank account: How to get my bank account unfrozen when I am not insolvent

If you now have an extremely icy bank account as the outcome of a judgment against you or a CRA garnishee, perhaps following a tax audit, you are probably really feeling scared and powerless. While there are no guarantees, there are actions you can take to help get your frozen bank account thawed out and your financial life back on course.

Since you are not insolvent, you cannot even consider an insolvency proceeding. But there are some things you can do.

The first thing you need to do is find out who the perpetrator is that forced your bank to create this deep freeze. Most creditors will get the bank to freeze your account to get you to concentrate on the reality that you need to take care of them. Various other means they have actually made use of to engage with you have clearly not worked. Ask your bank representative who is it that has triggered the icy account.

Since you now know who it is, connect with them. Attempt to reach a bargained negotiation in return for them lifting the freeze promptly on your account. As an example, entering into a payment plan by providing the CRA financial debt collector with a collection of post-dated cheques that will settle your tax debt in full. Absent an insolvency procedure, the CRA agent must decline anything less than 100 cents on the dollar.

If it is a judgment creditor, you may have an opportunity to negotiate a minimized settlement amount if paid instantly. Clearly, the amount will certainly need to be greater than what the creditor anticipates obtaining from your icy bank account. Alternatively, you can enter into a payment schedule that you can honour.

There is no maximum number of hours or days where you can prepare for having your chequing or savings account unfrozen. Each condition will absolutely differ. The intricacies of your negotiations as well as the length of time they take will normally be the guiding aspect.

Consequently, any bargained settlement needs to include an arrangement that will instantly result in your bank raising the freeze and allow you to maintain your cash. Either you or the creditor or both will need to supply your bank with proof of the satisfactory payment arrangement that includes the unfreezing of the frozen bank account.

The one thing I can guarantee you is that neglecting the problem will only slow down the process and will not help your frozen bank account. Your financial institution will certainly clear out your account one way or the other. If you owe your bank, the tried seizure of your account is a default on your loan. The bank will certainly take the cash in your account and offset it versus your loan. Then they will tell the judgment creditor there is no cash available for them.

If it is CRA, your financial institution will send the cash off to them.

If you do not owe your bank any kind of cash, they will send your money to the judgment creditor.

Regardless of which of the above 3 potential outcomes is, if you do not respond to an icy account, the economic repercussions can end up being far more severe.

Frozen bank account: What bankruptcy protection does the Bankruptcy and Insolvency Act provide to get my bank account unfrozen

If you find yourself with too much financial debt, especially from unsettled tax obligations, you might be thinking of bankruptcy. Though the word “bankruptcy” is frequently made use of to explain any type of situation in which a person is unable to pay their debts, the legal term “bankruptcy” really describes a particular legal process administered by the Bankruptcy and Insolvency Act (Canada) (BIA).

In reality, there are three possible provisions of the BIA that can be used by a person to not only do a government-authorized debt settlement program. It also has the added benefit of immediately unfreezing your bank account. The three possible choices are:

Consumer proposal debt settlement plan
Division I proposal debt settlement plan
Bankruptcy

Let’s focus on the bankruptcy protection possibilities, being a consumer proposal or a Division I proposal, rather than a pure bankruptcy liquidation. If you have a bank account that is iced, a filing under the BIA invokes an immediate stay of proceedings. This means that once a person has filed with the licensed insolvency trustee, any action to try to enforce collection on debt cannot be started or continued. This includes the frozen bank account as part of a seizure. Therefore the bank account must be unfrozen once the bank receives notice of the filing.

There are only two exceptions to this for your frozen bank account: one lawful and one debatable.

Lawful – If the seizure has been completed before the bank receives notice of the filing, then it is game over. Your account is unfrozen, but there is no cash left in it. This means the bank has made the payment to itself already, already transferred the money to CRA.

In the case of a creditor, the Sheriff has had to have distributed the money and it has to have already been received by the creditor. If the Sheriff still has it, he cannot proceed to send it on to the creditor. In the case of a proposal, he must return it to the insolvent person who has filed. If a bankruptcy, the Sheriff must hand the money over to the Trustee.

Debatable – You owe the bank money. Once they receive notice of your filing, your lender takes the position that they have the right to offset any money on deposit to your credit against any amount you owe them. After you file and they receive notice, they empty out your account and apply for the money to be put against your bank loan or credit card debt. This action of maintaining your frozen bank account and keeping the cash is debatable.

Can you open a new bank account if your account is frozen? Definitely, just not at the same bank!

Most people can open a new bank account when they have a frozen bank account. However, why would you want to open a new one up with the same bank? They probably view accounts frozen for nonpayment as accounts that are high risk. Your creditors also now know where you bank. If you owe your bank money, as I have already discussed, you cannot keep your cash there anymore anyway.

The frozen bank account prevents you from withdrawing your money. If you have had your bank accounts frozen multiple times, the bank simply won’t issue another account and will be very happy to see you leave.

We always advise anyone contemplating filing a proposal or for bankruptcy, to set up a new account. Then, advise anyone who automatically deposits money into your account, that they should start depositing into your new account. Like your employer or the government.

It is also important to tell anyone you have granted a pre-authorized withdrawal to of the new bank account and make arrangements for them to pull the money out of the new account once there is money in it. Like your mortgagee you make your monthly mortgage payment to or your landlord you pay rent to, utilities, the vehicle loan company. Now your bank or their credit card division cannot automatically take your money to offset your liability to them.

We normally steer people towards one of the online banks, as it is unlikely that they owe money to them. We do not earn any commission for steering business to any bank, so we do not have a conflict. Something like a Simplii or EQ Bank savings and chequing accounts seem to work just fine. Then the person files and nobody can take some debatable action against the funds in their bank account.

Frozen bank account: Get a personalized no-cost debt-free plan today

I hope you enjoyed the frozen bank account Brandon Blog post. The entrepreneur may be very frustrated that the company can no longer pay all its debts as they come due.

There may be sufficient value to take care of the secured creditor, but nothing for anyone else, including the unsecured creditors. There may be some business units that should not survive, but if cut out, the business will be viable. A receivership might very well accomplish the goals for the entrepreneur also. I have many times structured a receivership process, in order to meet the goals of the entrepreneur, while satisfying the requirements of the secured creditor.

Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

Bankruptcy of the Company: Introduction

Bankruptcy of the Company: Understanding Business Bankruptcy

Liquidation

Reorganization

Liquidation under bankruptcy of the company

Reasons for Bankruptcy of the Company

Financial Challenges

Operational Issues

External Factors

Understanding the Ripple Effects of Bankruptcy

Understanding The Immediate Effects on Your Credit Score

Loss of Trust Among Stakeholders

Legal Limitations Post-Bankruptcy

Reflecting on Financial Health Post-Bankruptcy

Understanding Your Financial Landscape

1. Gather Your Financial Documents

2. Create a List of Assets and Debts

3. Set Realistic Financial Goals

Using Financial Statements as a Roadmap

Visualizing Your Financial Position

Crafting a Proactive Recovery Blueprint

1. Establishing a Comprehensive Budget

2. Exploring Cost-Cutting Avenues

3. Implementing Financial Management Systems

Rebuilding Business Credit: It’s a Marathon, Not a Sprint

1. Opening New Credit Lines Responsibly

2. Using Secured Credit Cards

3. The Importance of Timely Payments

4. Learning from Others

Repairing Your Company’s Image: The Reputation Rehabilitation

Repairing Trust through Transparent Communication

Leveraging Digital Platforms for Positive Narratives

Documenting Changes to Restore Confidence

Innovating Your Way Back to Success: Growth Beyond Recovery

1. Identifying New Markets and Opportunities for Diversification

2. Investing in Tech and Innovative Practices

3. Building Alliances and Partnerships

The Importance of Innovation

Measuring Progress and Celebrating Wins Along Your Journey

Establishing KPIs to Monitor Your Recovery Journey

Acknowledging Small Milestones

Bankruptcy of the Company FAQ

1. What happens when my company goes bankrupt?

2. How does company bankruptcy affect my personal credit score?

3. What are the immediate consequences of bankruptcy beyond finances?

4. How can I understand my financial situation after company bankruptcy?

5. How do I rebuild business credit after bankruptcy?

6. How can I repair my company’s reputation after bankruptcy?

7. What are some strategies for growth after recovering from bankruptcy?

8. How do I measure my progress and stay motivated during recovery?

Bankruptcy of the Company: Conclusion

What does bankruptcy protection mean? Canada’s Bankruptcy & Insolvency Act

What Does Bankruptcy Protection Mean? Legal Framework of Bankruptcy Protection

What Does Bankruptcy Protection Mean? Types of Bankruptcy Protection

Canadian Liquidation Bankruptcy (known in the United States as a Chapter 7 bankruptcy)

Consumer Proposal (known in the United States as a Chapter 13 bankruptcy)

Commercial Proposal (known in the United States as a Chapter 11 bankruptcy)

Restructuring under the Companies’ Creditors Arrangement Act (this is the closest we have to a US Chapter 11 bankruptcy protection filing)

What Does Bankruptcy Protection Mean? Key Concepts of Bankruptcy Protection

Automatic Stay

Debt Restructuring through bankruptcy or consumer proposal

Bankruptcy process

Consumer Proposal

What Does Bankruptcy Protection Mean? Rights and Responsibilities of Debtors

Rights of Debtors:

Responsibilities of Debtors:

Choosing the Right Path

What Does Bankruptcy Protection Mean? The Role of Bankruptcy Courts

What Does Bankruptcy Protection Mean? The Role of the Office of the Superintendent of Bankruptcy Canada

What Does Bankruptcy Protection Mean? Impacts of Bankruptcy Protection

Financial Relief for Debtors

Effects on Credit Scores

What Does Bankruptcy Protection Mean FAQ

What Does Bankruptcy Protection Mean Conclusion

Bankruptcy and CRA Debt Introduction

Definition of Bankruptcy and CRA Debt

Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada

What is bankruptcy?

Bankruptcy laws in Canada

*Canadian L**iquidation Bankruptcy (known in the United States as a Chapter 7 bankruptcy)*

Bankruptcy and *CRA Debt**: Understanding Bankruptcy in Canada*

*Bankruptcy law**s in Canada*

*Debt Re**payment Plan*s

Bankruptcy and *CRA Debt**: Discharge in Bankruptcy*

***Calculate HST* Amounts in Sales and *Purchase Documents***

***Calculate HST* but if you don’t pay, it is a *deemed trust***