How long does a bankruptcy last?

The length of the bankruptcy depends on a few factors – whether you have ‘surplus income’ (see below) and whether you have been bankrupt before. If you have no surplus income and have never been bankrupt before, you will be eligible for an automatic discharge after nine months.

How long does the Consumer Proposal last?

A Consumer Proposal must be completed within 5 years. Usually the payments are monthly (over 60 months), but a Consumer Proposal can also include a lump sum payment, or a combination of the two. If your finances allow, you can pay it off sooner than the agreed-upon payment schedule lays out.

What is a bankruptcy?

A bankruptcy is a legal process to discharge your debts. It is a declaration that your debts are too high for you to repay – and far better than the old concept of a ‘debtor’s prison’! It allows for a fresh start, while giving your creditors some return on what’s owed only if you have a level of income that allows for payments to be made to them, or unprotected assets that can be liquidated (however, most common assets are protected during this process – see below for more information on protected personal assets).

What is a Consumer Proposal?

A Consumer Proposal is an offer to your creditors to pay back a percentage of what you owe them, based on your ability to pay. It is governed by the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee. Unlike other negotiated debt settlement plans, it is legally binding on all creditors and usually involves paying back less than the total amount of your debt.

What is a Licensed Insolvency Trustee (LIT)?

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses to reorganize and resolve financial difficulties with expertise and compassion. LITs help individuals or businesses make informed choices to deal with their financial difficulties. They are the only professionals able to administer bankruptcies or proposals.

How to Manage Tax Debt in Canada | Stop CRA Collections Today

1. Filing a Consumer Proposal: Reduce and Settle Your Tax Debt

A Consumer Proposal is a government-regulated debt relief program that allows you to negotiate with the CRA and other creditors to repay a portion of what you owe over time. This can stop wage garnishments and interest accumulation while helping you avoid bankruptcy. Key benefits include:

Reducing the total amount of tax debt owed
Stopping collection actions, including CRA garnishments and frozen bank account
Allowing you to keep your assets while making manageable monthly payments

A Consumer Proposal is one of the most effective ways to deal with tax debt in Canada if you have a stable income but need relief from overwhelming payments. The process involves working with a Licensed Insolvency Trustee (LIT) who negotiates with your creditors on your behalf, often reducing your debt significantly.

Contact us today to see if you qualify for a Consumer Proposal and set up structured payment arrangements.

*For CRA garnishments included unless it's an enhanced garnishee for deemed trust amounts, such as source deductions for your employees if you ran a business.

2. Personal Bankruptcy: A Fresh Start

If your tax debt is too high to manage through a Consumer Proposal, personal bankruptcy may be an option. Bankruptcy can eliminate income tax debt and most other CRA debt, and stop aggressive CRA collection actions. While this might seem like a last resort, it provides a legal and structured way to reset your finances and rebuild your credit over time.

Declaring bankruptcy can provide a fresh start, but it does come with some consequences, such as an impact on your credit report and credit ratings. However, for many people struggling with significant income tax debt, it can be a necessary step toward financial recovery. Need guidance on whether bankruptcy is the right choice? Our team can help.