I get asked all the time about whether or not filing for personal bankruptcy means losing tax refunds.
Here’s the answer in a nutshell: you would lose tax refunds related to the calendar year in which you file for bankruptcy, as well as refunds from any earlier years that had not yet been processed by Canada Revenue Agency. That’s clear, right?
Let’s look at some scenarios.
Joe files a bankruptcy in December 2014. He has done all his tax returns from prior years. There is a total refund of $250 related to 2014. Joe would not receive that $250.
Frank also files a bankruptcy in December 2014. He has not filed his taxes for 2012 and 2013. The total of his refunds related to 2012, 2013 and 2014 is $1,000. Joe would not receive any of that $1,000.
Steve files for bankruptcy in January 2015. Like most people, he has not yet done his taxes for 2014. The total of his refunds for 2014 and 2015 (i.e. his calendar year of bankruptcy) is $500. Steve would not receive any of that $500.
Some people receive especially large tax refunds because of their circumstances. They really rely on that money in the spring time. One way to keep your tax refund is to file a consumer proposal instead of personal bankruptcy. In a consumer proposal, you keep all of your assets, including tax refunds. Another option is to postpone your bankruptcy until after you receive your refund however if creditors are calling or taking legal action (like a wage garnishment) that may not be feasible.
If you want to talk about your financial situation, feel free to call me at 519-747-0660 (or 310-PLAN). You can also send me your questions by e-mail.