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Life after Bankruptcy

I went to an tax firm to file my 2005 return. I was fully discharged July 2005, and received my discharge papers.

The tax consultant said she would have to call and make sure the government had me marked as discharged. They had not. I called the Trustee’s office and they said they were currently working on discharges. Because of this I was unable to do a cashback return, but was able to have it filed and mailed manually by the consultant and receive the refund by mail. This was fine, I understand how paperwork can be. The representative then said that they can keep my returns if they wanted for the next three years. I hadn’t made a comment complaining so I don’t know why she said this, maybe previous calls got under her skin.

As I had no problem receiving this refund and my last g.s.t. cheque, I don’t know why this comment was made, especially since my trustee never mentioned it to me beforehand. How long do they have access or power over me? Why is this necessary? Is it to recoup any excess income toward the discharge debt?

It doesn’t make sense unless they are watching for future payment potential.
Just curious, because short of a lottery win, my income isn’t likely to change anytime soon.
Thank you in advance for your answer.

One Response to “Life after Bankruptcy”

A licensed trustee said...

You have hit on a few of the common myths and misconceptions about bankruptcy and taxes – I will try to clear things up for you.

First, when you file bankruptcy the date you file is considered a deemed year end by the Canada Revenue Agency (CRA). Your trustee is required by law to see that a tax return is filed for the period of Jan 1 until the date of your bankruptcy. They are also required to ensure that the tax return for the year immediately preceeding the year you file bankruptcy is filed as well.

When your trustee does this they file an authorization and direction form with CRA – basically it tells CRA to redirect correspondence between CRA and you to your trustee. That is why your refunds and GST cheques get mailed to your trustee. When your trustee sends the required form to CRA to direct your mail back to you then you will start receiving your tax refunds and GST again (assuming that you are eligible).

If your trustee doesn’t send the form to redirect your CRA mail then it won’t be re-directed back to you until your trustee closes your file and is discharged themselves. When this happens your CRA mail is automatically redirected back to you.

When your trustee said they were working on discharges they were probably referring to their own discharge, not yours (as you had already received your discharge).

The comment about the “3 years” is because if a trustee keeps a bankruptcy file open for more than 3 years they have to prepare a special report to the government explaining why. Some trustees will keep a file open for unco-operative clients for just under 3 years in an attempt to motivate the client to eventually co-operate. While the file is open CRA will continue to direct GST and tax refunds to the trustee (unless the form I spoke of early is filed).

Looking back over this entry, it is pretty easy to see why people get confused about how their taxes may be affected by bankruptcy. This is another one of those items that you want to discuss in detail with your trustee before you file an assignment.