Income Tax Returns Garnished if I go Bankrupt?

August 12th, 2006 by Questions

I’m looking at filing for bankruptcy and someone I know who has gone through the process has said that if I do, I’ll lose all gst cheques and any returns on my income tax for the next few years. I’m filed up to date and do not currently owe the government anything. Is what I’ve heard true and are there any consequences you would think most people don’t expect afterwards?

Questions

One Response to “Income Tax Returns Garnished if I go Bankrupt?”



, A licensed trustee said:

There is some truth to what you were told – allow me to clarify things.

GST: any GST you may entitled to will be redirected to your trustee until you are discharged and/or your trustee instructs CRA to start sending the money back to you. If when your bankruptcy is completed you have paid more than a specific amount, any GST your trustee may have recieved on your behalf will be returned to you. (FYI: in about 1/3 of the cases that we handle our clients receive a cheque from our office when their file is closed for the GST we have received).

Tax Refunds: any tax refunds you bay entitled to for the period PRIOR to the date that you file bankruptcy vest (belong to) with your trustee. In addition, when you file bankruptcy, the day you file causes a deemed year end – that means your trustee will file a tax return on your behalf for the period of January 1st until the day you file. This is called teh PRE return and it also vests with your trustee.

There is a second return that covers the period from the day after you file until December 31. IT is called the POST return. You may or may not be entitled to receive this refund depending on the arrangements you have made with your trustee.

If you are still confused by any of this just make sure you discuss it with your trustee before you file. Your trustee will be pleased to explain it all again.

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