Can I keep my tax refund in a bankruptcy in Sarnia? Or should I file a consumer proposal?

by Joel Sandwith on February 17, 2011

Tax season is a busy time around our offices,  and can be confusing for some of our clients.

One of the things that happens if you file bankruptcy is that the law requires your trustee to take any tax refunds owing to you, and apply it to your bankruptcy.  This does NOT reduce the fees you pay, it is a separate potential cost.  In fact, this applies for refunds not only for the year that you are in, but also for years that you have not yet filed. Now, I’d argue that if you owe say $20,000 in debt and got a tax refund, you’d likely use it to pay down the debt, but it can still be hard to see that money go.

At this time of year, we run into kind of an odd issue – you likely do not have all of your T4’s and other tax slips yet (although I’m not sure why it takes so long – we got our T4’s at work on December 31!  I guess that’s an advantage of working for accountants…)  and because you don’t have that info, you haven’t filed your taxes.  That means if you file bankruptcy right now, you could lose this years refund AND next years.  Again, this may not be that bad – if you are clearing a great deal of debt, a tax refund is a small price to pay.

There is, however, an alternative.  If you file a consumer proposal instead of a bankruptcy, you KEEP your tax refunds!  Because you are essentially making a ‘deal’ with your creditors, you get to decide what happens with that tax money.  You can use it to catch up on other bills, put away savings for emergencies, or even pay down your proposal faster.

If you’d like to learn more, please contact us either toll free at 310-PLAN, for a free evaluation of your options.

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