Question: I have recently met with a credit counsellor and was advised that my only options based on my income (about $2400 a month) and debts are consumer proposal or bankruptcy. I owe about $35,000 to Revenue Canada for back income taxes (although I have not finished and filed all my tax returns yet) plus about $25,000 in credit card debt. I’m thinking of filing a consumer proposal because I can afford to pay something and want to be responsible plus it will be purged from my equifax report 3 years after my last payment whereas bankruptcy stays forever.
I have no assets except a humvee that is basically worthless if I tried to sell it, in fact the leasing company issued the buy back out at $1500 and deplated it.
My other questions are this: what information do I have to bring to my first meeting with the trustee regarding my debts and truck? What questions will be asked of me at the proposal meeting if there is one. Your advice would be greatly appreciated. Thanks.
Negotiating Tax Debt Settlement with CRA via Proposal
Before we provide answers to your questions, we should correct your statement about credit reports:
You are correct that a consumer proposal remains on your credit report for three years after the proposal is completed. A bankruptcy remains on your credit report for six years after you are discharged, so it is not correct to say that a bankruptcy remains on your credit report forever.
Regarding Canada Revenue Agency (CRA), it is possible to negotiate a tax debt settlement with CRA through a consumer proposal. To do so:
- you will need to file all your previous tax returns. CRA will usually not accept a proposal if you have not filed your tax returns. In fact, they may file a proof of claim based on what they guess you might owe, which may give them enough votes to defeat your proposal. Therefore you should not file your proposal until you have filed all outstanding tax returns.
- CRA will often accept less than the full amount of tax debt owing, the exact amount they will settle for differs in each situation.
- in your case, CRA is your largest creditor with more than 50% of your total debts by value. This means that any settlement you offer will need to be accepted by CRA in order for your proposal to succeed.
For more information on CRA and tax debt settlements see our article on Tax Debt Relief.
Now, to your other questions. Bring to your meeting with your trustee all information regarding the truck. Ideally, you should have a humvee dealer give you a written appraisal on it before you file your proposal. By getting an appraisal first, it is unlikely anyone will question what it is actually worth.
At the first meeting of creditors, if there is one, CRA will ask what happened to your vehicle. They will also want to know how you plan to keep your taxes current in the future.
If it is not possible to negotiate an acceptable proposal with Canada Revenue Agency, filing bankruptcy might be the only option to deal with your credit card and tax debts.
If you have any questions about dealing with tax debt, tax debt settlement, and dealing with Revenue Canada, we suggest you consult a professional trustee for a second opinion.