Upon filing an assignment in bankruptcy, your assets vest in the trustee to realize for the benefit of your creditors. This means that the trustee effectively steps into your shoes as the owner of your property.  Tax refunds for the year of bankruptcy and any year preceding your bankruptcy are considered property and thus will be sent directly to your trustee (see https://www.canada.ca/en/revenue-agency/services/tax/individuals/information-on-bankruptcy.html).

What you lose

Canada Revenue Agency will be notified of your bankruptcy and will re-direct the following payments to your trustee:

  • Income tax refunds. Your trustee will file 2 tax returns in the year of bankruptcy and any refund from either of these returns will be sent to your trustee.  If you have not received a refund for a year preceding your bankruptcy, that refund will also be sent to your trustee.
  • Quarterly GST cheques during the term of your bankruptcy. For a first-time bankrupt who receives an automatic discharge in 9 months, the trustee will likely receive 3 of your quarterly GST cheques.  In certain circumstances, you may receive the GST cheques back at the end of your bankruptcy, but that will just be a pleasant surprise.
  • Climate Action Benefits/Canada Carbon Rebate and other benefits where the base year precedes your date of bankruptcy. If you take a look at the notices you receive with these benefits, the base year is typically at least one prior year, and thus, these benefit cheques may go to your trustee for a while.
  • Canada Workers Benefit
  • If you claim the disability tax credit for yourself or any other person for the year of bankruptcy or any prior year, those tax refunds will go to your trustee regardless of when you actually make the claim. The fact that you are discharged from bankruptcy will not impact the trustee’s entitlement to receive these refunds.

What you keep

  • Monthly child tax benefit
  • Monthly Ontario Trillium Benefit
  • Tax refunds for years after the year of bankruptcy

It is important to consider the impact of losing the above amounts on your financial situation when exploring solutions to deal with your debt.  At a free consultation, we will review your circumstances in detail and explain how a bankruptcy impacts your right to receive tax refunds.

Reach out to us today for your freshstartnow.

Kathy LenartBy Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)