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Navigating the Waters of CRA Debt: Bankruptcy and Consumer Proposals in Canada

4 December 2023

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Dealing with debt can be a challenging and overwhelming experience, especially when it comes to obligations owed to the Canada Revenue Agency (CRA). Whether it’s unpaid taxes or other financial obligations, individuals in Canada may find themselves facing mounting pressure from the CRA. In such circumstances, exploring options like bankruptcy and consumer proposals becomes crucial for those seeking financial relief.

Bankruptcy in Canada:

Bankruptcy is a legal process that provides individuals with a fresh start by eliminating most of their debts. In the context of CRA debt, filing for bankruptcy can offer a way to discharge tax-related liabilities. However, it’s essential to note that not all tax debts are automatically discharged in bankruptcy. While some tax debts may be forgiven, others, such as recent income tax obligations, may persist even after the bankruptcy process is complete.

Consumer Proposals and the CRA:

A consumer proposal is an alternative to bankruptcy and offers a structured repayment plan to creditors. When it comes to CRA debt, a consumer proposal can be an effective way to negotiate more favorable terms for repayment. Through a licensed insolvency trustee, individuals can propose a settlement plan to the CRA, outlining how they intend to repay a portion of their tax debt over a specified period.

Advantages of Consumer Proposals:

  1. Reduced Debt: In a consumer proposal, individuals can often negotiate a reduced amount to be repaid, providing relief from the full burden of their CRA debt.
  2. Flexible Repayment Terms: Consumer proposals typically offer more flexible repayment terms compared to the rigid structure of bankruptcy. This flexibility allows individuals to tailor the repayment plan to their financial capacity.
  3. Avoiding Bankruptcy: For those who wish to avoid the long-term impact of bankruptcy on their credit score, a consumer proposal can be a less severe alternative.


While both bankruptcy and consumer proposals offer viable solutions for dealing with CRA debt, it’s crucial to carefully consider the implications of each option. Bankruptcy, for instance, stays on an individual’s credit report for several years, impacting their ability to secure credit in the future. On the other hand, a consumer proposal may have a less severe impact on credit but still requires adherence to a repayment plan.

Navigating CRA debt in Canada can be a complex journey, and individuals facing such challenges must carefully weigh their options. Whether choosing bankruptcy or a consumer proposal, seeking the guidance of a licensed insolvency trustee is essential. By understanding the implications of each option, individuals can make informed decisions that pave the way toward financial recovery and a brighter future.