Do you require help with CRA debt? You are not alone. Many of our clients suffer from overwhelming and stressful CRA debt. Unlike other creditors, CRA is not always willing to cooperate with consumer debtors and they often do not know how to engage CRA in an efficient manner. They often want any outstanding debt paid within a 12-24 month period. You can imagine if you owe them even $10,000 how much cash you would be required to pay on a monthly basis to satisfy them. Pair this with the fact that most consumers hold other debt than just their CRA debt and you can understand why so many people find themselves in trouble.
Most people believe there is no help to be had when dealing with CRA debt but this isn’t the case. The unfortunate part about CRA debt is the options are much more limited than normal.
Debt can be a symptom of any number of problems and life circumstances. However, it is important to understand that YOU ARE NOT YOUR DEBT.
At 4 Pillars Halifax, we'd love to discuss how we can help you become debt free.
Equity Refinancing / Bank Loans
Going to the bank or a mortgage broker for assistance in refinancing your house or obtaining a loan is a good option if you are financially stable. If the reason you owe CRA money is due to a one-off situation that will not occur again, and you have the financial means to support a new loan and/or equity in your house this might be a smart idea.
The challenge with the option for most consumers is by the time they owe CRA money, they are already in debt otherwise. This makes qualifying for more debt extremely difficult. Also, from a liability protection standpoint, it is very risky to refinance unsecured debt (the CRA debt) into secured debt. In the event that you are unable to pay the secured debt, the bank has the right to seize the security. The most common type of secured debt is a mortgage which means if you didn’t pay your mortgage the bank would seize your house.
A consumer proposal can be an effective way to deal with CRA debt. We have written an extensive article on consumer proposals and how they work. It is worth a read as it covers everything from A to Z.
As it pertains to helping with CRA debt, a consumer proposal is an option that can be utilized. Despite popular belief, a proposal does compromise most types of CRA debt. The only type of debt a proposal doesn’t compromise is debts from misrepresenting income, fraud and in some cases source deductions. There are other complications with business debt as well. If you are a business owner and owe anything to CRA you should definitely reach out for professional help as this article only covers the basics.
In a nutshell, a proposal is where you offer your creditors a percentage of what you owe them. Imagine you owe CRA $30,000. CRA would probably want at the minimum $1,250 per month. Through a proposal, you could look at offering them less than that. Assuming you are a candidate for a proposal, you could probably pay anywhere from $200-400p/m. A proposal also allows that you pay your debts over a period of 60 months (5 years). This is far longer than the 1-2 years that CRA would like. This flexibility in payments is usually enough for consumers to get ahead.
Proposals are filed via a Licensed Insolvency Trustee. In discussion with clients who have seen trustees prior to seeing us for a second opinion, it is very common that they are told CRA will not accept any proposals unless there is a very significant return to them. This is simply false. A proposal becomes riskier when CRA is involved but you can still agree on favorable terms with them.
Bankruptcy is a nuclear option when dealing with all kinds of debt. As with proposals, bankruptcy can help with almost every type of CRA debt with some of the same conditions as mentioned above. While we encourage people to try and avoid bankruptcy if possible, in certain CRA debt situations it may be the only feasible option. A bankruptcy involves making a payment based upon how much income is earned in the household and any assets that have value you wish to keep. The amount of debt is largely irrelevant except in extreme circumstances. This is a good option if your income has reduced to a point where other options fail.
The challenge with bankruptcy is it comes with a long list of consequences. If you do not fulfill the obligations you have under your bankruptcy you can be stuck in bankruptcy for a long period of time. In fact, we have had people come to our office having been bankrupt for 20+ years. If you make more money during the term of bankruptcy it is possible your bankruptcy will be prolonged. If this occurs you may end up paying more money.
For a more in-depth bankruptcy guide, please read out Bankruptcy Guide.
Conclusion – Obtaining help with CRA debt.
Getting help with your CRA debt is without a doubt possible. Knowing exactly what option to pick, however, is the challenge. Whenever CRA debt is involved it is worth pursuing a professional opinion. Knowing how to deal with CRA is not like dealing with most creditors. Their expectations and motivations are entirely different from a for-profit company. This makes sense as they are a government entity.
As always, we would love that to be us but in the event it is not we are always available for a second opinion.
This article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring plans can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again. If you are struggling with debt please reach out. It hurts to continue to suffer financially.