There are many different types of debts and debt solutions available to Canadians, but not all are created equal. If you have general consumer debts such as credit card debt, balances for lines of credit, overdrafts or payday loans these can be resolved with different debt management options including consolidation loans, Consumer Proposals or bankruptcy – but when it comes to government debts there are only two legislated debt solutions that can grant you debt forgiveness.
Many people are surprised to learn that you can work with a Licensed Insolvency Trustee to declare bankruptcy or file a Consumer Proposal that can include government-related debts. This is due to the specialized qualifications and regulation of Licensed Insolvency Trustees, giving them the ability to help you access solutions available under Canada’s Bankruptcy and Insolvency Act.
Read on to learn more about common government debts that can be forgiven using these debt resolution methods:
Tax Debt
If you are facing Canada Revenue Agency (“CRA”) tax debt it’s important to understand that interest and penalties can compound very quickly, making even a small initial balance difficult to pay off – CRA is also a powerful creditor who can begin aggressive garnishments, which could include wage and asset seizures, virtually overnight. Furthermore, unlike many other types of debts, these government debts are not confined by BC’s Statute of Limitations, meaning that they do not expire and you cannot “wait them out”.
Outstanding debts you have with CRA can be included in a personal bankruptcy or consolidated in a Consumer Proposal. This includes balances due for personal income taxes, GST or PST, as well as corresponding interest and penalties. All accruing interest is halted, as are wage garnishments or bank account seizures that may already be in place.
A Consumer Proposal or personal bankruptcy can both effectively stop the priority nature of CRA debts and collections, reducing them to the same importance as common consumer debts such as an unpaid credit card.
Other than filing bankruptcy, making a Consumer Proposal is the only method that can be used to negotiate a reduced balance owing with CRA:
- Declaring bankruptcy can permanently write-off CRA tax debt.
- Filing a Consumer Proposal can consolidate and reduce your CRA tax debt down to what you can afford to repay, with the remaining balance being forgiven.
Learn More About Managing Tax Debts in a Consumer Proposal or Bankruptcy
Medical Services Plan (MSP) Debt
BC MSP premiums were eliminated January 1, 2020 however, if you were required to pay MSP premiums and still have an unpaid balance, this remains payable and collection actions on overdue accounts may still be taken.
MSP premiums were based on your previous years’ income tax returns. If you were behind in tax filings this may have resulted in you being ineligible for premium assistance and charged the full premium amounts. MSP’s Retroactive Premium Assistance provides adjustments for previous premiums and may be available to help reduce your balance.
Regardless of premium assistance standings, both your outstanding MSP balance and any compounding monthly interest charges can be eliminated and written-off through filing a bankruptcy or Consumer Proposal in BC.
Connect with a Licensed Insolvency Trustee from anywhere in BC without leaving the comfort and privacy of your home – book your confidential free debt consultation today.
Employment Insurance (EI) Debt
An overpayment of Employment Insurance benefits can occur from a few different causes such as application and reporting errors, or decisions made regarding insurability. The Canada Revenue Agency provides collection services for money owed for EI overpayments and if you are unable to repay the balance you may be subject to the same consequences that CRA takes for collecting tax debts.
Income garnishments as well as asset liens and seizures by CRA can occur if an EI overpayment is not repaid. You could also expect to have any tax refunds or personal GST credits you were otherwise anticipating be withheld by the CRA and applied to your balance owing.
Social Assistance Overpayment Debts
Provincially governed, social assistance overpayment debts are generally forgiven under a bankruptcy or Consumer Proposal.
Does Including Government Debts in a Bankruptcy or Consumer Proposal Mean I Can’t Access Future Benefits?
It is important to understand that even if you declare bankruptcy or make a Consumer Proposal to eliminate government debt, you will not be prevented from receiving future government benefits.
Your eligibility for EI benefits, emergency benefits, housing benefits, pensions and more will not be impacted by a prior government debt being included in or written-off as part of your bankruptcy or Consumer Proposal.
Learn About Debt Forgiveness with Personal Bankruptcy: Step-by-Step
Student Loans
Whether your student loans are private, provincial or federal, these debts and related interest charges can also be part of the debts included in a personal bankruptcy or Consumer Proposal filed in BC. Two key considerations that determine how your student loans are ultimately resolved depend on the date your studies ended, as well as the type of student loans you have.
- If more than seven years have passed since your last study date, you can be released from your government student loans using a bankruptcy or Consumer Proposal.
- In the event you have not been out of school for seven years you would get relief from making payments on government student loans during the period that your bankruptcy or Consumer Proposal is active. Once your bankruptcy or Consumer Proposal is finished you would then begin repaying these surviving debt balances (less any amounts received through your Consumer Proposal) and any accumulated interest.
- Some people choose to continue making payments on their surviving student loans even while their bankruptcy or Consumer Proposal is in progress. This is your option.
- If only five years have passed since you last attended school, it may be possible for you to apply under a hardship provision to BC court to have your government student loans discharged like the other debts included in your bankruptcy or Consumer Proposal.
- Under this provision your student loans may be released where you can satisfy the court that you acted in good faith in your obligation to repay your student loans, and you have experienced, and will continue to experience, financial difficulties that would prevent you from repaying these debts.
- Privately (bank) held student loans and other student financing debts will be treated as any other type of general consumer debt (such as a credit card) and can be eliminated in both a bankruptcy or Consumer Proposal.
In situations where your recent government student loans only form part of your overall debts, declaring bankruptcy or making a Consumer Proposal can still be beneficial debt options since all your other debts (tax debt, credit cards, overdrafts, etc.) may be wiped out, making the surviving student loans much more manageable.
Read More Tips for Repaying and Discharging Student Loans
ICBC Debt
ICBC debts may be categorized in a number of different ways such as: claims, “motor vehicle indebtedness” including outstanding AutoPlan insurance payments or unpaid Driver Penalty Point Premiums, Driver Risk Premiums, unpaid fines for offences, or motor vehicle related offences under the Criminal Code such as unpaid speeding tickets.
A Licensed Insolvency Trustee can help you investigate the type of ICBC debt you have and how each may be dealt with if you decide to make a Consumer Proposal or file bankruptcy – both of these options can result in ICBC debt forgiveness or having the overall balance cut.
Most ICBC debts will be forgiven under a Consumer Proposal or bankruptcy – even in a motor vehicle accident where you are found to be at fault and ICBC pays a settlement to another party, you may still be able to get relief from the resulting debt.
There could be portions of your overall balance owing to ICBC that fall into categories of debts that can survive these processes; if your Licensed Insolvency Trustee suspects this may be the case they will (with your permission) communicate with ICBC directly to clarify how a debt is categorized and determine any portion that might survive before you commence your debt relief process.
Temporary restrictions may be placed by ICBC, such as:
- Temporary denial of license, insurance renewal or subsequent license plates:
- During the period of your bankruptcy prior to your discharge ICBC may retain their right to prevent you from licensing or insurance (generally renewals). Some of the criteria by which ICBC may review your individual circumstances includes:
- The circumstances under which the debt arose.
- Whether your ICBC debt was a significant portion of your overall debt load.
- Hardships that may result from the refusal of these renewals.
- The impact of a refusal on your employment, education, or ability to obtain medical treatment.
- In situations where your employment is dependent on you holding a driver’s license, your employer may be able to write an official letter to ICBC stating such – this may result in a reversal of ICBC’s decision.
- During the period of your bankruptcy prior to your discharge ICBC may retain their right to prevent you from licensing or insurance (generally renewals). Some of the criteria by which ICBC may review your individual circumstances includes:
- Temporary denial of access to AutoPlan monthly insurance payments, resulting in you needing to renew insurance in prepaid 3, 6 or 12-month increments.
ICBC generally will not refuse licenses and insurance after your eligible debts have been discharged through your bankruptcy, or your filed Consumer Proposal has been accepted by your creditors.
Facing an unmanageable balance owing from the provincial or federal governments of Canada can be overwhelming and stressful. While some types of government debts are simple to resolve, others involve complex and ever-changing bodies of law – it is important to find out the facts and options for your situation as soon as possible. If you are struggling, the best course of action is to contact a Licensed Insolvency Trustee to get advice about how to manage government debts, as well as any other types of debts you may have. Licensed Insolvency Trustees are the only Canadian professionals legally able to provide debt solutions to work with all creditors on your behalf; consultations are always free, confidential – and at no obligation.
Stop debt-stress and get a plan to be debt-free today. Book your free confidential debt consultation to connect with a caring non-judgmental BC Licensed Insolvency Trustee.
This content is not intended to be specific legal advice; it is intended to be a simple guide in layman’s language to provide a basic overview only. E. Sands & Associates Inc accepts no responsibility for its use other than as intended. The law is an ever-changing body of statutes and decisions, and the reader is advised to seek counsel for specific matters relating to their situation.
