Dealing with a Tax Debt by Filing an Assignment in Bankruptcy

While an individual may decide to cash in an RRSP in order to pay off tax debts , this is not always the best choice. In fact, for most people, cashing in RRSPs to help deal with tax debt is the wrong decision. 

The reason is simple. Under a bankruptcy you can protect your RRSPs. Except for contributions made in the last 12 months, you won’t lose the money in your RRSPs if you receive bankruptcy protection.

If you are not able to make an acceptable proposal to deal with your tax debt or other debts, filing an assignment in bankruptcy might be the best way to eliminate your debts. Income tax, HST, PST, GST and payroll tax debts can be included in a bankruptcy and are generally eliminated upon discharge.

It is essential to file for bankruptcy protection before CRA registers you as a secured creditor and puts a lien against your home or other real property. However, the CRA must have taken appropriate steps to attempt to collect on your tax debts prior to the date of your bankruptcy for these special privileges to apply.

If you owe Revenue Canada more than $200,000 for personal income tax and this amount represents 75% or more of your unsecured debts, you will not be eligible for an automatic discharge and will have additional duties to perform before the completion of your bankruptcy.

Take the Next Step

We recommend asking a Licensed Insolvency Trustee to review your situation for advice. Take advantage of our free initial consultation and we will analyze your case's circumstances. We will also inform you of all of your options so that you can decide which course of action would be the best one to take.


Seth Darby is the founder of Market ‘Til You Make It. When he’s not serving his clients, he geeks out on board games, cider, and challenging his friends to top his awesome karaoke skills. He calls Bloomington, Minnesota, home.