Tax debt is one of the most serious kinds of debt given the powers of the CRA to collect. The main difference between the CRA’s and other creditors’ ability to collect, is that they can freeze your bank account without a court order. Since they don’t need to go to court, they are much more likely to use this method.
This is a very strong power and one of the ways that the CRA pressures people into paying their debts.
Can the CRA freeze your bank account without notice? What can you do when this happens and how can you avoid it? Derek Chase, Licensed Insolvency Trustee, answers these questions.
Derek also discusses:
- How to stop wage garnishment and unfreeze bank accounts
- When a Stay of Proceedings can be put in place
- How to communicate with the CRA
- Work out a payment plan to avoid penalties and collection practices
- Consulting with a Licensed Insolvency Trustee and the services they provide
If you are struggling with tax debt and need someone to talk to, a Licensed Insolvency Trustee should be your first call. They are licensed and regulated by the Canadian government and adhere to strict ethical guidelines.
Read the Transcript
Wayne Kay 00:00
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debts with Licensed Insolvency Trustees from across Canada.
I’m Wayne Kay, and in today’s show, we’re going to talk about the CRA seizing wages or freezing your bank account. Can they actually do that? Is it legal? How come they actually can do this and other creditors can’t?
At what point should you be talking with the CRA and what can make them stop this?
To tell us more my guest today, Derek Chase from Derek L Chase & Associates Licensed Insolvency Trustee serving Vancouver Island, Sunshine Coast and the BC north coast.
Derek, thanks for being on the show.
Derek Chase 00:47
Hi, Wayne. It’s my pleasure. I look forward to our talks here. Let’s go for it.
Wayne Kay 00:52
Well, this is going to be an interesting one, because when this starts happening, I’m thinking there’s a lot of stress in somebody’s life when you’re talking about the CRA seizing wages or freezing bank accounts. How often does this happen?
Derek Chase 01:09
More often than you realize. And you are absolutely right. It is a panic situation when this starts happening.
Wayne Kay 01:18
So when you’ve seen your clients be in a situation where already their debt is – that they just can’t get a handle on it. They’re sliding downhill, trying to go back up, but there’s just no possible way. And this is when the CRA then comes in and says, you’re not paying your taxes, we’re going to come after it.
Derek Chase 01:37
They do. And it’s irregardless of your other debt. I mean, they’re just acting on collecting income taxes or GST. And it’s gotten to the point where the account hasn’t been paid or there’s been no communication or no acknowledgment of the debt or no plan in place.
So then CRA looks into their bag of tricks and they say, well, what can we do? And they either spot that you’re working as an employee somewhere, or they see that you’re banking with a certain bank and all of a sudden you have an attachment to your wages or your bank account could go to zero. So it’s a big deal.
Wayne Kay 02:22
And that’s totally legal. They can do that.
Derek Chase 02:26
It is, yes. It’s legal through the Income Tax Act and it’s harsh, and it’s one of the things that they can do. And unfortunately, I think you got this big government department, and with that many people in there, you’ve got some folks that have better judgment than others.
So if a person that’s got modest income and maybe a disability gets garnished, that’s a lot different than if there’s some high roller that’s got a lot of volume and a lot of business activity gets garnished.
So it hits everybody, unfortunately. And the results, if you’re counting on that paycheque to pay your rent, then look out.
Wayne Kay 03:22
Well, and almost every Canadian does. The stats are way up there of how many Canadians are just living paycheque to paycheque. And if you miss one, I don’t know, you probably know the stats. Isn’t it – we’re like three paycheque away from going into insolvency or having a major problem.
Derek Chase 03:42
I don’t have that stat at my fingertips, but yes, I recall hearing that and similar stats as well. So it’s a very real threat. Income tax can do it just because it’s within the federal law. Other creditors don’t seem to garnish as much like a credit card creditor or other type of creditor.
And I think that’s because they have to go to court to make that happen and there is an extra step for the other creditors to do it. And for them to take that step, it costs them money and time. But what they like to do, other creditors will threaten it. They’ll often make a lot of noise about we’re going to do this and that’s scary to hear when you’re on the receiving end of that information. And I think that’s just a tactic to scare people into making a payment.
Whereas the income tax department, it can just come literally out of the blue and all of a sudden your payroll department saying they’ve got a garnish.
Wayne Kay 04:52
Yea. So if that happened to me and then I go, okay, I only know one person who can help me with this and that’s Derek, so I call you. Is there anything that can be done at this point?
Derek Chase 05:06
Oh, absolutely, yes. Fortunately, the federal law allows the filing of a Consumer Proposal or a Bankruptcy filing to stop those garnishes and to stop the income tax department from taking funds in your bank account. So the technical term is that there’s a Stay of Proceedings.
There is a timing issue there, though. You need to get that Stay of Proceedings. If you can imagine building a wall between you and Canada Revenue Agency. That’s what a Stay of Proceedings does and that debt will then hit that wall and stop and you kind of go from there.
But it’s what to do if you’re facing that situation – is absolutely, give us a call and give us a call today rather than tomorrow because we’ve got to get the documents in place and it’s almost a race against the payroll clock. When is that next payday going to be?
We need to get this Consumer Proposal in place so that the Stay of Proceedings will stop the garnish. And if we can do it, then they can’t take the funds.
Wayne Kay 06:27
When you talk to CRA – give them a phone call. Are they reasonable or not? Do they work with you?
Derek Chase 06:37
Again, there’s a lot of people who work for CRA, so I can’t sort of give a blanket answer for that. But I would say that yes, they will. If you say, I have the ability to make X amount of dollars per month, so long as it’s going to make a dent in what you owe, then certainly a payment plan with CRA is a good thing and you can hopefully pay down your debt.
But if the total amount of the debt isn’t moving because of penalties and interests and whatnot, then again, you’re looking at a Consumer Proposal or a Bankruptcy filing. But talking with CRA should be just like we’re talking right now. Certainly if you go to an abusive level or try and start to use some powerful language there, I don’t think you’re going to get very far.
Wayne Kay 07:36
Yes, okay, that’s good. Stay calm.
Derek Chase 07:39
Wayne Kay 07:39
When you talk to CRA. I actually have a family member who all of a sudden got a notification, and I think it was from a collections agency saying that they owed the CERB payment back or something like that from last year.
And it turned out they were sending it to an address the person lived at three years ago, as opposed to where they’ve lived for the last two years. And they were really quite surprised that CRA actually didn’t even have updated information. But they did because they’d been filing income tax, so they had their current addresses. How weird is that?
Derek Chase 08:27
Yes, that’s a bit of a mystery. I mean, CRA is very much like Big Brother in the sense that they can see where you’re banking at and where you’re working. And obviously, if you’re filing your taxes, they should have your personal home address as well.
Wayne Kay 08:43
Derek Chase 08:44
So I just think it’s important if you do owe taxes, to communicate with them.
Wayne Kay 08:49
Well, that’s what this person did, but they made the phone call and said, well, I’ve been living at this address and I’ve been paying my income tax and stuff through this address. You’ve mailed me information here. It’s surprising that you weren’t sending that information.
They didn’t have it all there, but they followed your advice and we’re very calm, so that obviously helped. And they were able to get an extension to make the payment.
Derek Chase 09:15
Right, and I think certainly if it’s a modest amount of money and you’re communicating with them and you’re going to be able to pay it back within a reasonable period of time, then there’s no problem.
It’s just if you get somebody at CRA that perhaps doesn’t have the best judgment and they’re going to garnish you right away for the fact that you only owe a couple of $1,000.
I’m like, wow, that’s not good. And we do sometimes suggest to people that they might want to talk to their MP as well. If there is something that’s really crazy going on like that.
Wayne Kay 10:00
Now, do they actually give you a heads up or do they just take the money right out of your bank account?
Derek Chase 10:06
Well, I think the heads up would be that they probably sent you a variety of numerous letters saying, you owe, you owe, you owe. But I have heard of instances where people tell us that, I woke up today and my bank account was frozen.
Wayne Kay 10:25
Okay, well, I was just wondering if you have people that will then say, okay, sure, and then they go cash out and put it into a different bank account somewhere else.
Derek Chase 10:33
Well, I mean, you can do that. You can open up a new bank account, but it won’t take them that long to find it and do the same thing there. So I think if you’re starting to play that game, then you really do need to talk to an LIT somewhere.
Wayne Kay 10:49
That’s very true. That would be the sign. That’s the number one sign. If you’re trying to hide the money from CRA, make that phone call for that free consultation.
Derek Chase 11:01
Absolutely. Yes. Don’t wait.
Wayne Kay 11:04
No, I would think not. Can you walk us through some of the different steps then, of what it looks like? People are obviously going to be stressed out when this is happening. You already know you’re probably in a bad situation, so what can they expect from you as you walk through all the different options?
Derek Chase 11:28
Well, yes, that’s one of the things that we’re obligated to do is just to gain an understanding of what a person is facing and then present to them and talk through the different options that are available to potentially go in a better direction. So sometimes that’s just rearranging their own finances, perhaps liquidating some asset that they’ve got that they need someone to tell them that, hey, you should go sell that because you could pay off your debts and away you go.
But if a person doesn’t have any other option, then we get into the federal ones of getting official protection through a proposal filing or a Bankruptcy filing. And to me, those things are just like tools in a toolkit. And sometimes you need a screwdriver and sometimes you need a wrench, and there’s a solution there.
So you just need to walk through them and figure out which one is going to best fit where you are in your life and where your family’s life is at the time and make a choice because continuing on with this type of pressure is just impossible. And sometimes I think the income tax department does it just to move things along.
Like, this is an amount of debt that’s never going to get paid back. Let’s try and move you along. And so they’ll garnish you or freeze your bank account and something’s going to happen.
Wayne Kay 12:55
And what’s it like after you start the Stay of Proceedings?
Derek Chase 13:01
What’s it like, it’s good. Life goes on. It’s peace and quiet, so there’s no collection pressure, no one’s phoning you night and day and life goes on.
We would encourage people to get, especially with their income taxes, into the habit or the discipline of filing every year and paying on time. But it’s a chance to get that financial fresh start that you want to get when you have too much debt. And yes, there’s lots of life left to live.
Wayne Kay 13:36
Yes. All right, any final words of wisdom you need to share with us regarding this topic?
Derek Chase 13:41
Well, CRA has some heavy hammers that they can use to collect, and if they’re starting to drop that hammer on you, take some action to get protection because protection is available.
Wayne Kay 13:53
Okay, Derek, I appreciate all your time today and answering all these questions. Thanks very much for being on the show, as always.
Derek Chase 14:01
My pleasure, Wayne.
Wayne Kay 14:03
Well, my guest today, Derek Chase. You can learn more or schedule a free consultation with Derek L Chase & Associates Licensed Insolvency Trustee through the website bankruptcytrusteebc.ca.
And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks very much for listening.
About Derek Chase
Derek Chase is a Licensed Insolvency Trustee in British Columbia. He has been helping individuals and corporations restructure their debt since 1997. His areas of practice include personal and corporate insolvency including Consumer Proposals and Bankruptcy. The best part of his work is to be able to witness lives change for the better when the heavy burden of unmanageable debt is lifted.