What to Do if the CRA Freezes your Bank Account?

Ways that CRA can freeze your bank account

If you owe money to the Canada Revenue Agency (CRA), the agency can take several strong steps to collect. If you down pay by the due date, one of the first actions it will take is to charge compound daily interest as soon as the debt is overdue. If you owe a large amount, this can be very costly. However, the CRA has very strong collection powers as well. If you we money and do not pay what you owe, the agency can garnish your wages and even freeze your bank account.

This means you won’t be able to withdraw or transfer any money from that account. This is obviously a serious situation as you’ll need this money to pay for your living expenses.

The CRA can freeze a bank account without a court order. All the agency needs to do is send a Requirement to Pay notice to your bank. Once received, the bank has no choice but to comply. It must freeze your access to your bank account and redirect any funds in the account to the CRA to pay off your tax debt. Future deposits (such as pay deposited by an employer) will be frozen as well, until the CRA debt is paid or the bank receives legal notice to end the freeze.

How to Unfreeze a Bank Account

The most straightforward way to have a bank account unfrozen is to pay the debt that you owe or to work out a payment arrangement with the CRA if you can’t pay your debt in full right now. However, it’s important to know that the CRA is not like other creditors. While some other creditors might be willing to negotiate and take less than the full amount owing, the CRA will never agree to a payment plan that sees the agency receive less than what is owed to it. In some circumstances you may be able to have interest costs and penalties reduced or eliminated, but you’ll always be responsible for paying the full tax debt. This can be a tough situation if you owe a large amount and can’t pay.

If you’re not able to pay what you owe, speaking with a Licensed Insolvency Trustee can help.

How LIT Lawyers Can Assist with a CRA Frozen Account

Licensed Insolvency Trustees (LITs) are the only professionals who are licensed to administer certain insolvency processes in Canada. Specifically, this means Licensed Insolvency Trustees can administer bankruptcies and consumer proposals. This is important because tax debts can be included in a bankruptcy and discharged through this process, and CRA debt can also be included in a consumer proposal.

If you’re having trouble with debt, Licensed Insolvency Trustees can give you the information you need to find relief.

Consumer Proposals and Tax Debt

While the CRA will not agree to a payment plan that will see it receive less than what is owed to it, a consumer proposal may help reduce the debt you owe. With a consumer proposal, the LIT will review your financial situation and determine what a fair offer to your creditors will be. In most cases the offer will be for a portion of the outstanding debt.

All of your unsecured creditors will be included in the proposal. An unsecured creditor is any creditor that does not have any security or asset (such as a home or a vehicle) backing the debt owed. Credit cards, lines of credit, and personal loans are all examples of unsecured loans. Tax debt owed to the CRA is also an unsecured loan. This means you can include tax debt in a consumer proposal. If you’re struggling with tax debt, Licensed Insolvency Trustees will give you information on the options available and a consumer proposal could be the right choice for you.

If you decide to proceed with a proposal, the LIT will prepare the offer and send it to all your unsecured creditors. They will then vote on whether they will accept the proposal. If the creditors that are owed more than 50% of the outstanding debt choose to accept, then all are bound by the terms of the proposal. This means, depending on what you owe and who you owe it to, the CRA could be obligated to accept less than the full amount of tax debt.

If your creditors accept the proposal, you will need to make monthly payments to the Licensed Insolvency Trustee who will distribute them to your creditors.

Licensed Insolvency Trustees and Legal Protection

If you file a bankruptcy or a consumer proposal, you receive legal protection from your creditors. This means they cannot take any legal action against you (such as freezing your bank account) and any action that has been taken must stop once the insolvency process is filed. This means your bank account will be unfrozen.

Completing a consumer proposal is one way that working with Licensed Insolvency Trustees can unfreeze a CRA frozen account. To find out if this is the right option for you, speak with a LIT. Most Licensed Insolvency Trustees offer a free consultation.