If you are insolvent and have declared bankruptcy, you can generally expect to be legally released from your debts when your bankruptcy is discharged. For a first-time, uncontested bankruptcy, you are automatically discharged nine months after you declare.

If, however, your unsecured debts include owing taxes to Canada Revenue Agency, there may be additional considerations. For most people, income tax debt is simply another unsecured debt, but if your tax debts are more than $200,000 and represent more than 75% of your total unsecured debts, you are not eligible for that automatic discharge.

In such a case (and they are rare), you will have to go to court and have a registrar (essentially a bankruptcy judge) decide on conditions you will have to meet to be discharged. It could entail paying back some of those tax debts (usually 10% or 20%), or that your discharge will take longer.

It’s important to note, too, that declaration of bankruptcy affects only unsecured debts. If you owe money to CRA, they may have taken action prior to your declaration, which could have included a lien on your property. If there is already a lien on your house, it is no longer an unsecured debt. Filing for bankruptcy will not remove the lien, so before declaring, you should be talking to CRA about how to repay your tax debt.

If you have a business, you may also have unremitted HST as part of your debts (for example, if you are a director of a company, you can be personally liable for HST remittance), which may give the Crown priority status over your other creditors. If this is the case for you, you should discuss it with your credit counsellor or bankruptcy trustee.