Client Talk - Insolvency Update -
September 2005
Canada Revenue Agency Gets Hungry
If an individual owns real property and owes Canada Revenue Agency (CRA) an income tax debt of any size, there is a decent chance that a judgment will be registered against title. Timing becomes very important in these instances because if a proposal or a bankruptcy assignment is made before the judgment is in place, CRA is relegated to the status of unsecured creditor.
However, if the registration of the judgment precedes the insolvency filing, CRA is in effect a mortgage holder and holds the rights of a secured creditor. As a result, in order for the judgment / mortgage to come off title, CRA must be satisfied that it will directly recover any non-exempt equity which can be determined by obtaining a fair market analysis and considering the bank mortgage balance and closing costs.
It is often not too difficult to calculate this equity number. However, some individuals then let the judgment lie and make no effort to pay in the equity figure to CRA . ** As property values have risen in Campbell River, Courtenay and the Comox Valley here on Vancouver Island in the last while, CRA is now re-evaluating its equity position, in effect, demanding more to remove the judgment.**
We have yet to see and instance where the "re-evaluation" has been challenged in Court. The lesson: settle quickly with CRA in order to have pre-bankruptcy judgments removed from title. We speak with the Bankruptcy Unit at CRA multiple times each week and find them very reasonable when dealing with timely payouts. We may be of assistance in negotiating an equity payout figure.
Derek L. Chase, CA, CIRP
Trustee in Bankruptcy
Useful websites for anonymous information:
www.BankruptcyCanada.com
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