Small Business Alert: Are You Dealing with a CRA Frozen Bank Account?

The deadline for filing your business tax returns has passed - for many, this season is a stressful one, but if you filed on time and don’t owe, that stress if finally out of the way. However, if you do owe, or are still dealing with a debt following last year’s deadline, you may be facing the reality of a CRA frozen bank account.

In the past, the CRA tended to take at least a few months before issuing a notice to freeze a bank account. However, they are now freezing them far sooner, adding to the already existing mountain of stress when it comes to dealing with your small business finances.

Furthermore, not only are they freezing accounts far sooner than they used to, they are also freezing them for far less - amounts as low as $1000. This is causing a great deal of trouble for many businesses that get stuck in the CRA web. Not only is this an embarrassing situation to have to deal with, it can be ruinous for your business reputation - especially when payments can’t be made or cheques begin to bounce…

With most creditors, collection action, such as a frozen bank account, requires court approval, but one of the biggest problems with the CRA is that they don’t need a court order to freeze your account - and your bank must comply once they receive notice.

Wait - how does the CRA know where you bank? Often you’ve told them yourself. Any negotiations you enter into, cheques you send, etc., likely provide them with personal information that makes obtaining this information easy (if you haven’t provided the exact information yourself). Even without this information, a little extra legwork and a letter to the 5 major banks will often yield the same results. The reach of the CRA is long - once collection action has been decided upon, the ball is entirely in their court.

So, does this mean that once your account has been frozen that you are dead in your tracks? Of course not - you do have a few options, but the right solution will depend on your personal circumstances. There are programs offered by the government that have the ability to immediately unfreeze your account. Furthermore, if you invoke these programs very quickly, you may be able to get your account unfrozen before CRA removes the funds from your account.

At DebtCare Canada, we are experienced in dealing with various tax problems, including CRA frozen bank accounts. Call us today to discuss your options: 1-888-890-0888.

How to Get Your Bank Account Unfrozen

Having your bank account frozen is not fun. A frozen bank account will paralyze your ability to pay your bills because essentially money can go in but no money can go out. Depending on who the authority freezing your bank account was, you may or may not have an opportunity to get your account unfrozen and then get some or all of your money back.

Let’s begin by reviewing who can freeze your bank account and how they can do it.

A creditor can freeze your bank account if 1) they sue you; 2) they successfully obtain a judgement against you; and 3) they are approved by the court to take enforcement action against you. The creditor then takes the proof from the court that they have a judgement and can freeze your account and sends it to your bank. Your bank can accept the document and freeze the funds in your account for a period of time. In the Ontario small claims court for example, the bank would hold the funds in your account for 30 days. At the end of the time period the funds are sent to the court. The court then holds the money for an additional period of time and then it is released to the creditor.

In the case of a frozen bank account with respect to a tax debt to the Canada Revenue Agency, the CRA does not need a court order to freeze your bank account. The CRA will send a notice to your bank - this notice is called a ‘Requirement to Pay’. The bank then will freeze your account and again will hold the funds in your account for a period of time. Once the allotted time period has expired the funds will be directed to the CRA.

In the case of a frozen bank account that results from unpaid family responsibility, the court will issue an order that the account can be frozen. The funds will be held for a period of time and then released to either the Family Responsibility Office or the court, which will later release them to the other parent. If your account has been frozen as a result of unpaid family responsibility you will need to speak to a lawyer to see if he or she can go to court on your behalf to request an order to lift the freeze.

If the case of a bank account that is frozen by the CRA or as a result of a small claims court order, you will need to get financial help, and this help will need to come from a financial consultant who is experienced and capable of combatting a frozen bank account under these circumstances. A good financial consultant can qualify you for programs that will stop the enforcement action being taken against you, freeze the interest accumulating on the debt, potentially reduce the size of the debt and allow you to make a monthly payment that you can afford.

If your bank account is frozen and you need help call DebtCare at 888-890-0888 or visit www.debtcare.ca.

How to Deal With a Frozen Bank Account as a Result of a Canada Revenue Agency Tax Debt

When an individual or business has a tax debt owing to the Canada Revenue Agency, the Canada Revenue Agency will begin to pursue enforcement action to collect the debt. One method that the Canada Revenue Agency uses to collect debt is by freezing a bank account. 

A frozen bank account can be extremely disruptive and can cause incredible financial hardship. Many people feel blindsided when they go to the bank and find out that the bank has frozen all of the funds in their bank account. However, a frozen bank account that is the result of a tax debt generally doesn’t occur without warning. 

A Canada Revenue Agency collection practice usually is as follows:

1.       First you will be notified in writing that a tax debt is owed.

2.       Second, you will be sent another letter demanding payment of the tax debt.

3.       Finally, a “Requirement to Pay” letter will be sent to you and your bank, requiring the bank to freeze your bank account.  

When the “Requirement to Pay” letter is issued and sent to the bank, the bank must freeze the bank account indicated. The bank will then hold the money that is in the frozen bank account for 30 days and then will send the money to the Canada Revenue Agency.

The frozen bank account (even after the money has been sent to the Canada Revenue Agency) will remain frozen. Outside of losing all the money that was in the frozen bank account, the frozen bank account will now cause significant disruption because if your pay is directly deposited into the frozen bank account, the bank will continue to seize the money deposited into the frozen bank account and send it to the Canada Revenue Agency.

Once the CRA has frozen your bank account, you will almost always have to open a new account with another institution. Generally speaking, once the CRA has frozen a bank account the account holder will also see that the relationship they once had with their bank has been severely damaged. Most banks will stop offering credit and may even close existing credit products if they become aware that a customer has a tax debt owed to the Canada Revenue Agency. This is because some people who have tax debts end up filing for bankruptcy after being put under the pressure of CRA enforcement action.

Of course, if you have a tax debt and your bank account has not yet been frozen, it is advantageous to act before things come to that. Acting now doesn’t necessarily mean coming up with money you don’t have to pay off the tax debt. Acting now means seeking out professional guidance to deal with your tax problem before things get that far. If your bank account has been frozen you still have a chance to get your account unfrozen.  Getting a bank account unfrozen is difficult but can be achieved through programs that involve legislation that carries the power to stop certain collection actions, such as a frozen bank account.

If your bank account has been frozen or if you owe money to the Canada Revenue Agency that you do not have the means to pay, we can help – including getting your bank account unfrozen and coming up with a plan to deal with your tax debt. Contact DebtCare at 416-907-2582 or visit www.debtcare.ca.