Can I File for Bankruptcy While on Long-Term Disability?
Are you on long-term disability because you’re too sick or injured to work? Do you find yourself taking on more and more debt because your benefits only cover a percentage of your regular income? Are you starting to wonder whether Bankruptcy is an option for you?
Below are some of the most common questions our office receives from Canadians on long-term disability who find themselves carrying the heavy burden of debt.
What happens when I don’t pay back my creditors?
The answer depends on whether your debt is secured or unsecured.
Secured debts are backed by collateral, such as the mortgage on your home or a car loan. If you don’t pay back what you owe, your creditor may repossess the item you put up for collateral.
Unsecured debts, such as credit card balances and some personal loans, are not backed by collateral. These creditors can take action to recover the debt you owe, and even sue you to get a court order to garnish your wages.
I’m not earning any wages. What happens to my unsecured debt now?
If you aren’t currently working, then your unsecured creditors cannot garnish your wages.
And if your income comes solely from an assistance program, like the Ontario Disability Support Program (ODSP), creditors will likewise be unable to garnish these payments.
That said, there are many reasons Canadians on long-term disability seek assistance with unmanageable debt.
For example, they want to put an end to the collection calls or stop themselves from plummeting further into debt. This often has them seeking assistance with filing for Bankruptcy.
Should I file for Bankruptcy if I’m on long-term disability?
Bankruptcy is an excellent way for Canadians who cannot repay what they owe to clear their debts. And unlike many other debt relief options…
Bankruptcy offers debtors legal protection from their creditors.
This means that once you file for Bankruptcy, your unsecured creditors must stop all action to recover the debt you owe. No more harassing phone calls or letters. This gives you the time and breathing room to get your finances in order.
However, you should be aware that when you file for Bankruptcy:
- The assets you own may be seized to repay part of your debts that are not exempt according to provincial Bankruptcy rules.
- During the life of the Bankruptcy (a minimum of 9 months), you will need to make a monthly contribution that is used to repay your creditors.
- You will lose tax returns and sales tax credits during the Bankruptcy that you would otherwise receive. This likely includes your Disability Tax Credit as well.
- Financial windfalls gained after you file for Bankruptcy, such as any inheritance or lottery winnings, would be collected to help repay your creditors.
I have RDSPs. Will I be able to keep them if I declare Bankruptcy?
Registered Disability Savings Plans (RDSPs) are intended to help Canadians with disabilities save for the long-term financial needs of a disabled person, be it themselves or a loved one.
The Bankruptcy and Insolvency Act (BIA) does not deal directly with RDSPs in the event its beneficiary files for Bankruptcy.
There was a recent ruling in the BC Supreme Court that stopped a Licensed Insolvency Trustee (LIT) from seizing the funds in an RDSP for the benefit of creditors where the RDSP beneficiary declared Bankruptcy. Importantly, the Court did not rule that all RDSPs are exempt from seizure. The ruling was based on the facts of that particular case.
This means future cases about the release of RDSP funds to the Bankruptcy estate will depend on the Court’s discretion.
Will Bankruptcy affect my ability to get disability benefits in the future?
No. If you were eligible before filing for Bankruptcy, you should be equally eligible after you file.
Your eligibility for disability has nothing to do with your Bankruptcy filing.
Who should I contact to get financial help?
If you’re on long-term disability and want to finally get a handle on your finances, a Licensed Insolvency Trustee (LIT) is the best financial advisor to reach out to.
Here are three ways an LIT can help.
#1. A Licensed Insolvency Trustee can help you learn how to manage your finances.
If you’re on long-term disability, it’s essential that you learn how to budget and manage your finances to avoid Bankruptcy.
An LIT can help you figure out how to stretch your disability in a way that may sustain you through the period that you cannot work.
#2. An LIT can offer you debt counselling.
If you’ve already taken on debt, an LIT can help you with every debt relief option available, from simple budgeting all the way to Bankruptcy.
LITs are arguably the nation’s best financial advisors. These federally-licensed debt professionals have the education, credentials, and experience to properly advise you. They’re also obligated to adhere to strict ethical regulations, so you can rest assured that their advice is in your best financial interests.
#3. An LIT can offer you help with filing for Bankruptcy while on long-term disability.
If you want to file for Bankruptcy, you will need the assistance of an LIT. These are the only debt professionals authorized by the Canadian government to assist debtors with filing for insolvency.
It is possible to file for Bankruptcy while on long-term disability. If you owe at least $1,000 and you’re unable to keep up with your debts, you may be eligible to file for Bankruptcy.
Adamson & Associates Inc. Licensed Insolvency Trustee can help
Do you feel it’s time to seek the professional assistance you need to regain your financial independence?
Our seasoned experts are ready to help you with your full range of debt relief options.
Call Adamson & Associates Inc. today at 519–310-JOHN (3546) for a free, no-obligation consultation.