Can a Bankrupt Medical Doctor Remain a Practicing Doctor?
The profession of a medical doctor is often associated with prestige and financial stability. However, like any other profession, doctors too can face financial struggles. Particularly in Ontario, if a medical doctor is insolvent, the question arises – Can a Medical Doctor in Canada File for Bankruptcy and Still Practice Medicine? The answer is a resounding yes.
Bankruptcy does not affect their license or their ability to practice medicine. However, given the generally high income of doctors, bankruptcy might not be the most financially feasible solution. A consumer proposal could be a more sensible debt elimination strategy.
Understanding Bankruptcy for High Income Earners
Bankruptcy can be quite expensive for high-income earners due to the surplus income rules. These rules state that the higher your income, the more you are required to pay into your bankruptcy.
The surplus income thresholds set by the government dictate that a bankrupt person must make additional payments equal to 50% of any income earned above this limit. For doctors, who usually earn more than this threshold, bankruptcy can indeed become a costly affair.
Length of Bankruptcy
The earning capacity also affects the length of bankruptcy. If you earn above the surplus income limits, your bankruptcy period extends from 9 months to 21 months if you are filing for the first time. Thus, for doctors earning an average salary, bankruptcy can be both time-consuming and expensive.
The Alternative: Consumer Proposal
High-income earners, like doctors, may find the option of filing a consumer proposal more appealing. A consumer proposal is an offer to your creditors to settle your debts for less than you owe, filed under the Bankruptcy & Insolvency Act.
During your consultation with the Licensed Insolvency Trustee, they will calculate your potential surplus income in a bankruptcy and assess the realizable value of your non-exempt assets. They will then recommend you to offer slightly more than this amount to your creditors as an incentive to accept the proposal.
Why Consumer Proposal?
The primary advantage of a consumer proposal is that the payments can be spread over a maximum of five years. This, in turn, significantly reduces the monthly payment for those required to pay surplus income, as compared to bankruptcy.
Consider this example:
Dr. A has debts amounting to $285,000 due to taxes, credit cards, and a line of credit. With a net yearly income of $145,000, or $12,083 a month, Dr. A is required to make surplus income payments amounting to $91,465 in bankruptcy, calculated using this surplus income calculator. If Dr. A wishes to retain his home, he would have to increase his payments by $3,571 a month to repay the equity to his creditors, making his total bankruptcy payments $7,926 for 21 months.
On the other hand, if Dr. A opts for a consumer proposal, he can offer his creditors $180,000 to settle his $285,000 debt. If he chooses a five-year repayment term, his monthly payments would be $3,000, thereby reducing his monthly bankruptcy payment by over 60%. He also saves $105,000 in debt repayments and future interest since a consumer proposal is interest-free.
Additional Benefits of a Consumer Proposal
A consumer proposal can help eliminate all unsecured debt, including credit card debts, lines of credit, and unsecured bank loans. Moreover, it can eliminate student loan debt provided you have been out of school for seven years.
Furthermore, a proposal can eliminate tax debts including unpaid tax installments, HST or GST obligations, and even withholding taxes for employees. It is the only way to settle tax debts with the Canada Revenue Agency for less than the total amount owing, apart from filing bankruptcy.
With a consumer proposal, you also get to keep all your assets, including your home equity, unregistered investments, and car, while eliminating your unsecured debts.
Conclusion
If you’re a medical doctor in Ontario struggling with high unsecured debt, it is advisable to reach out to a Bankruptcy Canada Licensed Insolvency Trustee for a free consultation to understand the most efficient debt repayment solution suited to your finances.
While bankruptcy will not affect your ability to practice medicine, it might not be the most beneficial solution given the high income and surplus income rules. A consumer proposal, in contrast, can provide a more manageable and financially feasible strategy to eliminate your debts.