Navigating Through Bankruptcy while on Long-Term Disability
Canadians suffering from ongoing health issues often find it challenging to maintain a steady income, leading to financial stress and debt accumulation. This article explores the question: “Can I File for Bankruptcy While on Long-Term Disability?” We’ll delve into what happens if you don’t repay your debts, the implications of filing for bankruptcy, and how a Licensed Insolvency Trustee (LIT) can assist you.
Understanding Debt: Secured vs Unsecured
Understanding the nature of your debt is the first step towards managing it. Debts are classified into two categories: secured and unsecured.
Secured debts are linked to some form of collateral, like your house or vehicle. If you fail to repay the debt, the creditor can seize the collateral.
On the other hand, unsecured debts like credit card bills or some personal loans are not tied to any collateral. Creditors may resort to legal action to recover their dues, including garnishing your wages.
Impact on Unsecured Debt if You’re Not Earning
Fortunately, if you’re not working due to long-term disability, your creditors cannot garnish your wages. Similarly, if your income is solely from a support program like the Ontario Disability Support Program (ODSP), it cannot be garnished by creditors. However, this doesn’t mean that the debt disappears.
Many Canadians on long-term disability seek help to handle their growing debt. They aim to stop the constant collection calls and prevent further debt accumulation. This often leads them to consider bankruptcy.
Bankruptcy: A Viable Option?
Bankruptcy can be a beneficial debt relief tool for those unable to repay their debts. It offers legal protection from creditors, halting all actions to recover the debt. This means no more distressing collection calls or letters, giving you room to breathe and regain control of your finances.
Nonetheless, bankruptcy comes with its own set of considerations:
- Assets you own may be seized to repay your debts, subject to provincial bankruptcy laws.
- During the bankruptcy period (minimum of 9 months), you’ll have to make a monthly contribution towards debt repayment.
- You might lose tax returns and sales tax credits, including your Disability Tax Credit.
- Any financial windfall post-bankruptcy, like inheritance or lottery winnings, will be used to repay your creditors.
Impact on Registered Disability Savings Plans (RDSPs)
RDSPs aim to provide long-term financial support for Canadians with disabilities. However, the Bankruptcy and Insolvency Act (BIA) doesn’t directly address what happens to RDSPs if the beneficiary files for bankruptcy.
A recent BC Supreme Court ruling prevented an LIT from seizing an RDSP’s funds to benefit creditors. However, this doesn’t exempt all RDSPs from seizure, and future cases will depend on the court’s discretion.
Effect on Future Disability Benefits
Filing for bankruptcy does not impact your eligibility for future disability benefits. Your eligibility for disability benefits is independent of your bankruptcy status.
Seeking Assistance from a Licensed Insolvency Trustee
If you’re on long-term disability and struggling with your finances, reaching out to a Licensed Insolvency Trustee (LIT) can be beneficial. Here’s how an LIT can assist you:
Learn to Manage Finances
For individuals on long-term disability, understanding how to budget and manage finances is crucial. An LIT can guide you on how to make the most of your disability benefits to sustain during the period you’re unable to work.
Debt Counseling
An LIT can provide you with a range of debt relief options, from budgeting to bankruptcy. They are equipped with the necessary education, credentials, and experience to advise you effectively.
Help with Filing for Bankruptcy
If you decide to file for bankruptcy, you’ll need the assistance of an LIT. They’re the only debt professionals approved by the Canadian government to assist debtors with insolvency.
Filing for bankruptcy while on long-term disability is possible. If your debt exceeds $1,000 and you’re unable to repay it, you might be eligible for bankruptcy.
