At LCTaylor Licensed Insolvency Trustee, we frequently receive calls and emails from people who have had their life impacted by injury, illness or disability. There can be a link between debt and disability.
It’s an unfortunate fact that medical and health problems are one of the leading causes of financial difficulties in Canada, and it’s not difficult to see why. Many health issues restrict the type of work that you can do, which consequently hurts your ability to earn an income. In some cases, you may not be able to work at all.
These same issues that reduce your ability to work can result in higher expenses and costs for things like mobility aids, medication and dietary requirements. Even if you are lucky enough to have disability insurance that provides a payment to you when you suffer the partial or perhaps full loss of your income, the insurance often only provides a certain percentage of the lost income and/or it only replaces your income for a fixed period of time.
This means that at some point, if you become mentally or physically disabled, you could be facing a reduction in your income and may find it hard to cover your monthly expenses without having to resort to debt, even if those expenses were easily manageable before you became disabled.
Disability Assistance And Debt
Another situation we see is where a person has had a medical disability for their entire life and has never been able to be fully employed. In these cases, they have learned to live on the modest disability payments provided by the provincial and/or federal governments. This is getting harder and harder to do as the cost of living increases and the disability assistance provided doesn’t necessarily keep pace. As a result, debt is used to cover the shortfall and make ends meet.
Whether this debt is manageable depends on your circumstances, including your expenses, your medical needs, and whether or not you are able to return to work, and in what capacity. If you are able to keep a tight budget and your abilities return quickly, you might be able to quickly pay off the debt borrowed, perhaps with the help of disability tax credits or other income tax deductions and credits that make up a component of persons with disabilities (PWD) benefits in Canada.
When Your Debt Becomes Unmanageable
However, if the debt becomes more than you can repay, you may need to consider your options. When it comes to what to do about debt, we recommend that you schedule a free consultation with a Licensed Insolvency Trustee, such as those of us at LCTaylor.
During a no-obligation meeting with us, an experienced professional will consider your unique situation and take into account all of the relevant factors, including any disability income, benefits or support that you receive. This meeting can be done on the telephone, over videoconferencing, or in our large and modern office space that is easily accessible to most people with physical disabilities and/or using mobility aids.
How Does A Consumer Proposal Work For Someone On Disability?
One of the options that will be discussed with you is a Consumer Proposal. A Consumer Proposal for someone on disability is the same as it is for anyone else. In a Consumer Proposal, you retain ownership of your assets and receipt of your income. Your debt is settled through the acceptance and payment of a proposal that you make to your creditors, through your Licensed Insolvency Trustee.
Proposals are usually funded by your income, but in special situations, can be funded by a lump sum payment. The creditors consider your circumstances and make a decision as to whether or not your proposal is acceptable. The advantage of offering a Consumer Proposal is that the payments are intended to be an amount that you can afford, rather than a number based on the amount of money that you owe and the interest rate of the debt.
This can be of great benefit if you have a fixed and reliable source of income, such as a disability benefit or insurance payment, but the income simply isn’t enough to keep up with your debts.
How Does Bankruptcy Work For Someone On Disability?
Another option for dealing with your debt is filing a Bankruptcy. This is a solution for those who require all or nearly all of their monthly income to live month-to-month and do not have the ability to offer their creditors a regular monthly payment as a settlement. In a Bankruptcy there are sometimes assets that are sold by the Trustee to recoup money for the creditors, but many assets are exempt from seizure under federal and provincial law. These exemptions protect one’s assets, and apply to many things that are relevant to people with disabilities.
Registered Disability Savings Plans (RDSPs) are exempt from seizure under the Bankruptcy and Insolvency Act, with the exception of contributions that have been made in the 12 months prior to the bankruptcy being filed. This means that regardless of how much money you have in your RDSP, you will get to keep all but the amount which you deposited into it within the last year.
There is also an exemption for health and mobility aids, which means that you do not have to worry about losing your wheelchair, mobility scooter or other expensive assets that are reasonably necessary for your health or mobility if you have to file a bankruptcy.
There will be some payments required during the course of the Bankruptcy, which are based on your income in comparison to the “Standards” established by the Canadian government. These Standards calculate the amount of income needed by families of various sizes. Most disability benefit payments that we see are within the exempt amount. In many cases the length of a first time Bankruptcy is nine months, so the payments would be limited to that period of time.
Getting The Help You Need
Of course, these are just brief overviews of two of the options that might be available to you after consulting with an LCTaylor Licensed Insolvency Trustee. For more information on how to best deal with debt resulting from a disability, please contact us for a free, no-obligation initial consultation.