Debt and Disability
One of the most common reasons for experiencing financial difficulty from coast to coast in Canada is from health problems. One day you are doing fine and then, maybe all of a sudden, you cannot work anymore. What happens next?
Some people will be fortunate enough to have disability insurance or perhaps savings that they can rely on. Others will not be so fortunate and have to turn to BC Provincial persons with disabilities (PWD) benefits.
In either case, if you also have debt, you could be facing a problem. Let’s take a closer look at debt and disability.
Unmanageable debt can happen to anyone but when your income has been affected by a disability it can be even more difficult to handle. In this podcast, Derek Chase discusses disabilities and debt problems.
Disability Income and Insurance
There can be different sources of income to tap into if you can become disabled and cannot work such as:
- Short term disability from your employment
- Medical Employment Insurance
- Long term disability from your employment
- Private disability insurance
- Canada Pension Plan disability
- BC Provincial disability assistance ( PWD)
If you have recently become disabled, it would be good to review each of these possible income sources to determine whether you qualify and which would be the best for your situation.
Pro tip: Be careful not to draw disability payments from multiple different sources, unless you obtain written approval from each source, as that might not be allowed and could result in a large repayment requirement once it is discovered.
Another possible angle for relief is to review whether any of your debts – whether they be a mortgage, car loan, credit card, or installment loan, have an insurance component that will keep paying if you are unable to make the required minimum payments due to disability or health problems. In our experience, this type of disability insurance can be difficult to qualify for but it is worth the look. Especially since you have paid the premiums!
Income Tax
If you have become physically disabled, or suffer from some other type of medical disability, there are some income tax considerations that you should be aware of.
Sometimes, people are able to qualify for a disability tax credit which can be applied on your personal income tax return resulting in a larger income tax refund. If this applies to you and you have not done it yet, do not worry. You can apply to the Canada Revenue Agency for an adjustment to your prior years taxes by filing a T1 adjustment request.
In order that this is done properly, we would recommend that you discuss it with someone familiar with personal income tax filings such as a CPA or other experienced tax filer. You should not have to pay a lot of money or engage a consultant to make this request.
Before making the appointment with the tax specialist, you will need to acquire a form and have your doctor sign it. The form is called a T2201 disability tax credit form. We would recommend that you fill in as much as possible before bringing it to your doctor.
Another possible income tax break could be if you spent some money on trying to get healthy and have medical expenses or had to travel outside of your community in order to see a specialist. If these expenses amount to enough, they can also be an income tax deduction on your personal tax return.
Earnings While Receiving Disability Payments
While some forms of disability payments can be generous and enough to meet your needs, other forms are very modest and nearly impossible to cover your monthly living expenses.
If you are able to, sometimes it is possible to work part-time while you are receiving disability income. For people receiving BC persons with disability income there is an annual earnings exemption which will allow you to earn the equivalent of approximately $1,000 per month. When combined with the disability payment this could be enough to make your finances work.
Moving Forward
If your financial situation is already dire, becoming disabled may make it impossible to service your debts. The Federal Government has two programs to help a person re-organize their finances. Filing a Consumer Proposal has become the most popular way to consolidate unsecured debt in Canada. This has to be filed via a Licensed Insolvency Trustee (that’s us!)
As part of a Consumer Proposal, or a Bankruptcy filing, there are two mandatory financial counselling sessions. During these private sessions, we help people set up a budget and provide advice about handling their finances in the future.
Next Steps
Dealing with debt and finances is better done sooner rather than later. The longer you wait, the worse things will get.
If you are carrying a debt load and you are disabled please take advantage of our no-cost initial appointment so we can take a look at your options. We will take a look at your situation and provide some advice as to what to do next.
Filing a Consumer Proposal or a Bankruptcy in Canada is designed to provide the honest unfortunate protection from their debts and provide a fresh financial start. Contact us to set up your appointment today and we will take the time to answer all of your questions.
