One of the reasons consumers find themselves in financial distress is high medical bills – especially when combined with loss of employment income due to illness. Eventually, this situation can lead to unpaid accounts, insolvency, and pressure from creditors.
Can you file for bankruptcy in Canada due to high medical bills? The answer is a qualified yes: if your situation causes you to become insolvent, you may file for bankruptcy to clear all your unsecured debts, including hospital and other medical bills. Insolvency means that you are unable to pay all your bills on time due to lack of funds, and your assets are worth less than the total of your debts.
A Common Situation: Missed Work + Medical Expenses
It is very common for the burden of medical expenses to be combined with loss of income due to absence from work. This can happen if you are ill yourself and can’t do your job, or can also occur if you are missing work to care for an ailing loved one.
This type of situation – overwhelming debt due to illness – is even more prevalent in the USA where most health care services are billed to consumers. However, it can also happen to Canadians. Government health care plans in Canadian provinces typically cover doctor visits and hospitalizations, but often do not cover drugs, assistive devices, dentistry, vision care and many types of therapy. It is certainly possible to be “snowed under” with medical bills in Canada.
You may miss work because of your own illness – and even if you are eligible for disability leave, you may receive only a portion of your former wages. Or, you may miss work because you are tending to a loved one with medical issues – driving them to appointments or visiting them at home. This loss of work hours can insidiously chip away at your monthly income, causing you to rely on credit and increasing your debt load and monthly bills.
One of the worst aspects of financial issues is how embarrassed we are by them. This often causes a painful delay in seeking help to resolve the situation. Many people spend months – or sometimes years – making increasing efforts to avoid debt collectors and struggling to make ends meet, as their financial situation deteriorates.
This is not a scenario you want when dealing with your own or a loved one’s illness and recovery.
Early signs of an impending debt crisis
Like most problems, debt issues often start out small and then grow. You may find that although you make a few late payments one month, the next month is better and you get your accounts back up to date. This happens to many consumers occasionally and is not a reason for great alarm. However, you may not notice when the “bad months” start to outnumber the good ones.
Here are some things to watch for:
Over the last six months, your debts have risen significantly
You have credit cards that sit at their credit limit (maxed out accounts)
You routinely pay one credit account out of another one (“borrow from Peter to pay Paul”)
You open new credit accounts to cover your payments
You find yourself using credit cards to purchaseessentials such as food, or to pay your mortgage/rent
While many of us develop the habit of using credit cards for just about everything so that we can accumulate points in loyalty programs, this benefits us only if we pay the credit card balances promptly. If you’re not able to do this, it’s a danger sign.
Your Options if You Can’t Pay Your Medical Bills
Bankruptcy may not be your only option if you have credit accounts or bills that you simply cannot pay. There are several factors to consider:
Is your medical situation likely to be temporary, or is it permanent/chronic?
Do you have assets you could sell in order to get ahead of your bills?
Have you lost your job due to your medical situation, and would it be possible to find/be reassigned to work that would better align with your needs?
Would it be possible to decrease your monthly expenses by downsizing your residence?
Would it be possible to decrease your monthly expenses with better budgeting?
The answers to these questions are important in determining the best course for getting your finances back on track. Attending a free, confidential first appointment with a Licensed Insolvency Trustee is the quickest and easiest way to learn what your options may be.
Consumer proposal – an alternative to bankruptcy
It’s a little-known fact that more consumer proposals are filed every year in Canada than personal bankruptcies. Yet, many don’t know how a consumer proposal works, or how it can help them.
Just like a bankruptcy, a consumer proposal will clear your unsecured debts and give you a new financial start. Also, like a bankruptcy, a Licensed Insolvency Trustee must prepare and file the paperwork for you, and help you through the process.
Another benefit of a consumer proposal is the same protection from creditors as you would receive in bankruptcy (they can’t contact you, harass you or sue you).
Unlike bankruptcies, which tend to be quicker, most consumer proposals last five years, during which you make manageable monthly payments towards your debts. When you complete the agreed-upon payment schedule, you will receive a Certificate of Full Performance, and your unsecured debts will be cleared.
With a consumer proposal, you do not “go bankrupt” and you remain in control of your financial life. A consumer proposal is an option that works best for those with a regular income, even if that income is small.