Bankruptcy & Retroactive Disability Pension Payment

I am planning on declaring bankruptcy within the next week or so. I haven’t been able to work for the past 4 years due to health reasons. I applied for CPP disability benefits in July 2005 while in the midst of divorce.

I was initially declined and have applied for a reconsideration because the decision sited was based on false information. I do not expect to hear the next decision for up to another 6 months and even then, my case may have to go to tribunal. It could be anywhere from 3 – 9 months (and longer if it goes to tribunal)I figure before I finally receive a final decision based on whether I am accepted after the reconsideration for a disability pension.

My question is this in regards to bankruptcy:

If I find out I do in fact qualify for disability benefits during my discharge period and I receive a retroactive amount, what happens with it since it is a “pension” amount? Would I have to give over the entire amount to the trustee? My only source of income is spousal support. What if I receive a retroactive amount after the 9 month discharge period?

I appreciate your quick reply! Thank you.

One Response to “Bankruptcy & Retroactive Disability Pension Payment”

A licensed trustee said...

A couple of different things may happen, depending on when you become aware that you are eligible for the retro-active payment and when you actually receive it.

Before you file your assignment in bankruptcy you should discuss with your trustee the fact that you have applied for a government benefit. In that way your trustee can discuss with you exactly how they intend to handle any retro-active money you may receive.

Your trustee can chose to do one of three different things:

1) They can ignore the issue and only decide to deal with it if you receive notice that you are entitled to the benefit during the period of your bankruptcy. If you don’t receive notice that you are eligible during the period that you are bankrupt then arguably there is nothing for the trustee to decide;

2) Treat the retro-active benefit as a “windfall” (think of it as found money). The argument in favour of this position is that you incurred some of your debts during the period that the retro-active benefit relates to. If you had received the benefit at the time you incurred the debt you may have either repaid some of the debt or used less credit. Either way, the retro benefit relates to the period before you filed bankruptcy and therefore the trustee has the right to seize the entire amount for your creditors;

3) Your trustee can treat the retro-active benefit as “income” in the month that you receive it and apply the surplus income rules to the money to determine how much of it you are required to surrender to your creditors. This option is based on the concept that you only just received the money and therefore it should be treated the same way that all of your other forms of monthly income are treated.

Again, I suggest you have this conversation with your trustee before you file your assignment – that way there won’t be any unpleasant surprises or disagreements during your bankruptcy.

To find a trustee in your area use the links at the side of the page. Good luck sorting out your financial difficulties.