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Bankruptcy and the CF Disability Pension, Disability Award and Danger Pay


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The two cases in Nova Scotia and a similar one in Manitoba(not yet published) are something that everyone on here should take note of and make sure it is widely known. If you have a disability pension, or a disability award, or are in receipt of danger pay and live in those two provinces they are exempt from the reach of the Trustee if you have to file for bankruptcy. This currently only applies to those two provinces because the Bankruptcy and Insolvency Act is a Federal act that is provincially administered. However other vets in other provinces if they find themselves in financial distress and need to file bankruptcy need to be able to use similar case law in order to protect their disability pensions and awards from seizure.

Here are excerpts from the published cases:

Smith (Re), 2009 NSSC 261 (CanLII) — 2009-09-01
Supreme Court of Nova Scotia — Nova Scotia

VAC Pension

[39]  Ms. Smith is the recipient of a disability pension benefit from Veterans Affairs Canada.  I must decide whether it should be included in the calculation of surplus income.  She receives this pension because she suffers from Post Traumatic Stress Disorder and other related disorders which are connected with her past services in the Canadian Armed Forces.  The payments are approximately $1,500 per month.  They are tax free.

[40]  It is well established law that any cause of action arising from bodily injury, mental suffering, or injury to reputation or character or the proceeds thereof is personal and does not vest in the trustee.
I quote  Houlden and Morawetz:  Bankruptcy and Insolvency Law of Canada, Fourth Edition, F§241, Page 4-176:
Where a cause of action arises from bodily injury or mental suffering or from injury to reputation or character, the cause of action belongs to the bankrupt and does not vest in the trustee.
It is not the policy of the law to convert into money for creditors the mental or physical anguish of the bankrupt.

Put another way the creditors are not entitled to benefit from that which a bankrupt receives to make whole her injured body, mind or reputation.

[41]  In Duffney, Re (2007), 2007 NBBR 142 (CanLII), 32 C.B.R. (5th) 72 (N.B. Q. B.).  Registrar Bray extended this principal to danger pay received by members of the Canadian Armed Forces serving in Afghanistan, which incidentally also is not taxable.
I quote from paragraph 7:

Those who in the course of their rehabilitation, however, render exemplary service to their nation should be allowed to keep the stipend offered in recognition of such efforts.

[42]  I would put it this way.  Risk allowance or danger pay is that paid to soldiers in addition to their regular stipend for taking on serious risks to their person.  These risks are personal to the soldiers and their families.  The creditors do not take the risks and therefore should not be allowed to share in benefits given for taking the risks.  The law does not require bankrupts to take risks to their person for the benefit of their creditors.

[43]  Ms. Smith is paid this pension because Veterans Affairs Canada recognizes that in the service of Canada she has been adversely affected in body and mind.  It gives this pension to do what money can do to make her whole.  I think it morally offensive that her creditors could take a portion of this pension away from her and in effect take something of her person.

Rose (Re), 2014 NSSC 292 (CanLII)
Registrar:                              Richard W. Cregan, Q.C.               

Heard:                                    May 15, 2014, in Halifax, Nova Scotia                   

Subject:                                Surplus income under the Bankruptcy and Insolvency Act.

Summary:                              The bankrupt received a substantial disability award under the Canadian Forces Members and Veterans Re-establishment and Compensation Act.  The Trustee claims that it should be considered as income under Section 68 of the Bankruptcy and Insolvency Act and that he should thus be required to pay half of it into his estate as surplus income.  The bankrupt submits that the disability award is not in the nature of income, but is an exempt capital asset in that it was awarded as compensation for injuries to his person during service in the Forces which were aggravated by that service.  Such is not income.

Result:                                    It was held that the award was not income and thus not to be factored into the calculation of surplus income.  However, to preserve the integrity of the bankruptcy system, he was required to pay the sum of $ 5,000 as a condition of his discharge.

This is information that is not widely known and several individuals across the country have lost pension benefits during the bankruptcy process. With the stress of bankruptcy and while dealing with the trustee, your own physical and mental injuries as well as family it can become and overwhelming moment in time. I hope that this may prove helpful to current and former members who may find them in this difficult situation.

Mods I have placed this in VAC but if you think it should be somewhere else please move it.


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Directing Staff
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prairefire said:
Mods I have placed this in VAC but if you think it should be somewhere else please move it.

This may also be relevant,

BANKRUPTCY and the soldier