Whether you are insolvent and attempting to strike a deal with your creditors or you are a creditor carefully anticipating your debtor’s next move, a bankruptcy is always a game changer. That reality becomes apparent in circumstances where an insolvent debtor is awarded damages for personal injury.
Certain heads of damages are exempt from seizure by creditors in bankruptcy. These include general damages for pain and suffering, future necessary medical care, and future attendant care. On the other hand, a creditor can proceed to seize special damages or lost income, damages for future necessary medical care and future attendant care. General damages for pain and suffering remain exempt from seizure by creditors both outside of and within bankruptcy.
|Exempt from creditors?||Outside of Bankruptcy/|
Special Damages/Lost Income
No (will be included in the calculation of surplus income payments)
General Damages (pain and suffering)
Future necessary medical care
Future attendant care
A head of damage will either fall under s.67 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA) as property of the bankrupt or under s.68 of the BIA as part of total income used to calculate the bankrupt’s surplus income payments to their creditors. Under the Superintendent’s Directive No. 11R2-2016 section 5(3)(d), the Trustee is to exclude “expenses associated with a medical condition” from his total income calculation. Future necessary medical care fits squarely in that definition and therefore does not count as income, i.e., is exempt from seizure by creditors.
The Execution Act, R.S.O. 1990, c. E.24 lists certain items in section 2 that are exempt from seizure by creditors outside of bankruptcy, such as household items and clothing up to a regulated amount. The courts have held that general damages received
on account of pain and suffering are exempt from garnishment by judgment creditors.
Within the context of bankruptcy, the courts have affirmed that damages allocated to future care and housekeeping are intended to alleviate the victim’s injured state. It is, therefore, appropriate to treat them in the same manner as damages for pain and suffering.
If you are insolvent and contemplating bankruptcy, but received damages for personal injury, we recommend you consult a licensed insolvency trustee who can prepare a quantifiable analysis showing the amounts available to creditors under a bankruptcy versus a proposal. If you are a creditor, we recommend you speak with an insolvency lawyer to determine your best option for maximizing recovery.