Navigating the murky waters of bankruptcy and family law can be daunting. These two complex issues intersect, leaving families with unique challenges and tough decisions. But how does bankruptcy effect child support obligations, particularly spousal support, and legal expenses? In this blog post, we will delve into these critical questions and provide insights to empower you to make informed choices.
Key Takeaways
- Understand the distinction between bankruptcy and a consumer proposal, as well as implications of bankruptcy on family law issues such as child support payments.
- Child and spousal support obligations must be fully paid during the bankruptcy process or risk legal consequences.
- Bankruptcy Trustees manage assets to prioritize payment of child/spousal support, while exemptions & protections exist. Seek legal counsel for best results.
Bankruptcy Basics
Bankruptcy is a legal process that helps people who can’t pay their debts. People often turn to bankruptcy when they owe more money than they have. It’s important to understand the difference between bankruptcy and a consumer proposal. A consumer proposal is a step before bankruptcy where you make a plan to pay your creditors a portion of what you owe, and they forgive the rest.
In terms of family law, understanding child and spousal support is crucial when dealing with bankruptcy. Child support is money that one parent pays to the other to help support their child or children after a separation or divorce. The amount of child support is determined by factors like each parent’s income, where the child lives, and any extra costs for things like medical care and extracurricular activities. Parents must pay child support as ordered by the court to ensure their children are taken care of.
When you declare bankruptcy, a licensed insolvency trustee takes control of your assets and pays your creditors. If you owe an equalization payment (money owed to your ex-spouse), this is considered an unsecured debt. Unsecured debts are only paid after all secured debts are paid, and any remaining money is divided among the unsecured creditors.
However, bankruptcy affects your income and financial responsibilities, like child support or alimony payments. Bankruptcy doesn’t erase all debts and obligations, so you still have to pay child support and alimony even if you declare bankruptcy.
Child Support and Bankruptcy
Bankruptcy does not eliminate child support obligations. While it may help manage finances and make payments more manageable, arrears remain. The debtor must persistently pay their ongoing child support obligations completely and punctually. The Bankruptcy Court does not have the power to alter existing support orders, so the debtor is still required to pay support as ordered by the Family Law Court.
If a debtor chooses to declare bankruptcy, their former spouse may contact the trustee of the bankruptcy to become a preferred creditor. The responsibility of the bankruptcy trustee is to manage debts and guarantee that priority debts, such as child support orders and spousal support, are paid.
Significantly, filing for bankruptcy does not relieve the debtor of their child support arrears. Missed payments will still be owed, and the debtor may be subject to wage garnishment or even jail time if they fail to pay their child support obligations.
Bankruptcy aids the debtor in managing their other monthly bills and debts, hence simplifying the process of meeting their child support obligations. By prioritizing child support payments, the debtor can avoid further legal consequences and provide for their child’s needs.
Spousal Support and Bankruptcy
Spousal support, another significant financial obligation, is not discharged through bankruptcy. Just like child support, spousal support obligations must be paid in full, even if the debtor declares bankruptcy. The impact of bankruptcy on spousal support obligations can be considerable, affecting the debtor’s financial state. As with child support, the bankruptcy trustee is responsible for ensuring that spousal support payments are made, prioritizing these payments over other debts.
Importantly, pre-existing court orders or agreements concerning spousal support persist during the bankruptcy process. The debtor must continue to pay spousal support as ordered, and failure to do so may result in legal consequences.
In essence, bankruptcy does not release spousal support obligations, which must be fully paid. The debtor must prioritize these payments and work with their bankruptcy trustee to ensure they are made.
Role of Bankruptcy Trustee
The bankruptcy trustee’s key role is to:
- Manage the debtor’s assets
- Ensure the payment of priority debts like child and spousal support
- Allocate the individual’s income, aside from certain living expenses and support payments, to the creditors.
Support payments are classified as non-discretionary and are thus excluded from the creditors’ share. This means that the debtor’s child and spousal support payments take precedence over other debts, ensuring that the needs of the children and former spouse are met.
If the debtor declares bankruptcy, their former partner may contact the trustee to become a preferred creditor. This ensures that they receive their support payments before other unsecured creditors, such as credit card companies, receive any funds from the bankruptcy estate.
Exemptions and Protections
During bankruptcy, specific exemptions and protections exist for child and spousal support payments. Pre-existing court orders or agreements related to support payments are not affected by the bankruptcy process, ensuring that the needs of the children and former spouse are met.
Child and spousal support payments are classified as non-discretionary debts in the event of bankruptcy. As such, the amount owing for support is excluded from the creditors’ portion, prioritizing these payments over other debts.
These exemptions and protections help ensure that the debtor’s financial obligations to their children and former spouse are met during the bankruptcy process, minimizing the negative impact on their family’s well-being.
Seeking Legal Counsel
Obtaining professional counsel is pivotal when dealing with bankruptcy and family law matters. A qualified attorney can help ascertain if there is a way to arrange matters to result in the minimal amount of harm to the family.
Legal counsel can provide guidance on navigating the complexities of:
- Bankruptcy
- Child support
- Spousal support
- Legal expenses
They can help assess your financial situation, evaluate the potential consequences of bankruptcy on your family, and determine the best course of action to protect your family’s interests.
You can locate qualified bankruptcy lawyers in your area by searching online or procuring referrals from acquaintances or relatives. Seeking legal counsel is a crucial step in addressing the challenges that arise when bankruptcy and family law issues intersect.
Summary
In conclusion, bankruptcy and family law issues, such as child support, spousal support, and legal expenses, are complex and intertwined. Bankruptcy does not eliminate support obligations, and it is essential to prioritize these payments to minimize the impact on your family.
By understanding the bankruptcy process, the exemptions and protections in place, and seeking legal counsel, you can navigate these challenges with confidence, ensuring the well-being of your children and former spouse. With the right guidance and support, you can overcome these obstacles and build a brighter financial future for your family.
Frequently Asked Questions
What happens to child support if you claim bankruptcy?
When filing for bankruptcy, child support and alimony payments cannot be eliminated. However, a consumer proposal or bankruptcy can reduce debt payments to free up more money to put towards such payments.
Can child support arrears be forgiven in Ontario?
Child support arrears can be forgiven in Ontario if the parent can prove financial hardship. Such proof requires reliable documentation demonstrating the inability to pay the arrears.
How do I get out of child support in Canada?
To discontinue enforcement of ongoing child support in Canada, an Application to Discontinue Enforcement of Ongoing Support must be completed and agreed to by your partner. If they do not respond, the FRO may choose to stop or reduce payments.
Do court orders survive bankruptcy?
Court orders may survive bankruptcy, depending on the nature of the pleadings in the lawsuit which gave rise to the judgment. However, court costs that are apportioned to support will usually survive a debtor’s bankruptcy.
What role does the bankruptcy trustee play in handling child and spousal support payments?
The bankruptcy trustee plays an essential role in ensuring priority debts, such as child and spousal support, are paid. They manage these debts and ensure payment is made.
