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Relationship breakdown is one of the top contributors to financial hardship. So, it's not surprising I'm commonly asked what happens to alimony or child support payments in the event my clients file for bankruptcy.
In short, it's likely nothing will change.
While this process will typically provide protection from unsecured creditors, such as credit card companies and personal loans providers, it will likely not have any impact on an individual's requirement to make court mandated payments or payments pursuant to a separation or divorce agreement.
Of course, in insolvency situations and in break-ups the particulars are rarely so black and white. If you've found yourself in a similar circumstance, there are a few things you will want to be aware of.
If you are behind on your alimony or child support payments, it is advisable to consult with a Licensed Insolvency Trustee in your province as soon as possible. Because family law is provincially administered, different jurisdictions may approach your requirements to make back payments differently.
In Saskatchewan where I practice, for example, Maintenance Enforcement will sometimes stop collecting arrears during the bankruptcy process – provided your back payments are not determined to be intentional or negligent. However, you will still be required to continue making your regular alimony or child support payments.
However, this debt will not simply go away. Once the bankruptcy is discharged, you will then be required to resume catching up with the missed payments.
Priority to the Recipient
If you are the party who is owed child support or alimony, you will be relieved to learn that you will generally be deemed a preferred creditor. Generally, for any arrears owed in the year prior to the bankruptcy being filed, any proceeds from liquidated assets and contributions to the bankruptcy will go to you first before the remaining creditors receive their share.
Property settlement amounts payable from one spouse to another are distinct from alimony and child support payments, and are treated differently. With that said, Family Courts have a wide mandate to use discretion in these cases. While these will generally be included as a debt in the bankruptcy and extinguished as part of the process – I have also seen instances where orders have been made to deal with property settlements following the conclusion of the bankruptcy process.
Seek Professional Advice
As you can see, relationship breakdown is one of the most complicated areas of personal insolvency. If this is a challenge you are dealing with, a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, they can review the details of your unique situation – including your legal obligations within your province of residence – to determine which Life Changing Debt Solution might work best for you.
Based out of Regina,
Ian Schofield is a Licensed Insolvency Trustee and Senior Vice-President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 306.790.7904 or toll-free at 310.DEBT (310.3328).
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