What are the rules surrounding child support and bankruptcy in Canada?
Specifically, what happens if you are paying child support and you choose to go bankrupt?
Some people assume that these support payments are wiped out during bankruptcy, but that’s not the case.
Allow us to explain exactly what happens and what you can do in this situation.
Can child support payments be deferred, suspended, or reduced through bankruptcy?
No, you will still have to make all of your child support payments at the same time as you usually would.
It’s easy to argue that support payments are technically a form of unsecured debt as you owe money to someone.
However, the courts don’t define it as such, or at least they don’t treat it the same way as other unsecured debts.
Section 178 (1) of the Bankruptcy and Insolvency Act clearly states that any child support payments will not be released by order of discharge.
Effectively, it doesn’t matter how far behind on payments you are, you will still have to find a way to pay child support.
This is a key thing to know for both people paying child support and anyone who receives it.
Can bankruptcy help you pay child support?
Yes, bankruptcy can help you keep up with your child support payments.
It won’t reduce them or defer them, but it does get rid of your unsecured debts.
That means you can be absolved of thousands of dollars in credit card and payday loan debts.
As you can imagine, not having to make these repayments every month is a huge relief for your finances.
You will still have to make some payments during bankruptcy, but you also receive counselling and guidance on how to budget accordingly.
Therefore, by removing your unsecured debts, you free up space in your budget to maintain regular child support payments.
What happens if I’m receiving child support payments?
In this scenario, you will still get your money as it is illegal for your former spouse to withhold the money.
However, you could also become a preferred creditor, which basically gives you priority over other creditors.
In essence, when your former spouse makes payments or sells assets to raise funds, you will receive your cut before everyone else.
It’s not essential to do this, but it can be helpful if you depend on the child support payments.
To sort this out, you need to speak to the Licensed Insolvency Trustee that’s handling the bankruptcy.
In summary, child support isn’t impacted by bankruptcy as you still have to make regular payments.
However, filing for bankruptcy can be a great way to free up some funds and ensure you can make child support payments as regularly as required.
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