Treatment of Family Support Orders Under Bankruptcy
Next to consumer proposals, bankruptcies are often seen as the best way to deal with severe levels of debt.
In this post, we’ll be taking a look at how support orders are treated under bankruptcy to give you a better understanding of the process.
Treatment of support payments during the bankruptcy
Under the Bankruptcy and Insolvency Act, spousal support is treated as follows:
- Support obligations are not extinguished by the bankrupt’s discharge. This includes cost orders that have been awarded in connection with obtaining or enforcing a support order, or the portion of a cost order that is related to support issues.
- Some support arrears are provable during bankruptcy, much like ordinary unsecured creditors. This entitles the support creditors to a dividend if applicable. Provable support arrears give the support claiming the ability to participate in the benefits of the bankruptcy. The holder of a provable support claim is considered a creditor under the BIA and can oppose the discharge.
- Unless it is against any property that vests in the trustee, support enforcement isn’t stayed by the bankruptcy. Property that is available for support enforcement during the bankruptcy includes exempt assets, wages, self-employed earnings, income tax refunds, RRSP’s, wrongful dismissal awards and severance pay. The only exception to this is if the trustee has obtained a court order that gives them priority over those items. A support claim can also be pursued against them during and after the bankruptcy.
- Some support arrears, such as lump sums and periodic arrears before the bankruptcy, are entitled to preference and are paid ahead of all other unsecured creditors but behind some claims.
How are support payments enforced?
If a spouse that is responsible for support files for bankruptcy, one option is to use The Family Responsibility Office.
The office can enforce the collection of support payments in a number of different ways.
This includes enabling the office to sell the property as if it was a sale under a mortgage, wage garnishment and suspending the payer’s driver’s license if they continue to default under the support orders.
Support orders are automatically filed with the Family Responsibility Office unless the support recipient has chosen to withdraw it.
The support deduction order is directed to an income source that pays money to the office that is owing to the payer.
In short, the payer must make payments to the Family Responsibility Office and not the recipient of the support.
If you’d like to learn more about obligations and support orders when claiming bankruptcy, don’t hesitate to get in touch with us today for a free no-obligation consultation.
Working with a trustee doesn’t cost you a penny and is an option available to everyone.
Simply call us today and we’d be happy to give you a helping hand in understanding these complexities.