Bankruptcy is a legal status for individuals or businesses unable to repay their outstanding debts. However, certain obligations, such as family support orders, hold a unique position in bankruptcy law. This article will explore the treatment of family support orders under bankruptcy, shedding light on the intricacies of this topic.
The Pertinence of Family Support Orders
Marital dissolution and separation often lead to significant financial disruption. It necessitates the implementation of support orders, which play a crucial role in maintaining the financial stability of those affected, particularly children and ex-spouses. The treatment of family support orders under bankruptcy often raises questions and concerns.
Types of Family Support Orders
Family law typically identifies three distinct forms of support orders:
- Child support: Primarily benefits the children of the marriage.
- Spousal support: Aids the ex-spouse of the marriage.
- Extraordinary expenses for the children: Covers special needs items, daycare and camp costs, extra-curricular lessons, and other requirements such as prescription glasses and medications.
Bankruptcy and Insolvency Act (BIA) on Family Support Orders
The Bankruptcy and Insolvency Act (BIA) has explicit provisions about the treatment of family support orders under bankruptcy. Here are the key points:
- The BIA does not extinguish support obligations with a bankrupt’s discharge from other debts, as stated in S.178 of the BIA.
- Some support arrears are provable in bankruptcy, similar to regular unsecured creditors, giving the support creditors entitlement to a dividend, if available (S.121(4)).
- Support enforcement is not halted by the bankruptcy, except against any property that vests in the Trustee (S.69.41).
- Certain support arrears are entitled to a preference, paid ahead of all other unsecured creditors, but behind other specified claims.
Enforcement of Family Support Orders
When a support-paying spouse files for bankruptcy, the spouse receiving the support payment has certain options for enforcement. The enforcement of these payments often involves The Family Responsibility Office (FRO), a body mandated to facilitate the collection of support payments.
Family Responsibility Office (FRO) and Its Role
The FRO operates under the Family Responsibility and Support Arrears Enforcement Act. It has various mechanisms to enforce the collection of support payments, which are:
- Enforcing support orders and support deduction orders at no cost to the support recipient.
- Accessing information from all provincial databases, and certain federal databases, concerning the payer’s place of employment, address, or location.
- Enabling a foreign support creditor to garnishee moneys owed to the payer.
- Selling the property as though it were a sale under a mortgage.
- Suspending the payer’s driver’s license if the payer continues to default under the support orders.
- Permitting garnishment against the Crown, including the Canada Revenue Agency (CRA), where moneys are owing to the payer.
Alternative Solutions for Support Payment Recipients
Support payment recipients have other options as well. Under S136. (1) (d.1) of the Bankruptcy and Insolvency Act, a claim for spousal or child support is considered a preferred claim. In this case, any preferred claim will have a higher ranking than a spouse’s equalization claim or any other unsecured claims.
Understanding Your Rights and Obligations
Bankruptcy is a complex field, and it’s vital to understand your rights and obligations under the BIA. Whether you’re a parent who must pay child and spousal support or the recipient of such support, comprehending the ins and outs of the treatment of family support orders under bankruptcy is crucial.
Professional Consultation
For an in-depth understanding of your obligations and support orders under bankruptcy, consider setting up a free consultation with a licensed professional. They can assess your debts, assets, and obligations and explain your rights and your obligations under the BIA clearly.
Conclusion
The treatment of family support orders under bankruptcy can seem daunting and complex. However, with the right guidance and understanding, one can navigate through it effectively. It’s always advisable to consult a professional who can help you understand your rights and obligations.
