What Happens To Support Or Alimony Payments In A Bankruptcy?

Understanding the Effects of Bankruptcy on Alimony and Support Payments

With the unfortunate rise in relationship terminations, it’s no surprise that financial strain often follows. A common query posed by individuals in such circumstances is the effect of bankruptcy on alimony or child support payments.

The General Rule

To provide a brief overview, the general rule implies that bankruptcy doesn’t usually alter an individual’s obligation to make court-ordered payments or payments as per a separation or divorce agreement. While bankruptcy might shield you from certain unsecured creditors like credit card firms or personal loan providers, it’s unlikely to impact your alimony or child support obligations.

However, the nitty-gritty of insolvency situations and relationship termination isn’t as straightforward. Here’s what you need to know in detail if you find yourself in this predicament.

Arrears

Should you be lagging on your alimony or child support payments, it’s highly recommended to engage with a Licensed Insolvency Trustee in your territory at the earliest. Family law administration varies across provinces, and hence, the approach towards your obligation to catch up with missed payments could differ.

For instance, in Saskatchewan, Maintenance Enforcement might halt the collection of arrears during bankruptcy proceedings, provided your missed payments aren’t intentional or negligent. Despite this, your current alimony or child support payments must continue.

Please note that this debt won’t disappear. Once your bankruptcy is discharged, you’ll have to resume making up for the missed payments.

Priority to the Receiver

As the party entitled to receive child support or alimony, you’ll be classed as a preferred creditor. Typically, any arrears owed in the year preceding the bankruptcy filing, any money from the sale of assets, and contributions to the bankruptcy will be directed towards you before other creditors get their share.

Property Settlements

Property settlement amounts that one spouse owes to the other are distinct from alimony and child support payments and are treated differently. While Family Courts have broad discretion in these cases, these amounts are usually included as a debt in the bankruptcy and wiped out as part of the process. However, there have been instances where orders have been issued to handle property settlements after the bankruptcy proceedings have concluded.

Professional Advice is Crucial

Relationship terminations are among the most complex areas of personal insolvency. If you’re grappling with this issue, a Licensed Insolvency Trustee can provide invaluable assistance. Through a free confidential consultation, they can evaluate your unique situation and your legal obligations within your province of residence, and identify the most suitable debt solution.

Effects of Bankruptcy on Support Payments

Given the complexity of the issue, let’s delve deeper into understanding the impact of bankruptcy on support payments.

Payments Continue

Even if you declare bankruptcy, your obligation to make current and future support payments continues. Bankruptcy does not absolve you from these payments.

Arrears are Non-Dischargeable

If you owe arrears on your support payments, these amounts are non-dischargeable, which means they won’t be wiped out when you declare bankruptcy.

Priority in Bankruptcy Distribution

Support payments are given priority over other unsecured debts in bankruptcy distribution. This means that the receiver of the support payments is more likely to receive the funds they are owed.

Possibility of Income Garnishment

Even after declaring bankruptcy, if you fail to make your support payments, your income could be garnished to ensure these payments are made.

Other Considerations

There are other important aspects to consider when it comes to the intersection of bankruptcy and support payments.

Impact on the Receiver

As the receiver of support payments, you should know that you have rights and protections when the other party declares bankruptcy.

Legal Assistance

Given the complexity of the issue, it’s always advisable to seek legal advice to ensure you are aware of your rights and obligations.

Conclusion

Bankruptcy and support payments are two complex areas that become even more complicated when they intersect. It’s crucial to understand your rights and obligations in such situations, and professional advice can be invaluable. Make sure to consult with a Licensed Insolvency Trustee or an attorney to understand how bankruptcy might impact your support payments.

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