Separation and divorce are common reasons for experiencing financial difficulties. Many couples struggle to meet their credit obligations with a dual income. Once a separation occurs and there is a need to maintain two households, individuals find that they can no longer afford to pay the debt they are carrying. For one of the parties, there is normally an obligation to make monthly child or spousal support payments.
Filing for bankruptcy or filing a consumer proposal will not get rid of any obligations to pay support of any kind. This means that once you are finished with your bankruptcy, you are still responsible for paying any money owed for child support or alimony, and interest continues to accrue during the entire period of your bankruptcy. It is a good idea to continue your payments throughout the bankruptcy process.
If you do not maintain your payments during the bankruptcy process, the Family Responsibility Office can take legal action, including garnisheeing your wages. The Bankruptcy Act cannot protect you from legal action from the Family Responsibility Office.
When you meet with your Trustee to consider bankruptcy or consider filing a consumer proposal, one of the first things that are reviewed is the household budget. Having an obligation to pay child support or alimony is considered to be a non-discretionary expense. When calculating your required payment, or when designing a consumer proposal, this expense is taken into consideration as a reduction to your net income. This will ensure that the monthly payment offered in a consumer proposal, for example, will fit your budget even with the child support obligation.
In a bankruptcy scenario where the bankrupt is the recipient of child or spousal support, the Trustee must take these payments into consideration. Support payments are considered to be another form of income and are used to calculate the household income when looking at the family budget.
It is important that you declare the support payments you are receiving or paying to your Trustee for the duration of your bankruptcy. You will also be asked to provide a copy of the separation agreement, and proof of payment on a regular basis. The Trustee has no ability to alter the amount of these payments as those payments are legislated under the Family Law Act. However, if you are voluntarily making payments in excess of the amount required, the Trustee may take steps to review the reasonableness of your arrangement.
No matter whether you are paying or receiving support, it is important that you disclose the situation to your Trustee so that they can provide you with the best advice for your situation.
