Impact of Bankruptcy on Support Payments

A recent family law case  involving a husband that had filed for bankruptcy, illustrates how the Bankruptcy and Insolvency Act and the BC Family Law Act interact. It shows the impact of bankruptcy on support payments.

A BC couple (D.(S.L.) v. G. (S.A.)) that had been separated for two and a half years, had previously signed a separation agreement that provided for shared custody and the payment of child support. Since the time of the separation, the children began living with the mother full time. The father suffered some ill health and financial problems and made an assignment into bankruptcy. The mother made an application to vary the original support agreement to increase ongoing support and receive some retroactive support.

SOME Key Bankruptcy / Family Law Issues Considered

A number of issues were raised by the Family Law court application in view of the assignment into bankruptcy by the father:

  • Although a bankruptcy does create a stay of proceedings against the bankrupt, the Family Law court is still free to grant or vary support orders. Claims for child support will survive a bankruptcy and orders can be varied before, during or after a bankruptcy.
  • A variance of a support order can include retroactive support in spite of the intervening bankruptcy. The court found that leave of the bankruptcy court was not required to bring variation applications, regardless of whether they had a retroactive aspect.
  • A bankruptcy can have an impact on the ability to pay support. The court found that the father had a real prospect of obtaining a discharge from bankruptcy and would then be relieved of payments to the trustee and a significant debt. The court found that although the father would continue to face “some financial concerns and restraints” it considered that any hardship did not meet the threshold of being “exceptional, excessive or disproportionate”.

Bankruptcy Increased Father’s Ability to Pay Support

It is understandable that the bankrupt spouse would point to his bankruptcy as evidence that he was (or is) experiencing financial difficulties limiting his ability to pay support. However, depending on the circumstances, it can sometimes do the opposite. In this particular situation, the court viewed the bankruptcy for what it was, a net reduction in the father’s overall financial burden. This meant that upon his discharge from bankruptcy, he would be expected to have an improved ability to make support payments.

At G. Slocombe & Associates Inc., we see this situation play out many times when couples separate while carrying a large debt burden. The burden simply becomes too much once the separation occurs and two sets of living expenses are introduced. This causes one or both of the separating spouses to file a consumer proposal or bankruptcy in order to reduce the debt and continue to make ends meet.

If you are experiencing financial difficulties and are involved in a separation or divorce, call us for a free confidential consultation.