Family support arrears
You cannot go bankrupt on family support payments – but if you do owe support arrears for either alimony or child support the claimant (spouse or child) may claim the arrears for the year before the date of bankruptcy, plus any lump sum amount payable, as a priority over most other creditors.
Confused? Section 136 of the Bankruptcy & Insolvency Act sets out a priority of payment from funds received in either a bankruptcy or proposal.
The first creditor, in priority sequence, to be paid would be the funeral expenses of a deceased bankrupt. In other words, if a relative were to die owing a lot of money but with some money in their estate their estate could be assigned into bankruptcy by their executors. The funeral expenses would be the first charge on any money the trustee receives.
The next in line would be the trustee for its fees and expenses, then the Superintendent of Bankruptcy for a levy payable (which is like a tax paid to the government on the amounts of money distributed by the trustee). If the bankrupt were an employer certain wages and other compensation would be next then amounts owed to a secured creditor that were not subject to pension provisions.
After those creditors have received the amounts prescribed by the Act support payments would be paid before other creditors – such as credit cards, loans, lines of credit and so forth.
In simpler terms – if you go bankrupt or file a proposal and you owe support arrears, your ex-spouse or children may be entitled to be paid at least some of the money owed to them before your other creditors are entitled to a share. For more information call the office to arrange your free consultation.
If you do have family support arrears you may be able to apply to court for a variance order to change the amounts owing but you really need to speak with a good family lawyer for proper advice and guidance. We can provide you with some good contacts in that area of law.