Has Your Ex-Spouse Filed for Bankruptcy? Litigation Lawyers Can Help

Litigation lawyers in Ontario

There are often complications associated with filing bankruptcy and family law in Canada. This blog aims to provide a comprehensive overview of the country’s various aspects of bankruptcy and divorce.

In a bankruptcy, the spouse who is owed support payments can file a claim to receive their share of the dividend that the estate has paid. Support arrears dating back 12 months are considered preferred claims in the bankruptcy. This means they will be paid out in full (minus a 5% superintendent’s levy) before the remaining unsecured creditors receive payment. Any Support arrears are also a debt that survives bankruptcy, so that any arrears that are not paid through the bankruptcy, can be enforced after the Bankrupt spouse is discharged from bankruptcy The remaining balance is left unpaid by the paying spouse.

When it comes to debts accumulated under a separation or divorce agreement, these are treated like other unsecured debts and can be eliminated through bankruptcy.  One important exception is an equalization claim against creditor exempt assets such as a pension or RRSP savings.   As these assets are not available to the Bankrupt’s creditors, you can go to court and obtain an order to continue your equalization claim against these assets. The order, however, must be obtained prior to your spouse’s discharge from bankruptcy. If you miss this deadline,  your equalization claim will be eliminated along with all your spouse’s other unsecured debts.

Do Support Payments Affect Surplus Income?

To determine surplus income, support and alimony payments are generally deductible. This reduces the amount of your spouse’s income for the purposes of calculating th surplus income they must pay into their bankruptcy estate.

Filing for Bankruptcy During Divorce

If your ex-spouse decides to file for bankruptcy before the divorce is finalized, assets that might have been available as part of a divorce settlement my be taken by your spouse’s creditors.  If you spouse files for bankruptcy after a divorce settlement is concluded, the assets transferred and payments made to you will likely be secure. However, a sparation agreement made shortly before bankruptcy is subject to review by your spouse’s creditors and bankruptcy trustee.

Understanding Bankruptcy Law Within the Context of Divorce

Litigation lawyer during divorce proceedings

As a joint tenant, you have the right to your share of the home’s equity. However, you have no guarantee that you will be able to stay in the house. You will have to work with the trustee to purchase your husband’s interest.

If you fail to settle the purchase of your husband’s interest in the property, the trustee can take the necessary steps to force the sale of the home. There are few defences to trustee’s sale of the home.  In some limited and specific circumstances, the court may consider an undue hardship argument based on the following factors:

  • Children have special needs which can only be accommodated in the community
  • You need proximity to work or children need proximity to school; and
  • You cannot afford to rent alternate, suitable property in the area.

Undue hardship relief is not widely available and generally only available in special and unique circumstances.  If your spouse has declared bankruptcy you should consult a bankruptcy lawyer to negotiate your purchase of their equity as there are various set off claims you can make to reduce the amount payable to the bankrupt estate.

What Happens to Joint Debts After Bankruptcy?

A separation or divorce agreement cannot eliminate joint debts that both parties accumulated. Even if the terms of the settlement state that these debts will be considered separate after the divorce, they will still be considered joint obligations. If one of the partners files for bankruptcy, their creditors can still pursue their ex-spouse to pay these debts.

To eliminate joint debt, the lender must agree to remove one of the partners from any credit card or co-signed debts.

Nanda & Associate Lawyers – Experienced Litigation Lawyers in Toronto

At Nanda & Associate Lawyers, our experienced lawyers in Toronto take the time to understand your situation and provide you with the best possible resolutions to any disputes.

You can get in touch with our divorce and litigation lawyers in Toronto for a no-cost consultation. We provide our clients with high-quality legal services and personalized attention. We aim to deliver effective results through prompt communication.

Click here to book an appointment with us, and we’ll be able to help with everything from family litigation to helping you find contested divorce lawyers near you.

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