Bankruptcy and Divorce in Vancouver and British Columbia
Separation and divorce are stressful periods in anyone’s life. They can be especially stressful emotionally and financially. Your chances of racking up debt, especially in the interim when there may be two households living on the same income, will be very high.
During separation, you are also paying legal fees, support for your children, etc. Separation can also reveal flaws or issues in spending that were present before, and which have now been aggravated. You may end up considering bankruptcy. Bankruptcy during separation and divorce is unfortunately a reality and very common.
If you are in that situation, there are a few things to keep in mind in terms of your family law case. Read on below:
Table of Contents
- 1 Does Bankruptcy Clear Divorce Debt in BC?
- 2 Does Bankruptcy Clear Joint Debts with My Spouse in BC?
- 3 Bankruptcy Prior to a Final Divorce Order
- 4 Bankruptcy after A Final Divorce Order
- 5 What Assets are Protected from Bankruptcy in BC?
- 6 If I go Bankrupt, can I reduce my child support obligations?
- 7 If my spouse goes bankrupt and I am left with debt, can I increase my spousal support?
Does Bankruptcy Clear Divorce Debt in BC?
Bankruptcy does not clear all debts. Some debts which are excluded are as follows:
- Child Support Arrears or “back child support”;
- Spousal support arrears or ‘back spousal support”;
- Damages owing for battery (sometimes referred to as “assault” in the criminal context);
- Court costs related to spousal support and child support which can sometimes include parenting time, if the outcome might affect the amount of support payable;
- Student loan debts;
- Interest on the above;
Does Bankruptcy Clear Joint Debts with My Spouse in BC?
Bankruptcy doesn’t clear joint debts. It may shift the joint debt to one person, the person who has not declared bankruptcy. This means that a person might be absolved of responsibility for various joint loans—mortgages, credit cards, etc., leaving the other person on the debt solely responsible.
If bankruptcy is declared prior to a final order on property by one spouse, the other spouse can ask the court for all of the family assets because now he/she is left with all the debts and the other spouse is walking free.
The recent case of C.K.M. v H.R.M, resolves any uncertainty and confirms that despite various possible objections, a court can order reapportionment of assets (meaning a split other than 50/50, possibly 100% in one’s favour) even after bankruptcy has been declared and a spouse’s interest in assets has been handed over to a bankruptcy trustee (called “vesting”).
In other words, you cannot walk off leaving your spouse with responsibility for 100% of the debt and no more than 50% of the property.
Bankruptcy Prior to a Final Divorce Order
In British Columbia, the right to a share in family property is a right in respect of the actual asset itself. For example, you and your ex have the right to equally split your family home (if it was purchased with monies accumulated during the relationship). But in a situation where you are left with all the debts, then it would make sense that you would ask for more on the assets, possibly 100% of the assets – i.e. the family home. This would bring fairness to the situation as you had no control over your spouse declaring bankruptcy and transferring the joint debts on you solely. Bankruptcy of a spouse is a factor a court can consider under section 95 of the BC Family Law Act when deciding whether to order that one person have more or less of the property.
Bankruptcy after A Final Divorce Order
If bankruptcy is declared after a court case and after a judgment has been entered, a person could be left with responsibility for the majority of the debts and only half the assets, given the inability to vary a property order. For example, if you had a joint credit card and the Court ordered you and your spouse to each pay for half, your spouse could declare bankruptcy prior to paying the debt and the bank would go after you for paying 100% of the debt. You’d be stuck in a situation like this because after a final Order, it is next to impossible to go back to court and change the order based on events that happened after it.
What Assets are Protected from Bankruptcy in BC?
The following assets (among others) are shielded from bankruptcy:
- RRSPs (except contributions made during the 12 months leading up to bankruptcy);
- Home equity of $12,000 in Vancouver/Victoria, $9,000 elsewhere;
- $4,000 worth of household items;
- Equity in a car of up to $5,000;
If I go Bankrupt, can I reduce my child support obligations?
In most cases, no. That is because bankruptcy actually eliminates debts and therefore the payor is in a better financial situation than previous to bankruptcy. Secondly, child and spousal support are calculated based on ongoing income. As long as you are employed, you need to pay support. That has little to do with bankruptcy.
If my spouse goes bankrupt and I am left with debt, can I increase my spousal support?
If your spouse declares bankruptcy and as a result you are left with much or all of your family debts, then yes you can apply to court either for spousal support or more spousal support in order to be able to pay such debts. Again, support is based on income not bankruptcy so the bankrupt may actually have to pay you more because he/she left you with more debts and is in a better situation because he/she has less debts than before.
To learn about how to obtain interim spousal support, click here.
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