Bankruptcy and Separation Agreements: Legal Standpoints in BC

Legal Standpoints

Bankruptcy and Separation in British Columbia are two of the most difficult financial situations in a person’s life. They can devastate the person’s financial security, credit rating and peace of mind. This article will discuss the various legal aspects of bankruptcy and separation in British Columbia and provide available resources to help people in these situations.

Many people could be concerned about their financial situation following a divorce, frequently resulting in an unanticipated financial shock. Supporting two families simultaneously can be difficult, and this occasionally results in debt accumulation. 

In this period, bankruptcy is a possibility. It is essential to comprehend how divorce and bankruptcy work in British Columbia and why you need a divorce lawyer to help you through the process. 

Bankruptcy and Separation

Bankruptcy is a legal process to help individuals who cannot pay their debts. It allows a person to have their debts discharged or forgiven and offers a fresh start financially. 

The bankruptcy process involves applying with the Office of the Superintendent of Bankruptcy Canada, and a trustee will be appointed to administer the proceedings. Bankruptcy requires an individual to surrender all non-exempt assets to the trustee and pay their creditors over a certain period.

Separation is the process of legally ending a marriage or common-law relationship. It involves filing a court application, and if necessary, the court may order the division of the couple’s assets and debts. 

In British Columbia, both parties are responsible for their respective debts taken on before and during the relationship. Separation also involves determining child and spousal support payments, and the court may also order the payment of retroactive support.

It is important for people facing bankruptcy or separation in British Columbia to seek legal advice to protect their rights. Many resources are available to help individuals in these difficult situations, including the Office of the Superintendent of Bankruptcy Canada and the BC government’s Family Law website.

Not Every Bankruptcy Is a Clean Break

A Licensed Insolvency Trustee (LIT) meets with the debtor after they file for bankruptcy in British Columbia to evaluate their financial situation and discuss their choices. If filing for bankruptcy is the right course of action, the LIT deals with creditors on the bankrupt person’s behalf and sells their possessions. 

There will be an end to wage garnishments, unsecured creditor payments, and creditor lawsuits.

Hence, bankruptcy is typically viewed as a “clean break” for bankrupt debtors. Sadly, divorce or separation prevents a new beginning and makes filing for bankruptcy more difficult. Even after declaring bankruptcy, many obligations accumulated during a divorce must still be repaid. 

Unpaid student loans, unpaid child support or spousal support arrearages, unpaid student loan debts, unpaid spousal support arrearages, unpaid spousal support arrearages, and interest on any of the debts mentioned above are included in this list of debts. In addition, they cover unpaid battery damages.

Together in Bankruptcy

Many are happy to co-sign or sponsor their partners’ loan applications while they are still happily married, but we should proceed with this type of arrangement cautiously. In bankruptcy, joint obligations are not discharged. If a couple later divorces and the loan’s owner files for bankruptcy, the co-signer is responsible for paying back the full amount. 

Former spouses are entitled to their fair share of the equity in a home (or other pieces of property) that they jointly own. Selling the home to pay off the debt (or another asset) might be required. But, if the non-bankrupt party has the funds, they may replace their ex-equity partner’s share.


Even after declaring bankruptcy, a person who owes support must pay it through separation agreements. Child support and spousal support are calculated based on the payor’s income. If the payor spouse files for bankruptcy while still employed, they cannot argue that their support requirement should be decreased because neither their income nor their support obligation will change due to the bankruptcy.

Dreyer and Associates Family Lawyers is committed to preserving the best interests of families across the Fraser Valley and the Lower Mainland. We have diverse experience across family law, wills and estates, and residential conveyancing; however, family law remains our focus. Get a consultation today!





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