Bankruptcy: Birth of a Child

Debt Support with Kids

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Birth of a child can reduce bankruptcy surplus income obligations since family size adjustments kick in at birth. Canada Child Benefits stay safe while child credit ratings remain unaffected, even though parent support duties continue.

Impact of Pregnancy on Bankruptcy Proceedings

Pregnancy does not allow the unborn child to be claimed as a dependent; household size remains the same until birth., Surplus income calculations remain based on the existing family size until the baby is born., The moment of birth adjusts the family threshold, potentially impacting surplus income obligations.

An unborn child cannot be claimed as a dependent in a bankruptcy case in Canada, so your household size stays the same until the baby is born. That means surplus income calculations for bankruptcy use the current family size, not the expected one. Your trustee will work with the family size on file and the income in the early months to figure surplus income, and the birth date is the point when the family threshold changes. Use keywords: pregnancy and bankruptcy Canada, surplus income, dependent, family size, bankruptcy trustee.

For example, if a family of three files for bankruptcy and has a baby during the case, the trustee uses the three-person threshold up to the birth. If surplus income payments are set, they apply until the child is born; once the baby arrives the higher family threshold may cut those payments or stop them from that day forward. This can lower what you must pay each month, so tell your trustee the moment the child is born to update the surplus income calculation.

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Surplus Income and Canada Child Benefit Considerations

The decision regarding bankruptcy extension based on surplus income is made in the seventh month., Canada Child Benefit is protected and is neither seized nor included as part of the bankruptcy estate., Upon birth, adjustments in family size might eliminate surplus income requirements, affecting payments.

Surplus income plays a significant role in bankruptcy decisions in Canada, especially for families expecting a new child. When a couple is in bankruptcy, the decision on whether their bankruptcy extends from nine months to twenty-one months based on surplus income is made in the seventh month of their case. If during those six months the household income is over the surplus income threshold for a family of three by more than $200, it can lead to an extension. However, once the baby is born, the family size officially increases, which can either eliminate or reduce those surplus income payments going forward.

Another important consideration is the Canada Child Benefit (CCB). Fortunately, the CCB is completely protected from seizure during bankruptcy proceedings and isn’t counted as income or included in the bankruptcy estate. For example, if a family with one child receives $400 per month from the CCB, that amount is not taken into account during bankruptcy calculations. Additionally, if a new child is born, the financial dynamics change when the increased family size threshold is applied, possibly easing the financial burden for the family right when they need it most.

Implications for Existing Children and Legal Duties

Children’s credit ratings are not directly impacted by a parent’s bankruptcy., Parents retain legal responsibilities for child support regardless of bankruptcy., Indirect effects might arise from reporting household income and expenses but children’s creditworthiness remains unaffected.

When a parent files for bankruptcy in Canada, the good news is that their children’s credit ratings remain untouched. Essentially, a child’s ability to secure loans or open credit accounts isn’t affected by their parent’s financial troubles. For example, if a father goes through bankruptcy, his children can still maintain their clean credit histories and future borrowing options. This distinction allows families to navigate financial challenges without worrying about repercussions on their children’s creditworthiness.

However, it’s important to note that while children are shielded from direct credit impacts, parents still have legal obligations, such as child support, that must be met regardless of their bankruptcy status. Even if a parent faces financial hardship through bankruptcy, they must continue to prioritize child support payments. Therefore, while the bankruptcy might change the family’s budget, it does not relieve parents of their responsibilities to provide for their children.

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References

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