Does Bankruptcy prevent you from claiming Family Provision?

If you are unable to pay your debts, you may be declared bankrupt. When you become bankrupt a trustee in bankruptcy will be appointed and all your property will vest (be put into the hands of) the trustee. The trustee will notify your creditors of your bankruptcy and sell your assets in order to repay your debts.

But how does bankruptcy affect family provision proceedings?

If you want to start family provision proceedings after becoming bankrupt:

Section 58 of the Bankruptcy Act provides that upon bankruptcy, all your property vests in the trustee in bankruptcy. A family provision claim, however, is a personal or bare right and so it will not vest in the trustee. Because of this, being bankrupt does not prevent you from commencing family provision proceedings.

However, any property that you may acquire from the proceedings will be vested in the trustee in bankruptcy who will use it to repay creditors.

If you have already started family provision proceedings at the time of becoming bankrupt:

If you have commenced family provision proceedings but later become bankrupt, your proceedings will be stayed (paused) as per section 60(2) of the Bankruptcy Act.

Section 60(2) states:

An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

The trustee must elect to either carry on your family provision proceedings or to discontinue it. If the trustee elects to continue with your family provision proceedings:

  • the trustee will take your place as the plaintiff;
  • if the proceedings are unsuccessful, the trustee will become liable for any costs of the proceedings;
  • if the proceedings are successful and the trustee receives the property in question, they will use this to pay creditors; and
  • the trustee may be indemnified by your estate for the costs of the proceedings.

DISCLAIMER: The information provided above is published for general informational purposes only and is not intended to be nor should it be relied upon as a substitute for legal or other advice.