"If you come after money from me in our divorce, I'll file bankruptcy!" That is a bellow often heard in divorce cases.
Is it a meaningful threat? The answer: It depends.
In most matrimonial cases, bankruptcy will prove ineffective, except perhaps to cause short-term delay or convince a skeptical spouse or Family Part judge that the debtor genuinely has financial troubles. Most bankruptcy lawyers and more than a few family practitioners know that family support obligations, which include alimony, child support, an opponent's legal fee award and other decrees "in the nature of support," are not dischargeable under 11 U.S.C. Â§523(a) in a Chapter 7 case, and generally cannot be altered in a Chapter 11 plan under 11 U.S.C. Â§1129(a)(14). And under the 2005 Bankruptcy Code amendments, equitable distribution and property settlements are no longer dischargeable and, with very limited exceptions, cannot be reformed in a Chapter 13 plan.
Bankruptcy could even backfire on the debtor. First of all, a trustee is appointed in Chapter 7 and 13 cases, depriving the debtor of a fair measure of control. Though neither automatic nor common, a trustee may also be appointed in a Chapter 11 proceeding. Furthermore, a deceitful spouse should beware. Although Family Part judges can award counsel fees and sanctions, or surcharge a spouse for dissipation of marital assets, the federal courts are generally regarded as having a wider and more potent array of instruments available and being quicker on the trigger. A misbehaving debtor faces oversight by the United States Trustee, dismissal of the bankruptcy case, civil and criminal penalties for bankruptcy fraud, and sanctions under Federal Rule of Bankruptcy Procedure 9011.
Click here to read more. A subscription may be required to read the full article.