Divorce Law v. Bankruptcy Law

Excerpted from The Family Lawyers Guide to Bankruptcy: Forms, Tips, and Strategies, Second Edition

By Shayna M. Steinfeld and Bruce R. Steinfeld

Congress has taken stories of abusive filers (essentially those going on shopping sprees and then keeping everything in bankruptcy—legalized shoplifting if you will—and statistically about 4 percent of the annual filings) and completely overhauled the Bankruptcy Code to make it significantly more difficult for a debtor to discharge debt in a bankruptcy case.

Ex-spouses, generally the former wives and mothers, are a great beneficiary of this legislation as Congress has made it substantially more difficult for a debtor to escape a divorce-related obligation. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which does not protect consumers, debtors may now thwart or impede divorce-related obligations only if the obligation is considered to be a property settlement and if the debtor is able to successfully navigate his or her way to a Chapter 13 discharge via three to five years’ worth of plan payments to a Chapter 13 Trustee.

There may be other creative uses of BAPCPA for family law obligations, but those are to be left to creative lawyers with clients able to fund such creative arguments. Generally, it appears that bankruptcy will not provide much help to a debtor addressing divorce-related debts—although there is still a possibility that the debtor can discharge other debt to free up money to pay the divorce-related debt. This may be one of the only benefits to be obtained from a bankruptcy filing in a divorce-related situation.

It is important for a family lawyer to understand how a bankruptcy filing can assist his or her client in cleaning up financial situations and how it may be utilized as a “move” in the chess match constantly being played between divorcing spouses in contested matters, even if under BAPCPA the debtor’s leverage for chess playing in a bankruptcy case is minimized (perhaps the debtor is even playing without his queen).

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ABA Section of Family Law