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How do courts deal with bad faith bankruptcies in connect with the discharge of debts from a property settlement?

It varies from jurisdiction to jurisdiction, but courts are generally stern. For example, a New Jersey appeal court dealt with this gambit in Borzillo v. Borzillo, where after a divorce judgment in which the wife waived permanent alimony, the husband filed for bankruptcy in an attempt to dodge the property settlement obligations. A bankruptcy judge denied discharge of these obligations because he found them to be "in the nature of support and alimony," after which the wife sought counsel fees for a motion to enforce the terms the separation agreement and counsel fees in the bankruptcy proceeding. While the court denied her appeal for bankruptcy fees, it increased both the amount and term of her present alimony and awarded $3,000 in her counsel fees in connection with the postjudgment state-level proceedings. In the case, the court said that while bankruptcy is constitutionally protected, "the husband could nevertheless be found to have acted in bad faith by attempting to gain a discharge which he knew or should have known was not available to him."

The court rebuked the husband, who, it said, "was not satisfied with a bargain that relieved him of life-time alimony payments. Instead, he opted of what he thought would be a legal end run around his obligations, notwithstanding ’the obvious’ -- that such a gambit would jeopardize his child’s housing and would torpedo any modicum of protection for which his wife had bargained away permanent alimony."