What are the dangers when a former or soon-to-be-ex spouse files for bankruptcy?
Sometimes a former spouse who acts in bad faith tries to escape the negotiated terms and conditions of a divorce agreement by filing for bankruptcy.
Alimony and child support are not dischargeable through bankruptcy; under certain conditions, a property settlement is.
Before 1994, only spousal and child support payments were not dischargeable though bankruptcy. Since then, a debt incurred in marital separation is not dischargeable "unless the debtor does not have the ability to pay the debt from income or property or discharging the debt would result in a benefit to the debtor that outweighs the detrimental consequences to the creditor spouse." Courts use a two-prong test: 1) the so-called "disposal income test" (Does the debtor have the income to pay?) and 2) the "balancing test" (Does the benefit to the debtor outweigh the consequences to the former spouse?)
Sometimes, bankruptcy courts have imposed equitable liens when it is clear that a former spouse is acting in bad faith in a bankruptcy. Sometimes, a woman can protect herself from bankruptcy by negotiating that in the event of bankruptcy by a former spouse, she has the legal right to seek alimony as a change in circumstance.
Many women have found themselves in a difficult position because of bad faith bankruptcies by former spouses. It is easy to see that an angry spouse may be tempted to make life difficult for a former partner with legal maneuvering that includes bad faith bankruptcy.