New Bankruptcy Act Affects Family Law Issues
The 2005 Bankruptcy Abuse Prevention and Consumer Act makes several very important changes with regard to the effect of bankruptcy on divorce litigation. Both attorneys and parties to Family Court actions should be aware of these drastic changes.
The most significant change is that payment obligations under a property settlement agreement or divorce judgment are no longer dischargable in bankruptcy. Previously, the Bankruptcy Court had to determine whether payments made pursuant to equitable distribution or property settlement payments were "in the nature of support" or purely property settlement obligations. The determination of that issue led to delays in the payment of property settlement obligations and a great deal of costly litigation to determine the "true nature" of such obligations.
The new Act also elevates alimony and child support obligations to a number one priority level in a bankruptcy proceeding. They are now given a priority raising them above even tax claims. The Act also prevents a debtor from obtaining any bankruptcy relief unless all past due alimony or child support claims are paid in full.
Thanks to Robert Durst of the New Jersey Law Blog for his excellent post on this topic.
Ben--thanks for the reference---