How to Avoid Property Settlement in Discharged Bankruptcy

The key to preventing bankruptcy problems is trying not to be owed a debt as part of a property settlement that your spouse can then wipe out in a bankruptcy proceeding -- regardless of the new law. Here are some suggestions to help you avoid having your property settlement discharged in bankruptcy:

1. While the label – that is, what you call the obligation – is not binding on the bankruptcy court, it does help show what you and your spouse really intended. Therefore, if a debt is called “support,” “alimony,” or “maintenance,” you may have a good argument that it is not dischargeable in the bankruptcy proceeding.
2. You should try to get your money from property settlement as quickly as possible after the agreement is signed or the decree is filed. Long, drawn out payments of property settlement often invite bankruptcy by the paying spouse or ex-spouse later.
3. If possible, try to secure your property settlement position. In other words, get a mortgage or other security interest to secure the property settlement debt that may be owed to you. Even if the security interest is later lost, it provides another layer of protection against bankruptcy.
4. If you ex-spouse files bankruptcy soon after the divorce is over, you might try to raise the defense that he or she should not be allowed to discharge the debt because of fraud.
5. Since the spouse who owes the debt often has the upper hand in bankruptcy court, if possible, try to be the person who owes the debt, rather than the person who is owed. In your negotiations, if you can get the property and owe an obligation to your spouse, your problem with bankruptcy is solved.
6. If you will end up receiving property settlement payments over time, consider provisions in your agreement that call for increases in your alimony or maintenance payments based on a change of conditions should your spouse discharge your property settlement. If you are not receiving alimony, then it may be a good ideal to reserve your rights to alimony so that, should your spouse discharge your property settlement, the family court will be in a position to set a monthly alimony award in this event.

Always make sure you consult a qualified bankruptcy lawyer in connection with your divorce should the issue of bankruptcy even appear to be on the horizon.