Friday, December 16, 2005

Case Law Development: Modification of Maintenance after Bankruptcy Discharge

The Nebraska Supreme Court has held that bankruptcy law does not preclude the modification of maintenance based on changed economic circumstances that result from one spouse filing bankruptcy.  Upon divorce, wife was awarded maintenance of $1 a year.  Almost a year later, husband filed for Chapter 7 Bankruptcy when his veterinary clinic failed.  After discharge, the bank foreclosed and sued the wife, who had signed as a guarantor for the loan, for the deficiency. Wife then moved for a modification of maintenance on the basis of changed circumstances.  The court of appeals found the “wife's liability for the deficiency judgment resulted in a material and substantial change in the relative economic circumstances of the parties which was not within the reasonable contemplation of the parties at the time of the dissolution.”  Thus a modification of maintenance was appropriate.  The court noted however, that “if a spousal support modification is essentially a reinstatement of the property settlement under the guise of alimony, the modification violates 11 U.S.C.S. § 524 and is not permitted. Mere attempts to "end run" around a bankruptcy discharge are not allowed. However, if the alimony modification merely takes into account the fact that one spouse would no longer receive the property settlement payments upon which the original support award was premised and the discharge results in changed financial circumstances, then modification will not violate federal bankruptcy law.”

Collett v. Collett, 270 Neb. 722; 2005 Neb. LEXIS 196 (December 9, 2005)
Opinion on the web at http://court.nol.org/opinions/2005/december/dec9/s04-850.htm (last visited December 15, 2005 bgf)

http://lawprofessors.typepad.com/family_law/2005/12/case_law_develo_21.html

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