Attorney’s Fees and Bankruptcy
March 29, 2013 Leave a comment
What happens if one spouse, Husband, is ordered to pay the attorney’s fees of the other spouse, Wife, the Wife pays the attorney’s fees, requests reimbursement, then Husband files for bankruptcy? Is the Wife out of luck?
This situation came up in In re: Jeffrey Todd Van Dermark, a 2008 case from the Bankruptcy Court in the Northern District of Texas. Quick answer – the Husband had to pay the fees in full. But read on, there’s more to it.
- Husband and Wife divorced in Georgia, in 2006.
- Wife had a contract with her attorneys and was required to pay them upon receipt of the invoice.
- In the Final Judgment and Decree of Divorce, Husband was ordered to pay $25,000.00 in attorney’s fees to Wife’s attorney.
- Wife ended up paying the firm the $25,000.00, and turned to Husband to be repaid.
- Husband filed for bankruptcy the next day, and tried to discharge the $25,000.00 debt.
Question for the Court
The question the Court was asked to answer was this – “Was the $25,000.00 a domestic support obligation under the bankruptcy code since Wife paid it and now demanded it from Husband, so protected as a priority claim? Or was it not a domestic support obligation because the Husband was supposed to make the payment to Wife’s attorneys?”
The reason it matters is that if it was found to be a domestic support obligation, Husband would have to pay that $25,000.00 first (that claim has priority) and in full. If not, the $25,000.00 claim would be reduced or fully discharged and Wife would be left out in the cold, having shelled out $25,000.00.
The argument provided by counsel was whether or not this claim was owed to Wife’s attorneys or to Wife under the domestic support obligation statute in the Bankruptcy code, and focused on Section 101(14A)(A) of the Bankruptcy Code, which states for a claim to be a domestic support obligation, it must be:
“a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt, as provided under applicable non bankruptcy law notwithstanding any other provision of this title that is -
(A) owed to or recoverable by -
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian or responsible relative; or…”
The Court looked first to the bankruptcy code’s definition of ‘claim,’ and found that it is a ‘right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured,” and that the definition was intentionally broad. 11 U.S.C. 101(5)(A); See In re Egleston, 448 F.3d 803, 812 (5th Cir. 2006).
The Court also turned to Georgia’s statutory definitions, since the Final Judgment and Decree of Divorce was out of Georgia, and found that it supported this claim as being owed to Wife, not just her attorney, per the language of the Decree of Divorce and under Georgia law.
Since that was the only argument asserted, and the Court found that the claim was, in fact, owed to and recoverable by Wife, the claim was a domestic support obligation.
One thing not argued, and which would have been interesting, is whether the Court believed it to fit the second requirement of a domestic support obligation, that the debt is
“(B) in the nature of alimony, maintenance, or support… of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;…”
- 11 U.S.C. 101(14A)(B)
I think the claim would have been denied that special status at that point. The claim just does not fit the second part of the definition for a domestic support obligation. Unfortunately, we will not know until a similar fact set occurs, the argument made, and an opinion issued.