1. INTRODUCTION
2. PROPERTY OF THE
BANKRUPTCY ESTATE
3. THE AUTOMATIC
STAY
4. DISCHARGEABILITY
OF SUPPORT OBLIGATIONS
5. PRIORITY OF SUPPORT DEBT WHEN THE
BANKRUPTCY ESTATE IS DISTRIBUTED.
6. DISMISSAL FOR
CAUSE
7. JUDGMENT LIENS
8. ATTORNEY FEES
1.
INTRODUCTION;
Generally, the filing of a bankruptcy
is not supposed to have any impact
on child support, spousal support
and family support. Of course, as
is rampant in our profession, there
are exceptions.
2.
PROPERTY OF THE BANKRUPTCY ESTATE
On the .i.filing of a petition in
bankruptcy;, an .i.estate ;is created
(11 USC §541) , and a "trustee"
is then appointed to act as its representative
and "administer" the estate.
Administration of the estate means
the trustee marshals those assets
deemed to have sufficient value for
sale to benefit creditors, and which
are not "exempt" assets;
i.e. exempt from being marshaled.
This estate encompasses all of the
debtor's equitable and legal interests
in all of the debtor's separate property,
plus all of the .i.debtor's community
property;, including in a one-spouse
petition any .i.community interest
of the non-filing spouse;. The .i.community
property ;of the spouses may now be
the center of controversy in two separate
and distinct actions--the bankruptcy
and dissolution proceedings and in
two separate and distinct forums--the
bankruptcy and state court.
The issue addressed in this article
is what funds and property are available
to satisfy support obligations, and
what is the effect of the automatic
stay, the automatic restraining order
that goes into effect at the moment
a bankruptcy is filed pursuant to
11 USC §362.
Practitioners in Los Angeles are generally
faced with bankruptcies filed under
Chapters 7, 11 or 13. (Other chapters
exist, including Chapter 12 reorganization
for farmers, but its use in Los Angeles
is extremely rare and not discussed
here.) In Chapter 7 property of the
estate consists of all the property
(including accounts receivable) as
of the date of the filing - but not
post petition wages. (Post petition
earnings from interest, rents and
profits and other sources that flow
from pre petition assets are property
of the estate.) In Chapters 11 and
13, post bankruptcy filing income
is property of the estate because
these chapters deal with repayment
style bankruptcies.
3.
THE AUTOMATIC STAY
When any person or entity files bankruptcy,
there is created an automatic stay
-- an automatic restraining order
that stops virtually all legal action
pursuant to 11 USC §362(a).
There is a major exception to the
automatic stay in 11 USC §362(b)(2)
for support. 11 USC §362(b)(2) provides
that:
"(b) The filing of a petition
[under the Bankruptcy Code] does not
operate as a stay-- ...
...(2) under subsection (a) of this
section,
(A) of the commencement or continuation
of a action or proceeding for--
(i) the establishment of paternity;
or
(ii) the establishment or modification
of an order for alimony, maintenance
or support; or
(B) of the collection of alimony,
maintenance or support from property
that is not property of the estate."
It is therefore of paramount importance
to first determine if relief from
automatic stay is even needed. Note
the above-quoted exception only applies
to collection from "property
that is not property of the estate."
Faced with a spouse's Chapter 7, the
non filing spouse can immediately
go after the debtor spouse's post
petition income, because post petition
income is not property of the bankruptcy
estate. No motion for relief from
stay is required. However, if the
non-filing spouse needs to go after
the debtor's property, which is property
of the estate, then a motion for relief
from stay is required.
Faced with a spouse's Chapter 11 or
13 filing, in which the debtor's property
AND income is property of the estate,
a motion for relief from the stay
is required.
Heavy sanctions can be awarded for
a willful violation of the stay. Acts
in violation of the stay, even innocent
violations done without notice of
the bankruptcy are void, not voidable.
Wage assignments must stop when a
Chapter 11 or 13 is filed, and if
arrearages are being collected, when
any Chapter is filed, since it is
deemed to be collection of a pre-petition
debt, regardless of the dischargeability
issues. After the District Attorney
obtained a wage assignment order,
the debtor filed Chapter 13. The DA
continued to enforce the wage assignment
order in violation of the stay, after
demand for release was made by the
debtor. The Bankruptcy Court found
that the DA had willfully violated
the automatic stay, although the DA
was not ordered to return the money
since the plan provided for 100% payment
of arrearage (even though this usually
not allowed in California; see Pacana)
and the debt would have been nondischargeable
after completion of the plan anyway.
However, the Court did order the DA
to cease enforcement of the wage assignment
order and threatened sanctions if
the collection continued. In re Price
179 B.R. 209 (Bankr. ED Cal. 1995).
The automatic stay has been held not
to apply to contempt proceedings,
when the contempt is for failure to
pay support In re Berg, 186 BR 479
(9th Circ. BAP 1995).
The automatic stay will terminate
on its own even if a motion for relief
from stay is never filed. 11 USC Section
362(c) provides that unless the stay
is terminated earlier (i.e. by motion),
then:
"(1) the stay of an act against
property of the estate under subsection
(a) of this section continues until
such property is no longer property
of the estate; and (2) the stay of
any other act under subsection (a)
of this section continues until the
earliest of (A) the time the case
is closed; (B) the time the case is
dismissed; or (C) if the case is a
case under Chapter 7 of this title
concerning an individual...,the time
a discharge is granted or denied."
Once the case is closed, property
that was not administered by the trustee
in the bankruptcy reverts to the debtor
in the same form as it was before.
(Property that was administered means
it was sold by the trustee and distributed
to creditors.) Upon closing the Section
362 stay dissolves. While the debtor
is thereafter discharged from ordinary
debts, debts arising out of support
obligations are automatically nondischargeable
pursuant to 11 USC §523(a)(5).
Title 11 USC Section 362(b)(2) authorizes
enforcement of money owed by support
without the necessity of a motion
when going after property that is
not property of the estate. However,
in a personal Chapter 11, as here,
everything, including rents, royalties,
earnings, and sales proceeds are property
of the estate. This requires the Movant
to seek relief from stay for cause
under 11 USC Section 362(d). There
are a wealth of cases that discuss
this subject. The Ninth Circuit holds
that because Federal courts ought
not to thwart the holdings of state
family courts when it comes to support,
relief from stay is proper when the
Debtor is making no effort to pay
support. Therefore, a motion for relief
from stay is proper when adequate
protection is not afforded because
there is no or insufficient property
outside the estate to satisfy back
support arrears. In the case of In
re Verges (1992 U.S. Dist. Lexis 5058,
Civ.No. 92-80), a trial court decision
from Louisiana, the judge reasoned:
"The only time a dependent spouse
would need an order granting relief
from stay to collect support would
be when collection is sought from
estate assets." Id. at n.23.[emphasis
added]
California follows the rule that pre
petition child support arrearage cannot
be included and paid through a chapter
13 plan. In the Ninth Circuit, Chapter
13 case, Pacana v. Pacana (9th Circ
BAP 1991) 125 Bankr. 19, The Bankruptcy
Appellate panel held in pertinent
part at 125 Bankr. 22:
"It is not necessary to the disposition
of this appeal, since the essential
issue before us is whether Chapter
13 can provide a safe harbor from
the pursuit of the support debts which
cannot be discharged under sections
523(a)(5) and 1328(a)(2)."...
"Thus, Congress by virtue of
@ 362(b)(2) specifically excepted
child support obligations from the
effect of the bankruptcy stay while
the case is pending, and through @@
1328(a)(2) and 523(a)(5), it specifically
excepted child support obligations
from the effect of confirmation in
the Chapter 13 bankruptcy case."[emphasis
added]
(The rule is also followed in the
Fourth Circuit, Caswell v. Lang (In
re Caswell), 757 F.2d 608 (4th Cir.
1985))
The Bankruptcy Court has held that
support should be outside of a Chapter
11 or 13 plan. The reasoning was that
to include support as part of a plan
required discriminatory treatment
of unsecured debts, whereas the Supreme
Court had already held that bankruptcy
courts should abstain from the province
of the family courts. In Pacana at
125 Bankr. 22, the Court held:
"It would result in great injustice
to require children to await a bankruptcy
court's confirmation of a debtor's
chapter 13 plan before permitting
them to enforce their state court-determined
right to collect past due support
payments. The bankruptcy code may
not be used to deprive dependents,
even if only temporarily, of the necessities
of life.
4. DISCHARGEABILITY OF SUPPORT OBLIGATIONS
.i..i. Spousal and child support obligations;,
whether imposed by Court order or
by marital settlement agreements are
.i.non-dischargeable ;under .i.11
U.S.C. §523(a)(5);, but the .i.non-filing
spouse ;should consider promptly filing
his or her.i. proof of claim as soon
as notified by the bankruptcy court;.
If there is any ambiguity as to whether
a debt is a property debt or support
debt, the either spouse can file a
complaint to determine whether a debt
is really support or a property debt
masquerading as one or the other,
and therefore affect dischargeability.
For example, even though a debtor
may have agreed in a .i.marital settlement
agreement ;to a .i.support decree;/obligation,
the debtor may still request the bankruptcy
court to make a new determination
that the amount is not actually needed
as support and was in fact a .i.disguised
property division;. The debtor can
therefore seek an .i.order to allow
discharge ;of all or a part of the
amount, even if labeled as support
by the state court judgment or marital
settlement agreement. This gives the
debtor a second bite at the apple,
as far as determining support, since
state court labels are not considered
binding on the bankruptcy court. Thus,
.i.marital settlement agreements ;with
support provisions should be drafted
carefully detailing the basis for
any amount specified as support.
The authority giving the Bankruptcy
Court the ultimate authority to determine
what is and is not support is discussed
in In re Jodoin, 209 B.R. 132 (BAP
9th Circ. 1997) which holds:
"The final determination of what
portions of the [family law] judgment
constitute nondischargeable alimony,
support or maintenance is a question
of federal law. Gionis v. Wayne (In
re Gionis) 170 B.R. 675, 681 (9th
Circ. BAP 1994)(citing In re Shaver,
736 F2d at 1317), see also In re Stout
691 F.2d at 861 (citing H.R. Rep.
No. 95-595, at 364, reprinted in 1978
USCCAN 5787, 6320). Therefore, the
labels used by the state court in
determining the Judgment were not
binding on the bankruptcy court. An
independent review of the Judgment
and factual inquiry into the true
nature of any support was certainly
within the power and discretion of
the bankruptcy court. In re Gionis
170 B.R. at 681, Sweck v. Sweck 174
B.R. 532, 534 (Bankr. D. R.I. 1994).
Footnote 14: "in the context
of §523(a)(5), substance prevails
over form" Dressler v. Dressler
194 B.R. 290, 295 (Bankr. D.R.I. 1996)(citing
Warren v. Warren 160 B.R. 395, 398
(Bankr. D. Me. 1993)." [emphasis
added]
As a general rule, support debt is
nondischargeable, as provided in 11
U.S.C. §523(a)(5);,, which holds nondischargeable
those debts which are:
"(5) to a spouse, former spouse,
or child of the debtor, for alimony
to, maintenance for, or support of
such spouse or child, in connection
with a separation agreement, divorce
decree or other order of a court of
record, determination made in accordance
with State or territorial law by a
governmental unit, or property settlement
agreement."
An important exception to the general
rule of nondischargeability is that
support arrearage assigned by the
non-debtor spouse to a government
welfare agency as a condition for
public assistance are dischargeable.
In the recent case of In re Cervantes,
1999 Daily Journal D.A.R. 993, (9th
Circ. BAP 12/31/98), a Chapter 13
debtor filed a complaint against Santa
Cruz County, to whom his wife had
assigned her past due pre-petition
support arrearage in exchange for
receiving public assistance. The Court
held that the debtor could discharge
support arrears that had been assigned
to a government agency.
Factors that have been used in determining
the characterization as to whether
a debt is nondischargeable support
have been:
1. The label given to payments in
the state court.
2. The context of the disputed provision
in a decree (e.g. whether there is
a separate support clause in addition
to the disputed clause).
3. Whether the obligation terminates
on death or remarriage.
4. Whether the obligation terminates
on death of the payor/debtor
5. Whether the payment is made with
the intent of balancing disparate
incomes or disparate division of spousal
property.
6. Whether the payment is lump sum
or periodic.
7. Whether there are children and
the effect of the payment on them.
8. The relative incomes and earning
power at the time of the settlement,
judgment and time of bankruptcy.
9. The adequacy of support in the
absence of assumption of debt by the
debtor.
10. Parol evidence: the parties' understanding
11. Whether a property award is really
made in lieu of a support award.
In re Ingram 5 B.R. 232 (Bankr. ND
Ga 1980); In re Petoske 16 B.R. 412
(Bankr. ED NY 1982); In re Anderson
21 B.R. 335 (Bankr. SD 1982).
However, even that which appears to
be obvious disguised support is not
always so. In re Sternberg (85 F3d
1400, (9th Circ. 1996), two parties
agreed their MSA that Husband was
to pay $2 million by a given date
from community assets. If not paid,
then the non filing wife would get
$12,000 until the $2 million was paid,
regardless of remarriage, and would
be nontaxable. Although this certainly
appeared to be a disguised property
obligation and dischargeable when
Husband filed bankruptcy, the Ninth
Circuit held otherwise, that this
was nondischargeable support because
of the Wife's relative need of the
Wife and ability of the Husband!
In another MSA, two parties agreed
to a $325,000 community property payment,
payable part in a lump sum and the
balance in a lump sum. The parties
agreed that spousal support was waived
when the first payment was made. After
making payments for a period of time,
the debtor stopped and filed Chapter
7. The non filing spouse filed a dischargeability
complaint alleging that the true intent
of the payments was nondischargeable
spousal support to be paid for a given
amount of time. The Bankruptcy Court
agreed, and the decision was upheld
on appeal. In re Kritt 190 B.R. 382
(9th Cir. BAP 1995).
Accrued arrearage, even when the reason
terminates, such as a child reaching
the age of majority, or a spouse remarrying,
remains nondischargeable. In re Bedingfield
42 B.R. 641 (Bankr. SD Ga 1983).
Agreements for the waiver of discharge
are generally unenforceable. although
the Bankruptcy Court would undertake
its own inquiry into whether the obligation
falls within an enumerated exception
to discharge, such as Section 523(a)(5).
Berr v. FDIC 172 B.R. 299 (9th Circ.
1997).
5. PRIORITY
OF SUPPORT DEBT WHEN THE BANKRUPTCY
ESTATE IS DISTRIBUTED.
Even though support is nondischargeable,
a proof of claim should be filed whenever
the bankruptcy court sends out a notice
to do so. Otherwise, the claimant
cannot receive a payout from the bankruptcy
estate. Ever since 1994, a support
claim is treated an unsecured priority
debt. 11 USC §507(a)(7). That means
that on distribution of a debtor spouse's
assets, support arrears will be paid
in full before general unsecured debts,
although still behind bankruptcy administrative
expenses, taxes, certain recent unpaid
wages and a few other priorities.
However, the non-debtor spouse must
file a proof of claim. The filing
of a proof of claim does not preclude
the spouse from availing herself of
other remedies discussed herein, including
going after assets outside the estate,
and seeking relief from stay to get
at estate assets.
Proof of Claim must be filed by the
non-debtor spouse if there are any
assets that are going to be administered.
In a Chapter 7, the date is 90 days
after the first meeting of creditors
(Bankruptcy Rule 3002), unless the
notice states that the case is a no-asset
case, in which case a deadline date
to file will be set. In a Chapter
13, the rule is also 90 days after
the first date set for the first meeting
of creditors. In a Chapter 11, the
amount listed by the debtor will govern
unless the creditor files a Proof
of Claim, in which case that will
take precedence. In Chapter 11, there
is no set time, but will be governed
by a "bar date" that is
set by the Court and notice given
to creditors.
If a spouse discovers that he or she
has been omitted from the list of
creditors filed by the debtor, that
spouse should immediately file a proof
of claim and request for special notice
as soon as possible, so that notice
of bankruptcy events will be received.
In a no-asset Chapter 7 case (which
merely means that there were no non-exempt
assets worth administering, not that
there were no assets), the discharge
is to all debts that could have been
discharged, not merely those that
were listed. In re Beezley 994 F.2d
1433; (9th Circ. 1992). Thus, the
tactic of ignoring a bankruptcy merely
because formal notice was not received
is not a wise one.
6. DISMISSAL
FOR CAUSE
Sometimes, the non-debtor's spouse
best course of action is try to get
the debtor spouse's bankruptcy dismissed
on the grounds of a bad faith filing,
especially when the benefit of the
split discharge is insignificant,
and the debtor appears to be using
the bankruptcy process merely to thwart
the bankruptcy process. Grounds for
a motion for dismiss are found in
11 USC §707(a), which provides:
(a) The court may dismiss a case under
this chapter only after notice and
a hearing and only for cause including
--
(1) unreasonable delay by the debtor
that is prejudicial to creditors;
(2) nonpayment of any fees or charges
required under chapter 123 of title
28; and
(3) failure of the debtor in a voluntary
case to file, within fifteen days
or such additional time as the court
may allow after the filing of the
petition commencing such case, the
information required by paragraph
(1) of section 521, but only on a
motion by the United States trustee.[emphasis
added]
The examples of "cause"
listed in the statute cited above
are not exclusive. Use of the introductory
word "including" means that
these three types of "cause"
are non-exclusive. See 11 U.S.C. Section
102(3); H.R. Rep. No. 95-595, 95th
Cong., 1st Sess. 380 (1977); S. Rep.
No. 989, 95th Cong., 2d Sess. 94 (1978).The
Eighth Circuit held that a Chapter
7 bankruptcy petition could be dismissed
per 707(a) for cause when a husband
files bankruptcy in order to thwart
the dissolution process. In re Huckfeldt
39 F.3d 829 (1994).stating the bankruptcy:
“...was not filed for the purpose
of a just liquidation by composition
with creditors but to defeat the wife
from a right of possession in and
to the real estate which was to be
awarded to her under the divorce proceedings.
This violates the purpose and intent
of the statute . . . and, as said
by the Supreme Court of the United
States, under that situation, the
proceedings will be halted at the
outset. Id. at 833 citing In re Brown,
21 F. Supp. 935, 939 (S.D. Iowa 1938)."
In In re Zick, 931 F.2d 1124, (6th
Cir. 1991), the 6th Circuit held that
a debtor's Chapter 7 Bankruptcy was
properly dismissed where the debtor
had failed to meet the implicit "good
faith" requirements of the Bankruptcy
Code. Relying on numerous Chapter
7 cases, the 6th Circuit said it was
"persuaded that lack of good
faith as a basis for dismissal under
Section 707(a)..."
"A debtor's good faith is in
implicit jurisdictional prerequisite
to the filing of a case under the
bankruptcy code." In re Hammonds,
139 B.R. 535, 541[4] (Bkrtcy. D.Colo.
1992)[emphasis added]
The consideration of the bad faith
argument requires an exercise of the
discretion of the Court, after consideration
of the totality of the circumstances.
In re Stolrow's, Inc., 84 Bankr. 167
(9th Cir. B.A.P. 1988); In re Del
Rio Development, Inc., 35 Bankr. 127
(9th Cir. B.A.P. 1983). The concept,
good faith, is not opened to serious
debate. In re Kragness, 63 B.R. 459,
465 [5] (Bkrtcy. D.Ore. 1986).
While not defined in the Bankruptcy
Code, "good faith" has been
repeatedly held to require "at
the very least a showing of honest
intention." In re Hammonds, 139
B.R. 535, 541[4] (Bkrtcy. D.Colo.
1992). In re Johnson, 708 F.2d 865,
868 (2d Cir. 1983). To determine whether
good faith exists, the Court must
investigate the facts and circumstances
in each case for any abuses of the
provisions, purpose or spirit of the
Bankruptcy Code and determine whether
the debtor honestly requires the liberal
protection of the Bankruptcy Code.
In re Hammonds, supra. See also, In
re Vlahakis, 11 B.R. 751, 753[3] (Bkrtcy.
MD. Ga 1981).
The 6th Circuit found "particular
merit" in what has been described
as the "smell taste" set
out in Morgan Fiduciary, Ltd., vs.
Citizens & Southern International
Bank, 95 B.R. 232, 234 (D.Ct.S.D.Fla
1988):
"The late Irwin Younger, possibly
the best lecturer--and, certainly
the most enjoyable--on principles
of law to judges and lawyers, observed
that the most important item in the
courtroom and all too seldom used
is the judge's nose. Any trial judge
will inevitably come to the conclusion
on occasion that a certain case or
claim or defense has a bad odor. Simply
put, a matter smells. Some smell so
bad they stink." [emphasis added]
In the case of In re Jones, 114 B.R.
917, 926 (Bkrtcy. N.D. Ohio 1990),
held:
"The Bankruptcy Code is intended
to serve those persons who, despite
their best efforts, find themselves
hopelessly adrift in a sea of debt.
Bankruptcy protection was not intended
to assist those who, despite their
own misconduct, are attempting to
preserve a comfortable standard of
living at the expense of their creditors.
Good faith and candor are necessary
prerequisites to obtaining a fresh
start. The bankruptcy laws are grounded
on the fresh start concept. There
is no right, however, to a head start."
[emphasis added]
In the case of In re Padilla 97 Daily
Journal DAR 14275 (June 1987) in dicta,
the BAP gave a list of criteria for
bad faith dismissals, stating:
"While the requirement of good
faith filing is not codified by the
Bankruptcy Code, case law has developed
an intense fact-based inquiry in determining
good faith (ftnt 3: 931 F.2d 1124,
1128 (6th Circ. 1991) where factors
for determining good faith include:
(1) the debtor's manipulations which
reduced the creditors in this case
to one; (2) debtor's failure to make
significant lifestyle adjustments
or efforts to repay; (3) the fact
that the petition was filed clearly
in response to [the creditor's] obtaining
a mediation award; (4) the unfairness
of the debtor's use of Chapter 7 under
the facts of this case. ..172 B.R.
37,39 (Bankr. E.D. Ark 1994) which
outlined additional criteria, including
whether: (1) the debtor has sufficient
resources to pay his debts, (2) the
debtor is paying debts of insiders,
(3) the schedules inflate expenses
to disguise financial well being,
(4) the debtor transferred assets,
(5) the debtor is overutilizing the
protections of the Code to the unconscionable
detriment of creditors, (6) the debtor
employed a deliberate and persistent
pattern of evading a single major
creditor, (7) the debtor failed to
make candid and full disclosure, (8)
the debtor's debts are modest in relation
to his assets and income, (9) there
are multiple bankruptcy filings or
other procedural 'gymnastics'".
.c.7. JUDGMENT
LIENS
The Ninth Circuit dramatically changed
the way liens are recognized in bankruptcy
in the case of In re Jones (9th Cir.
1997) 106 F.3d 923, (2/11/97). Until
February 1997, both California state
law and bankruptcy law provided that
judgment liens were paid off in priority,
and that surplus equity over and above
a homestead went to pay off judgment
liens. Bankruptcy has always had a
provision, that allowed liens that
interfered with the homestead exemption
to be removed, measuring the equity
as of the bankruptcy filing date.
However, in Jones, the 9th Circuit
changed that -- only for bankruptcy
cases, not state cases, by holding
that the test whether a judgment lien
holder will be paid depends the equity
in the property on the date the abstract
was recorded, regardless of the equity
when the bankruptcy is filed! Note
that this could cause a later lien
to be paid and an earlier one to be
voided, depending on the equity on
the recording dates. Creditors who
have obtained judgments need to be
careful to re-record their abstracts
of judgment if they believe that the
property against which they have recorded
has increased in equity value. Debtors
and homeowners who might someday become
debtors should immediately record
a declared homestead for this added
protection.
In bankruptcy, a debtor frequently
has the power to strip judicial liens
in various circumstances (Sections
506 and 522). A judicial lien is created
by a judgment, even when the judgment
is by stipulation. However, a lien
created in divorce decree cannot be
stripped as judicial lien because
it is not deemed to be a lien that
obligated the debtor before the agreement
that gave the property to the debtor.
In re Foss 200 BR 660 (9/13/96).
8. ATTORNEY
FEES
Attorney fees awarded by a family
court, which are awarded on the basis
of relative need and ability, are
deemed to be in the nature of support.
Thus, an attorney with a fee award
in his favor may bring an action in
his or her own name, to have the debt
declared as nondischargeable. Pauley
v. Spong (In re Spong) 661 F.2d 6
(2nd Circ. 1981). Even though the
attorney fee award was made payable
directly to the attorney for the non
filing spouse, the non discharge of
the debt still benefits the non-debtor
spouse because it reduces her obligation,
because it is in the nature of support.
The Ninth Circuit has recently confirmed
this rule Beaupied v. Chang (In re
Chang) 98 Daily Journal DAR 13101
(9th Circ. 12/30/98)
However, there is an exception to
the rule, if the non filing spouse
is not personally obligated, then
the fees are dischargeable. In the
case of Eisen v. Linn (In re Linn)
38 B.R. 762 (9th Circ. BAP 1984),
the husband had been ordered to pay
a court appointed psychiatrist and
the attorney ad litem for the child.
The child and the mother were not
personally liable. The husband filed
a Chapter 7 bankruptcy, and the attorney
filed a nondischargeability action
claiming that the fees ordered had
been in the nature of support. Held,
dischargeable, because the former
spouse received no benefit from the
payment, unlike the situation in which
the payment of fees by the debtor
husband would have reduced the wife's
obligation to her attorney. In a similar
vein, an attorney fee award to a judge
pro tem, in which the non-debtor spouse
was not obligated for the debtor's
part, was dischargeable. In re Hutchins
113 B.R. 1 (Bankr. C.D. Cal. 1990).
The attorney fees incurred do not
have to even be related to support.
In the case of Gionis v. Wayne (In
re Gionis) 170 B.R. 675, 681 (9th
Circ. BAP 1994), the state dissolution
court declined to award spousal support
to either spouse, but did award attorney
fees to the non-debtor spouse following
a battle concerning division of property
and custody. The state court stated
that it was basing its award on the
(non-debtor) wife's need for funds
to litigate the case and the husband
debtor's conduct in the custody battle.
Spousal support was not awarded. The
debtor attempted to discharge the
attorney fee award in Chapter 7. Held,
nondischargeable, because the attorney
fee award was still in the nature
of support. Fees incurred in a contempt
proceeding were similarly held nondischargeable.
Sinewitz v. Sinewitz 166 B.R. 786
(Bankr. D. Mass. 1994).
The Gionis case appears to have implicitly
overruled an earlier decision, Gard
v. Gibson (In re Gibson) 103 B.R.
218 (9th Circ. BAP 1989), which held
that where the fees were used solely
to effectuate a division of community
property, the fee award was dischargeable.
Note however that the state court
in Gionis still used a "relative
need and ability" test in awarding
the fees, as is the usual case, which
appears to have helped the Bankruptcy
Court decide the fee award to be nondischargeable.
In a case where there was no need
and ability basis considered for the
underlying award, the bankruptcy court
did declare the debt dischargeable.
In re Gibson 103 B.R. 218 (9th Circ.
1989).
What if the non-debtor spouse dies
after the debtor files bankruptcy?
The case of Leppaluoto v. Combs (In
re Combs) 101 B.R. 609 (9th Circ.
1989) held that the death of the non-debtor
spouse abused an assignment by operation
of law of arrearage support payments
to her estate, making the actual support
arrearage now dischargeable. However,
the attorney fee award rights in bankruptcy
are established by the date of the
bankruptcy filing, and thus were nondischargeable.
As a general rule, the legal fees
incurred in the nondischargeability
action filed by an attorney to protect
his fees are themselves nondischargeable.
This logically follows because the
non-debtor spouse has no obligation
for those fees. However, at least
one court, in Holloway v. Kelley (In
re Kelley) 151 B.R. 790 (Bankr. S.D.
Tex. 1992) held that where the marital
settlement agreement provided for
the payment of attorney fees to enforce
the terms of the agreement, the attorney
fees incurred in the nondischargeability
case were themselves nondischargeable,
citing Jordan v. Southeast National
Bank (In re Jordan) 927 F.2d 221,
226, (5th Circ. 1991).
Pursuant to Bankruptcy Rule 4007(c).,
the complaint for nondischargeability
must be commenced within 60 days after
the first date set for the Meeting
of Creditors (the 341a hearing).
Bankruptcy remains an area where family
practitioners would be wise to consult
with experienced bankruptcy attorneys
when faced with a bankruptcy filing.
Time deadlines are generally very
short, and support as well as property
rights are at risk immediately.
From:
http://www.starrecohn.com/articles/GSBan.html
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