Tuesday, September 17, 2013

Ex-Spouse's Law Firm Not Able to Assert Basis for Non-Dischargeablity

Miami Personal Bankruptcy Lawyer Jordan E. Bublick has over 25 years of experience in filing chapter 13 and chapter 7 bankruptcy cases. His office is in Miami at 1221 Brickell Ave., 9th Fl., Miami and may be reached at (305) 891-4055. www.bublicklaw.com  

The Court's decision in In re Brooks, ___B.R. ___, 2007 WL 2083834 (Bkrtcy.N.D.Tex. July 19, 2007)(Lynn, J.) dealt with an adversary proceeding by the law firm of debtor's ex-spouse to determine a claim against the debtor for attorneys' fees as non-dischargeable pursuant to 523(a)(5) or (a)(15). The law firm held a judgment against the debtor for their legal services rendered to his ex-spouse, inter alia, in obtaining and enforcing spousal support. Notably, the ex-spouse was not liable for this amount nor was the debtor liable for a certain other amount owed to the law firm by the ex-spouse. The debtor contended that the law firm lacked "standing" to assert a claim under section 523(a)(5) or (15) and moved to dismiss for failure to state a cause of action. The Court granted the debtor's motion to dismiss as it found that the law firm could not assert a basis for its claim to be excepted from discharge under 523(a)(5) or (a)(15).

Section 523(a)(5) provides that a discharge under section 727 does not discharge an individual debtor for a domestic support obligation ("DSO"). Section 523(a)(15) provides that a debt to a spouse, former spouse, or child not of the kind described in (a)(5) incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of court is not dischargeable. The law firm claimed that the firm's fee are non-dischargeable on the basis that they were so intertwined with support that they constitute a DSO pursuant to 523(a)(5) or in the alternative that they are a non-dischargeable divorce-related debt under section 523(a)(15). The court looked to the definition of DSO in section 101(14A) and found that the law firm's fee were not a DSO as they were not owed to a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative or to a governmental unit. Furthermore, the court found that the law firm's debt was not non-dischargeable under section 523(a)(15) as it was not a debtor to a spouse, former spouse or child of the debtor.

The court rejected the argument to deem the legal fees as a DSO if the amounts were "recoverable" by a former spouse as it found that Congress did not intend to turn a debtor's family members into debt recovery associates. The court also noted the inapplicability of the cases cited by the law firm under the pre-BAPCPA version of section 523(a)(15). The court noted that it would read the exceptions to discharge narrowly in balancing the two public policies found in sections 523(a)(5) and (a)(15)--that of providing a fresh start to the deserving debtor and the importance of a debtor's obligations to his family. Marama v. Citizens Bank, ___ U.S. ___ (2007)("The principal purpose of the Bankruptcy Code is to grant a 'fresh start' to the 'honest but unfortunate debtor.') The court noted that Congress did not intend for sections 523(a)(5) or (15) to aid in a law firm's collection efforts but only for the other party to the divorce or separation.