Page 33 - Sharp-Hundley 2012

Sharp Thinking

No. 72 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. September 2012

Marital Obligations in Bankruptcy Clarified
Spouse’s Duty to Pay Opponent’s Attorney Fees

May Be Held Non-Dischargeable in Bankruptcy

By Rebecca L. Reinhardt, Rreinhardt@lotsharp.com, 618-242-0246

Attorney fees ordered to be paid by one spouse on behalf of the other are non-dischargeable in
Chapter 7 bankruptcy proceedings, a bankruptcy judge in Central Illinois held recently.

In Johnson v. Johnson (In re Johnson), 2012 WL 2835462 (Bankr. C.D.Ill. 2012), the marital
settlement agreement obligated the husband to pay the fees to the wife’s divorce attorney, but the
husband filed for bankruptcy before doing so. Seeking to avoid the bankruptcy discharge, the wife’s
attorney argued to the bankruptcy court that the fees, though payable to him, were in the nature of a
domestic support obligation and thus non-dischargeable under 11 U.S.C. § 523(a)(5), and the bankruptcy
court agreed.

The Bankruptcy Code actually has two provisions relevant to the treatment of marital obligations in
bankruptcy: § 523(a)(5), excepting from discharge debts “for a domestic support allegation,” and 11
U.S.C. § 523(a)(15), covering debts “to a spouse, former spouse, or child of the debtor and not of the kind
described in [§ 523(a)(5)] that is incurred by the debtor in the course of a divorce or separation or in
connection with a separation agreement, divorce decree or other order” of a court or governmental unit.

In Johnson, the court said that after the Bankruptcy Abuse Prevention &
Consumer Protection Act of 2005 (119 Stat. 186) (“BAPCPA”), the distinction
between domestic support obligations (§ 523(a)(5)) and other types of obligations
arising out of the ending of a marital relationship (§ 523(a)(15)) is of no practical
consequence in a Chapter 7 bankruptcy: neither is dischargeable in Chapter 7. The
court went on to state that it was of no consequence that the obligation was owed to
the wife’s attorney and not to the wife directly. While 11 U.S.C. § 101(14A) defines
“domestic support obligation” as used in § 523(a)(5) as a debt “owed to or
recoverable by” the spouse or child, courts have not interpreted the statute literally,
looking instead to the nature of the debt and not to whom the debt is owed. Johnson
followed that trend. Reinhardt

Chapter 13 Different: However, there is a significant distinction between the dischargeability of
debts arising from a divorce or separation in a Chapter 7 and a Chapter 13 bankruptcy proceeding.

In Chapter 13, to obtain confirmation, plans must provide for payment in full of claims entitled to
priority under 11 U.S.C. § 507. 11 U.S.C. § 1322(a)(2). “Domestic support obligations” are entitled to
such priority. § 507(a)(1)(A). Further, “domestic support obligations” are excepted from the general
discharge granted to debtors upon completion of Chapter 13 plan payments. 11 U.S.C. §§ 523(a)(5),
1328(a)(2). If the debtor’s obligation is “domestic support,” the debtor must propose to pay it in full
through a repayment plan, and the obligation will not be discharged unless it is paid in full.

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
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