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Sunday, September 30, 2018

Make Sure to Hire Attorney That Understands Bankruptcy in Divorce

I Was Ordered to Pay for My Spouse's Attorney Fees. Can I Wipe Them Out if I File for Bankruptcy?

It's common to hear about  an ex spouse filing for bankruptcy after a divorce is over, and often the spouse will list the other spouse's  attorney fees as a debt on the bankruptcy schedules. Thus, attorney fees as a dischargeable debt in bankruptcy become a big issue.
The key question is whether the attorney fee debt is declared as a support obligation-- or--- as a property settlement claim.
The California Bankruptcy Court  declared obligations to pay spousal support and attorney fees as non-dischargeable pursuant to 11 U.S.C. § 523(a)(5). Van Aken v. Van Aken, 2005 Fed. App. 0001 (6th Cir. 2005).
If a spouse attempts to discharge an attorney fee award, it is imperative that the other party IMMEDIATELY file an adversary proceeding with the Bankruptcy Court. This request calls for a Court hearing over the dispute, and the Court decides whether the  fee award is support and non-dischargeable. 
Likewise, the Bankruptcy Court could determine the  fee award was a form of equitable distribution that can be discharged. 
The Court could also order the payment terms be restructured. It is important to note that if a non-debtor spouse ignores a spouse's bankruptcy filing, disastrous results could ensure. No objection typically means the debtor spouse will successfully discharge a  fee obligation.
As can be seen, IF your attorney sets up a settlement wherein YOUR support is called a property settlement, and not support-- you may end up in trouble if fees were awarded to you, and the ex files bankruptcy. some attorneys do not like to call spousal support what it is (and support is taxable to payee) so they end up calling it something else. Depending on what they called it in the settlement documents, this could make a big difference in bankruptcy.
Bankruptcy is a very complex subject which is both legally and technically complicated. No divorce settlement should ever be entered into without FIRST figuring out, what would the effect be IF the other party filed bankruptcy--before, during, or after divorce. The timing can make a big difference, and the fallout, especially if a house is involved can become quite complicated.