Sunday, January 31, 2010

Attorney Fees Non-Dischargeable When Representing Child

Here's an interesting case where the USDC reversed the bankruptcy court regarding the dischargeability of debt owed not to debtor's "child," but owed to the attorney for the child in a divorce proceeding. 

In Levin v. Greco (In re Greco), 415 B.R. 663 (N.D.IL 2009), the USDC held that debt owed to a “child representative” qualifies for the Section 523(a)(5) domestic support exception to discharge under the Bankruptcy Code since that debt resulted from a court-approved divorce action settlement for legal services rendered on behalf of debtor’s child.

Section 523(a)(5) provides that a debt “for a domestic support obligation” is not dischargeable in bankruptcy. The term “domestic support obligation” is defined in the Bankruptcy Code as debt that is owed to or recoverable by “a spouse, former spouse, or child of the debtor….” Section 101(14A).

The child representative admitted that he did not satisfy the technical requirements of subsection 14(A) since the debt was not owed to the “child,” but he argued that an exception should be recognized for child representatives to encourage future attorneys to serve as child representatives in divorce proceedings without fear of losing their fees.

The Levin court noted that the 7th Circuit has not yet addressed the issue, but the court recognized that the 7th Circuit has endorsed the notion that Section 523(a)(5) can except debts owed to third parties. Citing In re Rios, 901 F.2d 71, 72 (7th Cir. 1990)(“And awards of attorneys’ fees for services in obtaining support orders have been held nondischargeable even though the attorney is neither a spouse, a former spouse, nor a child of the debtor”).

The court acknowledged that the principal purpose of the Bankruptcy Code is to grant a fresh start in life and any exceptions to discharge are generally construed strictly against a creditor and liberally in favor of debtor. Notwithstanding, the court believed that the long standing policy of protecting spouses and children required a Section 523(a)(5) exception from discharge to be construed more liberally than other Section 523(a) exceptions.

Therefore, the Levin court expanded the scope of the term “child” as defined by Section 101(14A) as incorporated into the Section 523(a)(5) discharge analysis. Consequently, the court held that the debt owed to the child representative is not discharged by debtor’s bankruptcy.

Warmest Regards,

Bob Schaller

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By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
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