Author: Andrew M. Thaler & Spiros Avramidis
As explained in a prior post by Andrew M. Thaler, it’s general knowledge among matrimonial attorneys that debts classified as domestic support obligations (“DSO’s”) cannot be discharged. Furthermore and maybe not as generally known, attorneys’ fees owed to a non-debtor spouse, whether directly or indirectly, by a debtor can survive a bankruptcy discharge. First, there are some interesting quirks to whether a DSO can be discharged. For instance, a debt does not have be payable directly to the non-debtor spouse for it to be excepted from discharge. Courts look at the substance and the nature of the debt rather than the identity of the payee; for instance, does the non-debtor spouse benefit from payment to the third party? The fact that the obligation is payable to the attorney and not the non-debtor spouse will not necessarily make the debt dischargeable.
Maybe not as widely known either, a debt that is originally a DSO can potentially fall out of that “classification” if the debt is assigned to a non-governmental entity. Additionally, there is another more broader statute that excepts from discharge “any debt to a spouse, former spouse, or child of the debtor … 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 of record, or a determination made in accordance with State or territorial law by a governmental unit.”
All of this this plays an important role in determining whether attorneys’ fees owed to a non-debtor spouse, whether directly or indirectly, are dischargeable. Most courts are in agreement that a debt owed to a non-debtor spouse for attorneys’ fees is not dischargeable. The cases never put any import on whether the debt is payable directly to the non-debtor spouse or to her attorneys. Interestingly, courts have generally followed one of two roads in reaching this same conclusion of nondischargeability. Some courts find the debt excepted under the DSO statute while other courts use the broader statute.
Following the first “road," courts generally conclude that attorneys’ fees wouldn’t be granted by a matrimonial court without a finding of financial need on behalf of the non-debtor spouse; therefore, the attorneys’ fees are in the nature of alimony, maintenance, or support. On the second “road,” courts find it unnecessary to make a determination as to whether the attorney’s fees are in the nature of alimony, maintenance, or support; instead, the courts rely on the broader statute and conclude that the non-debtor spouse’s attorneys’ fees are a debt incurred by the debtor in connection with a divorce and are therefore nondischargeable.
Of course, the above will not except from discharge fees the debtor owes to his own attorneys. Such fees will usually be discharged unless they are excepted under some other basis in the bankruptcy code.
While the courts and statutes generally give broad protection to a non-debtor spouse creditor, navigating the complexity of the Bankruptcy Code and honing in on the reason can often be difficult. One thing is for certain: any potential debtor or non-debtor spouse should have an experienced bankruptcy attorney by their side to advise them on the dischargeability of debts owed by or to them.
All of this this plays an important role in determining whether attorneys’ fees owed to a non-debtor spouse, whether directly or indirectly, are dischargeable. Most courts are in agreement that a debt owed to a non-debtor spouse for attorneys’ fees is not dischargeable. The cases never put any import on whether the debt is payable directly to the non-debtor spouse or to her attorneys. Interestingly, courts have generally followed one of two roads in reaching this same conclusion of nondischargeability. Some courts find the debt excepted under the DSO statute while other courts use the broader statute.
Following the first “road," courts generally conclude that attorneys’ fees wouldn’t be granted by a matrimonial court without a finding of financial need on behalf of the non-debtor spouse; therefore, the attorneys’ fees are in the nature of alimony, maintenance, or support. On the second “road,” courts find it unnecessary to make a determination as to whether the attorney’s fees are in the nature of alimony, maintenance, or support; instead, the courts rely on the broader statute and conclude that the non-debtor spouse’s attorneys’ fees are a debt incurred by the debtor in connection with a divorce and are therefore nondischargeable.
Of course, the above will not except from discharge fees the debtor owes to his own attorneys. Such fees will usually be discharged unless they are excepted under some other basis in the bankruptcy code.
While the courts and statutes generally give broad protection to a non-debtor spouse creditor, navigating the complexity of the Bankruptcy Code and honing in on the reason can often be difficult. One thing is for certain: any potential debtor or non-debtor spouse should have an experienced bankruptcy attorney by their side to advise them on the dischargeability of debts owed by or to them.
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