Trying to eliminate divorce lawyer’s fee in bankruptcy

couple arguingDebtors who have outstanding bills for legal fees at the time they file a bankruptcy case should include those bills on their bankruptcy schedules and seek to discharge them.

Almost always this works out fine. Your own bills for legal work already performed are usually considered perfectly dischargable. A typical scenario involves a debtor who has been divorced; his own outstanding legal bills from the divorce can be written off in the bankruptcy. It may not seem nice (at least to us lawyers, who are touchy about the subject of fees), but it usually goes down without a hitch.

But that certainly didn’t happen for one debtor in Massachusetts, who found himself being sued in bankruptcy court by his own divorce lawyer after he tried to discharge the lawyer’s $87,000 bill. The divorce lawyer struck back hard — claiming that her services were obtained through fraud.

The debtor in the Dougherty case (the long opinion can be downloaded by clicking here) hired a divorce attorney in 2005 to seek a modification in his divorce case. Sick of not getting paid, she tried to attach $116,000 in the debtor’s investment accounts through a state court lawsuit, but was foiled when the debtor switched funds out of the account before the garnishment (“trustee process” in Massachusetts lingo) could be completed.

The debtor filed for chapter 7, which would usually be the end of things, but the divorce lawyer wasn’t hearing it. She filed another lawsuit in the bankruptcy case, claiming that three types of fraud should prevent her fees from being discharged.

Ultimately, she based her case on section 523 (a) (6) of the bankruptcy code, which bans discharge for “willful and malicious injury by the debtor to another entity or to the property of another entity.”

That turned out to be too narrow of an argument, and the debtor prevailed, discharging the entire debt. But it couldn’t have been a pleasant experience — first a divorce, then a bankruptcy, and then a long (five years in this case) battle with your own divorce lawyer in the bankruptcy court. Ouch!

by Doug Beaton

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