Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Sept. 16 — An award of attorney's fees to a debtor's ex-wife for “overtrial” is a domestic support obligation (DSO) entitled to priority in bankruptcy, the Seventh Circuit held Sept. 14 ( Trentadue v. Gay (In re Trentadue), 2016 BL 299410, 7th Cir., No. 15-3142, 9/14/16 ).
Judge Michael S. Kanne of the U.S. Court of Appeals for the Seventh Circuit concluded that the $25,000 attorney's fee award was in the nature of support and was awarded by the state court to compensate the debtor's ex-wife for additional legal fees she incurred as a result of the debtor's “desire to ‘win' and control” the proceedings, which involved issues of custody, placement, health insurance, and child support for the couple's six children.
To qualify as a DSO under Bankruptcy Code Section 101(14A)(B), the debt must be “in the nature of … support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated.” DSOs are exempt from discharge in bankruptcy and entitled to priority status, the court said, citing Sections 1328(c)(2), and 507(a)(1)(A).
Debtor Christopher Trentadue and his ex-wife have joint legal custody of their six children. They ended up in protracted litigation in state court, which eventually ordered the debtor to pay his ex-wife $25,000 in attorney's fees for “overtrial,” but directed him to make the payment directly to his ex-wife's attorney Julie Gay.
The debtor never paid Gay, but filed for Chapter 13 protection, which allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, however, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.
Gay claimed a nondischargeable, DSO entitled to priority status in the debtor's bankruptcy case.
The bankruptcy court overruled the debtor's objection, and the district court affirmed.
On appeal, the debtor argued that the award can't be a DSO because it isn't payable to his spouse, former spouse, child, or a caregiver, but to his ex-wife's attorney, and that the award was intended to be a punishment and not in the nature of support.
The Seventh Circuit rejected the debtor's first argument on the wrong payee because he didn't raise it in the court below.
The court looked to the state court's intent when awarding the attorney's fees and concluded that they were in the nature of support, not meant as a punishment.
Senior Judge Kenneth F. Ripple, and Judge Ann Claire Williams joined the opinion.
Christopher Keleher, Keleher Appellate Law Group, Chicago, represented debtor/appellant Christopher A. Trentadue; Michael P. Dunn, Gregory M. Schrieber, Kerkman - Dunn, Milwaukee, Wisc., represented appellee Julie M. Gay; Mary B. Grossman, Trustee, pro se, Milwaukee, Wisc.
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