Many clients turn to bankruptcy for debt relief after divorce. The dissolution of marriage leads to increased expenses such as the maintenance of 2 separate households, increased child care costs, and divorce attorney fees. Accordingly, many people considering bankruptcy want to know if they can discharge their divorce attorney fees in chapter 7.
General Unsecured Debt
Divorce attorney fees free of a lien against property is general unsecured debt in chapter 7 bankruptcy. Accordingly, it is generally dischargeable in chapter 7 bankruptcy. Moreover, claims for an exception to discharge for fraudulently incurred debt will likely be unsuccessful given that attorney fees are incurred in divorce over many months, making a fraudulent debt claim based on a “rapid” bankruptcy filing following the debt unlikely. In contrast, large one-time credit card charges or loans immediately followed by a bankruptcy filing are vulnerable to 523(a)(2) nondischargeability actions for fraudulently incurred debt.
Divorce Attorneys Put Themselves At Risk
In most divorce cases, the attorney charges a retainer fee which functions as a deposit. In turn, the attorney works on the client’s case and sends a monthly bill that reflects their total time multiplied by their hourly rate. Once sent, the attorney deducts that amount from the retainer fee, and once the retainer fee runs low they ask the client to replenish the retainer with another payment.
Some divorce attorneys take a calculated risk by working on cases without a retainer fee. These bills usually add up quickly as the attorney hopes to be paid later once the marital property is sold or support secured. However, these attorneys take a calculated risk that their clients won’t pay them, not because the client simply doesn’t want to, but usually because the final bill is astronomically high – perhaps due to over-billing. In these cases, the client may need chapter 7 bankruptcy for any number of reasons, but because they cannot exclude debts when filing bankruptcy the divorce attorney’s final bill must be included. Therefore, the bankruptcy court’s discharge order will eliminate the divorce attorneys’ unsecured claim, thereby eliminating the client’s legal obligation to repay the bill and barring the attorney from asking for payment.