Summary:
Following their divorce and Settlement Agreement, wherein the North Carolina Administrative Office of Courts form was used and Mr. Thomas agreed to pay all marital debt other than the obligation to SECU, Mr. Thomas filed Chapter 7. Ms. Thomas sought to have these obligation declared nondischargeable pursuant to 11 U.S.C. § 523(a)(15), which excepts a debt from discharge—
to a spouse, former spouse, or child of the debtor and not of the kind described in [§ 523(a)(5)] 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 record.
The bankruptcy court, relying on its earlier decision in Baum v. Baum (In re Baum), No. 14-00044-5-DMW, 2016 WL 5360709, held that this requires a “new debt” that was not in existence before the divorce, which would include a hold harmless or indemnification provision. Rejecting Wodark v. Wodark (In re Wodark), 425 B.R. 834 (10th Cir. B.A.P. 2010), which held that a settlement where one spouse agreed to pay a debt for which he or she was already liable did fall within § 523(a)(15), the bankruptcy court here instead refused “to give the benefit of indemnification where the agreement is silent on that issue.” Particularly, as Ms. Thomas was represented by counsel, the bankruptcy court held that if indemnification was intended, it should have been clearly stated.
Commentary:
The Settlement Agreement, described by the bankruptcy court as an example of “poorly drafted orders and settlement agreements that do not consider the effects of the Bankruptcy Code upon the terms of these documents” was agreed to on April 18, 2017. It is still withing the three-year Statute of Limitations for a state court to determine if it agrees that this failure constitutes attorney malpractice.
For a copy of the opinion, please see:
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