Are you committing malpractice? The 2005 BAPCPA amendments has now created a malpractice trap for family law attorneys in 11 USC 523a(15). Failing to take this new provision into account could expose an attorney to liability risks.
That provision provides:
to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (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 of record, or a determination made in accordance with State or territorial law by a governmental unit;
Thus, the allocation of debt in the marital settlement agreement will create a new debt between the spouses incurred in the course of the divorce, and the debt will be excepted from discharge under section 523(a)(15). This is self executing and no adversary proceeding needs to be filed. In essence, the property settlement agreement gives each party the power to sue to enforce the agreement. Each party can then sue the other party to assume the obligation they agreed to.
Thus, if you execute a property settlement agreement that allocates JOINT debts between the parties, with the knowledge that one of the parties may be filing bankruptcy, you should strongly counsel your client of the ramnifications. For example, if the MSA contains a provision that allocates joint taxes and a joint credit card to be paid 50/50 by the spouses, and one spouse later files bankruptcy and the other does not, the non filing spouse can then sue the filing spouse for not abiding by the agreement to pay those debts because of the new debt created by the settlement agreement between the spouses.
Thus if you wish to protect your client from being sued for a new marital debt if they file for bankruptcy relief, you would want to insert a 523a15 waiver into the MSA such as the following:
If either party files for bankruptcy, the non-filing party agrees to waive their indemnity rights under 11 USC 523(a)15.
Failing to do so, or failing to at least fully explore the same with a family law client, could expose a family law practitioner to legal malpractice claims.
Written by Michael G. Doan– Owner of the Carlsbad Bankruptcy Attorney Office, Michael also manages his business and is a highly skilled Bankruptcy Attorney with over 17 years of experience. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California.
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