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BAPCPA Makes Family Court Debts Automatically Non-Dischargeable in Bankruptcy - In re Mason

December 5, 2012

At Howard Law, P.C., our San Bernardino County personal bankruptcy attorneys routinely explain to clients that child support and spousal support are not dischargeable in bankruptcy. These are the most common support obligations to come out of a family court--but sometimes, a family court creates a one-time financial obligation as well. That was the case in In re Mason, a New Hampshire Supreme Court dispute over whether Robin Mason could discharge her obligation to pay half of the 2006 income tax bill for her ex-husband, Martin Mason. The bankruptcy court discharged Robin's debt, but Martin moved to hold her in contempt for not paying it. On appeal, however, the state's highest court found that under the 2005 changes to the bankruptcy laws, BAPCPA, any family-court debt is automatically not dischargeable.

The Masons received their final divorce decree in 2007, and the decree included an order for Robin to pay 50% of Martin's 2006 taxes. In 2010, Robin filed for Chapter 7 bankruptcy, listing Martin as a creditor and codebtor on a tax lien, and listing the debt itself as an unsecured priority claim. She was granted a discharge. She and Martin both later petitioned the IRS for "innocent spouse relief" from their 2006 income taxes; her petition was granted and his was denied. In 2011, Martin petitioned for a court order forcing Robin to pay her half of the 2006 taxes. The circuit court denied this, saying her innocent spouse relief changed the taxes from a debt to the IRS to a debt to Martin, but that the debt to Martin had been discharged in bankruptcy, where Martin had had a chance to make a showing of non-dischargeability. It also denied his claim for attorney fees.

The New Hampshire Supreme Court reversed this ruling, in a case that depended on the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The court framed the question as one of whether the debt was automatically non-dischargeable--as child support would be--or one that would be non-dischargeable only if Martin made a showing for why it should be. Reading the language of the pre-2005 law, the court found that the old law would have required a showing by the creditor to be non-dischargeable, as the trial court concluded. However, the high court said, BAPCPA eliminated the "ability to pay" tests required to see if a debt was exempted from discharge. Rather, the new law said that any debt falling under certain categories is automatically non-dischargeable, and debt created by a divorce decree is one of those areas. Cases elsewhere in the country show that this is a debt to her ex-husband, not to the IRS, so she cannot defeat it.

Vincent Howard and our Yorba Linda consumer bankruptcy lawyers are disappointed but not surprised to see another inflexible situation created by BAPCPA. The law was widely criticized at the time it passed for creating very inflexible categories of debtors, giving courts little discretion, and generally not being well written. If widely adopted, the majority's logic will give bankruptcy courts less leeway in deciding whether it is just to deny a discharge--and after all, weighing the evidence and the facts carefully is why we have courts in the first place. Vincent Howard and our Redlands individual bankruptcy attorneys prefer to be able to highlight the facts when the client is in an exceptional situation.

If you're tired of struggling with your debt and you'd like to discuss your legal options with an experienced bankruptcy lawyer, call Vincent Howard and the team at Howard Law in Costa Mesa. You can send us a message online or call toll-free at 1-800-872-5925.

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