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Loan From Former Wife Not Dischargeable, But May Be Addressed in Divorce - Kinkade v. Kinkade

February 15, 2013

At Howard Law, P.C., our Corona personal bankruptcy lawyers occasionally represent clients who are going through a bankruptcy and divorce at the same time. Money problems can often strain relationships, and it's unfortunately also true that divorce is expensive. But when the proceedings overlap, they can complicate one another because an order from one court usually must be respected by the other--for example, child and spousal support orders are not dischargeable in bankruptcy. In Kinkade v. Kinkade, Irene Porter Kinkade won a ruling from the bankruptcy court that two loans made to her ex-husband's business are not a dischargeable debt, because the state court ordered Kenneth Kinkade to pay them during the divorce. Kenneth appealed that order to the Fifth U.S. Circuit Court of Appeals, but that court agreed that the debt is a non-dischargeable family court debt.

Irene lent Kenneth $23,675.50 before they married, for a business deemed separate property. After they married, she lent him an additional $20,000. They divorced in 2006. The Louisiana state court handling their divorce provided that Kenneth owed Irene $43,675.50 plus interest. It also awarded Irene a sum of nearly $10,000 from the sale of community property, but which had somehow been lost. The court order said that if it is found, the entire sum is awarded to Irene and half of it will be deducted from Kenneth's debt. In 2011, Kenneth filed for Chapter 7 bankruptcy. Irene started an adversary proceeding to contest the discharge of his debt. They filed cross-motions for summary judgment, and the bankruptcy court ruled that because the debt was incurred in the course of the divorce, it was not dischargeable.

On appeal, Kenneth argued that the bankruptcy court, and the district court that upheld it, incorrectly applied a section of the Bankruptcy Code that applies only to community debts. The Fifth Circuit disagreed, saying the statute's text doesn't make a distinction between them: debts must be "incurred by the debtor in the course of a divorce or separation." Kenneth cited no precedent suggesting otherwise, the court said. It also rejected his second argument, that the bankruptcy code shouldn't apply to the pre-marital debt because in the absence of a marriage, that debt should be governed by contract law. To hold otherwise, he argued, would recognize common-law marriage, which is outlawed in Louisiana. The court found no such relationship to common-law marriage. The section permits state courts to determine whether debts should be included in a divorce or governed by contract, the Fifth said, and the court in their case decided this debt was not just contractual.

Vincent Howard and our Newport Beach individual bankruptcy attorneys appreciate the problem Kenneth Kinkade must be facing. Given the size of his debt to his ex-wife, he may have filed for bankruptcy just to try to discharge that debt. Unfortunately, many divorce court orders are non-dischargeable, and bankruptcy courts have limited power to change that. Former spouses who are feeling major financial strain because of such an order may be able to rearrange their other financial obligations to make repayment possible, but a family court may be the only one that can modify the order. That's why Vincent Howard and our Fontana consumer bankruptcy lawyers prefer to work with divorce attorneys when the cases overlap, to ensure our clients are well-positioned to recover.

If you don't believe your debts are reasonably repayable and you're ready to discuss your bankruptcy options, call Vincent Howard and the team at Howard Law today. You can send us an email or call 1-800-872-5925.

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