Pre-Bankruptcy Agreement Not To Discharge Debt Unenforceable

Posted by NCBRC - December 29, 2014

A debtor’s agreement prior to filing bankruptcy not to discharge her debt for attorney’s fees was found to be unenforceable under section 523(a)(2) and for public policy reasons. Ziegler v. Kline (In re Kline), No. 14-12815, Adv. Proc. No. 14-227 (Bankr. E.D. Pa. Nov. 20, 2014).

The debtor’s attorney, who represented her in a custody dispute and other issues relating to her children, required that she agree that if she filed for bankruptcy she would not discharge her obligations for his fees. The debtor filed for bankruptcy approximately a year and a half later (using a different attorney), and listed her state law attorney fees in her schedules. Her state law attorney filed an adversary proceeding seeking to have the obligation found non-dischargeable.

The court found that the fees were dischargeable. (The court specifically declined to address the issue of conflict of interest with respect to this agreement).

The court began with the plaintiff’s argument that his services were critical to the debtor and that allowing her to agree in advance of bankruptcy not to seek discharge of his fees would further the public policy of making critical legal services available to debtors. Rejecting this position, the court noted that debtors tend to have many critical legal matters and permitting a debtor to agree to the non-dischargeability of any such service would create a “slippery slope” in which debtors seeking a fresh start would be unable to discharge debts for essential services such as heat, food, housing, etc. Permitting debtors to waive discharge when they incur debt would place a powerful tool in the hands of creditors to require such waiver prior to advancing money, goods or services. The court concluded that “[a] more thorough roadblock to a debtor’s fresh start could not exist.”

Though the court found that its decision was governed by the public policy issue alone, it went on to address the plaintiff’s argument based on section 523(a)(2)(A), which prevents discharge of debts incurred by reason of false representation or fraud. The plaintiff’s case rested on the allegation that when the debtor agreed to waive discharge of his fees, she was lying. Section 523(a)(2)(A) requires that for a debt to be non-dischargeable, the plaintiff must show by a preponderance of the evidence that the debtor knew her statement was false and had an intent to deceive. The court found that evidence supported the contrary conclusion. The debtor did not know she could not waive discharge of her state attorney fees when she promised to do so, and her behavior in paying toward those fees to the extent that she was financially able, supported the conclusion that intended to make good on her agreement. Therefore, the plaintiff failed to show that the debtor intentionally misled him as required by section 523(a)(2)(A).

Kline Bankr ED Pa opinion


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