Attorney Fees Incurred by the Debtor in a Divorce Proceeding (simply a debt owed to the attorney) Discharged Because Former Counsel Could Not Meet its Burden (1st Circuit 2014)

Debtor, pre-petition, retained an attorney to proceed in a contentious divorce proceeding.  Counsel was paid an initial $25,000.00 retainer but billed over $60,000.00.  Due to the debt and other circumstances, the client filed bankruptcy.  Former Counsel sued the Client seeking a determination that the debt was not discharged based upon 523(A)(2)(a).  (i.e. the debt was incurred under false pretenses...perhaps a promise to pay)  Former Counsel lost at a bench trial, appealed the case to the BAP, lost and then filed an appeal the 1st Circuit.  The 1st Circuit affirmed.  The Court determined that the Counsel did not prove its case with a preponderance of the evidence.  It seemed like the Debtor was a bad apple and lacked candor but the Court stated:

The attorney argues pejoratively that the debtor

was shown to be a liar and that the debtor's "dishonest and

untrustworthy" testimony undermines the bankruptcy court's

factfinding. This argument is wide of the mark. The bankruptcy

court did not rest its decision on any illusions about the debtor's

veracity. To the contrary, the bankruptcy court found much of her

testimony to be self-serving and not deserving of credence. See

deBenedictis, 2013 WL 1342479, at *2.

Taking this lack of veracity into account, however, it

proceeded to find that the attorney's proof was not preponderant.

See id. at *7-8. We are not aware of any rule that mandates a

finding of nondischargeability against a party simply because her

testimony lacks candor. Although we do not countenance untruthful

testimony, a finding of nondischargeability requires more than a

showing that the debtor exhibited a serious character flaw. The

attorney, who had the burden of proof, made no such additional

showing here


IN RE KAREN A. BRADY-ZELL 1st Circuit 2014