Recent Case Summary

Is a debt from a marital dissolution action, which is payable directly to the ex-spouse’s law firm, a priority claim?

A Chapter 13 Debtor was obligated on a fee award entered in favor of the law firm that had represented his former wife in their marital dissolution action. When the law firm filed a priority claim in the bankruptcy case, the Debtor objected. In re Orzel, 386 B.R. 210 (Bkrtcy.N.D. Ind. 2008).

Judge Klingeberger looked to the literal language and plain meaning of §507(a)(7) in this pre-BAPCPA case. The Court determined that the clear, express terms of the statute required that the debt be owed “to a spouse, former spouse, or a child of the debtor…,” subject to several inapplicable limitations. The Court stated, “The identity of the claimant required by §507(a)(7) couldn’t be clearer – the debt must be owed to a ‘spouse’ or ‘former spouse’, and not to a law firm which represented the ‘spouse” or ‘former spouse’ in a dissolution of marriage action.” The Court disagreed with the contra Eighth Circuit holding of In re Kline, 65 F.3d 749 (8th Cir. 1995), as not following the unambiguous statutory language. Comment: Post-BAPCPA, DSO claims are now found at §507(a)(1), and are specifically identified as claims “owed to or recoverable by a spouse, former spouse, or child of the debtor, or such child’s parent, legal guardian, or responsible relative….”; so this holding would seem to apply to the amended statute as well as its predecessor.