This Bankruptcy Court held that the debtor must pay creditor’s attorney fees after the creditor prevailed in a complaint for nondischargeability.

A Chapter 7 bankruptcy frees the relieves the debtor from all prior personal obligations.  However, the policy “underlying bankruptcy law entitles only honest debtors to the fresh start” after discharge.

If a debt results from fraud, false pretenses or misrepresentations, the creditor may file an adversary proceeding to have the court determine the debt to be nondischargeable. If the debt is determined to be nondischargeable, the debtor remains liable on the obligation.

There is no statutory basis in the Bankruptcy Code for a creditor to be awarded attorney fees against the debtor in an adversary proceeding when the creditor prevails. However, there is a provision that the debtor’s attorney fees be paid by the creditor if the creditor does not prevail.

Without a statutory right to collect attorney fees for the creditor, the creditor must have an independent right on which to base an award of attorney fees.

In this case, the contract between the creditor and the debtor specifically provided that the debtor would pay all reasonable attorney fees of the creditor in the event of a collection action. Without this provision in the contract, both parties would generally be responsible for their own attorney fees.

This case does, however, impose attorney fees against the debtor when the underlying contract so provides. Here, the debtor was compelled by the court to repay the creditor’s attorney fees incurred to contest this bankruptcy proceeding. James R. Barnard, D.D.S., Inc. v. Bradley Silva, 125 B.R. 28.

EDITOR’S COMMENT

Some of the Credit Union forms obtained from their document suppliers do not require that the debtor pay the Credit Union’s attorney fees, however, those same loan documents should provide for payment of these fees. Courts around the country support the position in the above case, and there are numerous cases reported that will impose this obligation on the debtor.

Author: Charles R. Harroun, Attorney at Law