Litigation

Attorneys' Fees in Bad Faith Bankruptcy Claim

Where a bankruptcy claim is filed in bad faith to avoid attorneys' fees in a matrimonial action, the claim may be dismissed. In Re Lombardo, Case No. 806-73127-478, United States Bankruptcy Court for the Eastern District of New York, June 29, 2007.

The debtor filed for Chapter 7 relief, listing eight creditors on her schedules. Seven of the creditors were credit card companies with a total debt of $8,409.63. The eighth creditor was the debtor's matrimonial attorney, whose claim was in the sum of $56,749.95 for legal fees associated with the debtor's litigious divorce. After a hearing, the bankruptcy court dismissed the debtor's claim, citing bad faith. It held that under 11 U.S.C. ' 707(a), although 'bad faith' is not an enumerated cause for dismissal, the Second Circuit has followed a course of dismissal where there is an absence of good faith after consideration of the totality of the circumstances, including: the debtor's manipulations, the absence of an attempt to pay creditors, the debtor's failure to make lifestyle changes, the resources of the debtor, and the inflation of expenses by the debtor. In this case, the court also considered that the creditor, as the debtor's matrimonial attorney, could have removed herself from the litigation when the debtor was unable to pay her attorneys' fees. The attorney-creditor, however, continued to stay on the case because the debtor claimed she did not have funds to retain another attorney.