Prepetition Debt Not Dischargeable in Bankruptcy When Collateral to Support - Ky Court of Appeals Published Opinion

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During the marriage, Wife paid Husband’s credit card debt. After the divorce was granted, but before the trial court entered an order regarding the division of assets, Husband filed Chapter 7 bankruptcy. His debts were discharged in bankruptcy. Subsequently, the trial court ordered Husband to pay Wife back for her payment of his credit card debts.

The Court of Appeals first considers when Husband’s debt accrued. The Court of Appeals holds that the fair contemplation test applies in Kentucky, therefore the debt accrued before Husband’s bankruptcy petition, as at the time he filed for bankruptcy, he was on notice Wife would seek repayment of the debt. “[T]he ‘prepetition relationship’ or ‘fair contemplation’ test provides that “where the parties could have fairly contemplated a claim prior to bankruptcy, the claim will be held to have arisen prepetition, even when the actual right to payment matures postpetition.”

Next, the court looks to see if the prepetition debt is dischargeable. Husband argues the debt was dischargeable and he shouldn’t have to pay Wife. The Court of Appeals disagrees holding that “the credit card debt in the present case was entirely collateral to child or spousal support, and therefore not dischargeable under 11 U.S.C.A. § 523(a)(5).”

Digested by Elizabeth M. Howell