Debt Owed to State Bar by Former Lawyer, which was a Penalty and Not Compensation for Pecuniary Loss, was Non-Dischargeable under § 532(a)(7)

Debt Owed to State Bar by Former Lawyer, which was a Penalty and Not Compensation for Pecuniary Loss, was Non-Dischargeable under § 532(a)(7)

The Debtor filed a Chapter 7 bankruptcy case on February 26, 2016. The Debtor listed the State Bar as a priority creditor with a claim in the amount of $11,456.00 and did not mark any of the boxes that the claim is “contingent,” “ unliquidated,” or “disputed.”

On January 13, 2017, the State Bar commenced this Adversary Proceeding by filing a Complaint objecting to the dischargeability of the debt owed by the Debtor. At issue is whether the Debtor’s debts to the State Bar are excepted from discharge under 11 U.S.C. § 523(a)(7).
The Debtor was a licensed attorney in the State. On February 26, 2003, the State Bar  Disciplinary Board revoked the Debtor’s license to practice law due to his violations of the ethical rules of conduct. The revocation was entered with the Debtor’s consent.
Among the ethical and professional code violations listed in the agreed revocation order are violations pertaining to the Debtor failing to reimburse clients for funds paid and entrusted for attorney’s fees not yet earned. As a consequence of the Debtor’s actions, the State Bar paid $15,733.33 out of Client Protection Fund (the “Fund”) to his injured clients. The Debtor paid one client’s claim in the amount of $2,400.00, leaving a balance due to the Fund of $13,333.33. The Debtor posted a bond in the amount of $5,000.00, which paid his costs of $3,065.52 and the balance of the bond in the amount of $1,934.48 was applied to the balance owed to the Fund, leaving a balance due of $11,398.85. In addition, after an audit, the State Bar credited $426.29 to the Debtor’s account. The Debtor failed to make any further payments to reimburse the Fund. The total due as of the date the Debtor filed his Chapter 7 Petition was $10,972.56.
In 2008, the Debtor petitioned for reinstatement of his license, but the State Supreme Court
denied his petition, in part, based on his failure to repay the Fund. On October 24,
2011, the Debtor filed a second petition in the Supreme Court  seeking reinstatement
of his law license. The  Disciplinary Board recommended that the license be reinstated, but
only after the Debtor paid the full balance of the debt owed to the Fund.
On February 28, 2014, the Supreme Court approved the petition for reinstatement of the Debtor’s license upon the satisfaction of several conditions, one of which was to repay the full debt owed to the Fund on or before September 1, 2015.
The Debtor failed to make the payment, and as of the date of filing he owed the adjusted balance of $10,972.56 to the Fund. The Debtor lists this debt as an undisputed priority debt on Schedule E, and admitted in his answer and amended answer that he “agrees that he has more than an obligation to repay these funds.”

Please note, in order to view NACBA Member Content, you must sign in and then visit NEWS. If you are not a NACBA member, you may Become a NACBA Member 

No Comments

Post a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.