525 B.R. 912
Bankr. E.D. Wis.2015Background
- Debtor Tina M. Dahle‑Fenske borrowed $300,000 from Jane C. Kelley; a promissory note (drafted and backdated by Debtor) provided for interest and recovery of reasonable attorneys’ fees on default.
- Debtor defaulted; Kelley sued in federal district court and ultimately obtained a default/nondischargeable judgment against Debtor of $396,476.52 (principal + interest) by stipulation.
- Debtor’s husband, Trevor A. Fenske, previously filed a Chapter 7 (listed Debtor as non‑filing spouse) and received a discharge before Debtor filed her own Chapter 7; Kelley was not scheduled as a creditor in Fenske’s case and the lawsuit against Debtor was not listed in his schedules.
- Kelley incurred approximately $73,560 in fees before Debtor’s bankruptcy and $18,798 after Debtor filed; she seeks recovery of reasonable attorneys’ fees under the note as part of the nondischargeable judgment.
- Central legal question: whether Kelley can (1) recover contractual attorneys’ fees as part of the nondischargeable judgment and (2) collect the judgment from post‑petition community (marital) property despite Fenske’s earlier discharge (the “phantom discharge”).
Issues
| Issue | Plaintiff's Argument (Kelley) | Defendant's Argument (Dahle‑Fenske) | Held |
|---|---|---|---|
| Allowability of attorneys’ fees under the promissory note | Note expressly provides for costs and reasonable attorneys’ fees on default; enforce the contract term | Note was drafted and backdated after the loan; fees for some litigation (esp. against insurer) were unreasonable and should not be recoverable | Court held contractual attorneys’ fees are recoverable as part of the nondischargeable judgment; amount to be determined separately for reasonableness |
| Whether Fenske’s Chapter 7 discharge (phantom discharge) bars collection from post‑petition community property | Phantom discharge shouldn’t apply because the debt is nondischargeable under §523 and the exception to community discharge covers such claims | Fenske didn’t schedule Kelley or the District Court suit; Kelley lacked notice to object to hypothetical discharge in time, so the phantom discharge does not bar collection from post‑petition community property | Court held debt is a community claim and, because Kelley was not scheduled and lacked timely notice of the dischargeability deadline in Fenske’s case, the phantom discharge does not protect post‑petition community property; Kelley may collect from community property |
Key Cases Cited
- Mayer v. Spanel Int’l, 51 F.3d 670 (7th Cir. 1995) (contractual attorneys’ fees are part of the underlying debt and can be nondischargeable)
- Tidwell v. Smith (In re Smith), 582 F.3d 767 (7th Cir. 2009) (due‑process requires creditors receive timely notice of deadlines to challenge dischargeability)
- Schmidt v. Waukesha State Bank, 204 Wis.2d 426 (Wis. App. 1996) (debtor claiming debt not incurred for marriage/family bears burden to rebut statutory presumption)
- Park Bank‑W. v. Mueller, 151 Wis.2d 476 (Wis. App. 1989) (creditor may collect from marital property despite nonfiling spouse’s lack of notice where spouse acting alone could bind marital property)