ERIC L. FRANK, Chief Judge.
Many personal bankruptcy cases that are filed involve creditors who hold claims against the debtor for spousal or child support or other types of obligations arising out of a marital or parental relationship. It is commonplace for such creditors either to:
As the present case illustrates, the determination of the scope of the automatic stay when bankruptcy law and family law collide in this way requires a careful review of both the factual record in the case and the text of several provisions of the Bankruptcy Code.
Debtor John R. Miller ("the Debtor") filed a chapter 13 bankruptcy case in this court on July 15, 2013. On October 7, 2013, Joanne Miller ("Ms. Miller"), the Debtor's former spouse, filed the Motion for Relief from the Automatic Stay ("the Motion").
Ms. Miller wishes to proceed in state court to enforce her rights under a marital settlement agreement. In the Motion, she asserts that the automatic stay is inapplicable by virtue of 11 U.S.C. § 362(b)(2). In the alternative, she seeks relief from the stay pursuant to § 362(d).
The Debtor filed a response to the Motion on October 21, 2013. A hearing on the Motion was held and concluded on October 31, 2013.
At the hearing, neither party called any witnesses. Instead, they introduced into evidence certain documents in support of their respective positions:
The parties filed post-hearing memoranda on November 7, 2013 and the matter is ready for decision.
For the reasons explained below, I conclude that Ms. Miller has not invoked any provision of the Bankruptcy Code that would justify a determination that the automatic stay does not apply to the collection actions she wishes to pursue in the
The Debtor and Ms. Miller were married in 1990. They had three children, born in 1991, 1993 and 1994. The parties separated in 2005. They entered into the MSA on September 11, 2009. They were divorced by decree entered July 20, 2010.
The recital to the MSA states that the agreement was intended to adjust and resolve all matters relating to: the parties' ownership of real and personal property; past, present and future support and alimony; and all possible claims between them.
The MSA provided, inter alia:
(Ex. M-1).
On January 17, 2012, Ms. Miller filed a Petition for Contempt and to Enforce Marital Settlement Agreement in the State Court ("the Contempt Petition"). (Ex. M-2). In the Contempt Petition, Ms. Miller alleged that the Debtor failed to list the Residence for sale and to cooperate in the sale process and failed to pay various financial obligations under the MSA including: child support, medical expenses, education expenses, the $8,000 he borrowed from Calvin's bank account, mortgage and tax obligations on the Residence. (Id.).
By order dated January 9, 2013, the State Court granted the Contempt Petition. The court ordered the Debtor to, inter alia:
(Ex. M-3).
In the January 9, 2013 order, the State Court also stated that "any decrease in the
(Id.).
On or about April 13, 2013, Ms. Miller filed an Amended Petition for Contempt ("the Amended Contempt Petition"), alleging that the Debtor failed to comply with the State Court's January 30, 2013 order. (Ex. M-4). In her request for relief, Ms. Miller requested that the Debtor be ordered to:
(Id.).
On June 4, 2013, Ms. Miller filed a Second Petition for Contempt ("the Second Contempt Petition"), reasserting many of the same claims as alleged in the Amended Contempt Petition. (Ex. M-5). On August 1, 2013, the State Court scheduled a hearing on the Second Contempt Petition for November 18, 2013. (Ex. M-6).
The Debtor filed a chapter 13 bankruptcy petition on July 15, 2013. He filed his bankruptcy schedules and chapter 13 plan on August 8, 2013.
In Schedule A, the Debtor listed the Residence as his sole real property. Schedule A states that the property's value is $385,000.00 ($425,000.00 fair market value minus $40,000.00 for repairs), subject to secured claims of $387,751.64. (Ex. M-7).
In Schedules B and C, the Debtor disclosed ownership of and claimed exemptions in a modest amount of cash, bank accounts and personal property (totaling less than $7,000.00 and a 2008 Subaru automobile with a value of less than $16,000.00 (encumbered by a $3,200.00 lien)). He also disclosed his interest in a Genworth Annuity ("the Annuity"), which he described as payable at $2,344.44 per month, guaranteed until Jan. 2020.
The docket reflects that the § 341 hearing (meeting of creditors) initially was scheduled to be held on October 23, 2013. (Doc. # 18). It has been continued to November 20, 2013. (See Docket Entry No. # 42).
The Debtor's proposed chapter 13 plan ("the Plan") provides for the property secured by the Residence to be sold and for the Debtor to pay the chapter 13 trustee $25,773.00 in sixty (60) monthly payments of $429.55.
On September 16, 2013, approximately five (5) weeks after filing the Plan, the Debtor filed a motion seeking leave to sell the Residence ("the Sale Motion"). (Doc. # 24). At the hearing on the Sale Motion held on October 15, 2013, Ms. Miller's counsel appeared. The parties agreed that the sale price ($418,000) fell slightly short of the amount necessary to satisfy the first mortgage and all closing costs (primarily, transfer taxes and broker's commission) and that the sellers (the Debtor and Ms. Miller) would have to pay approximately $4,000.00 to close the transaction. Both parties supported the Sale Motion and it was granted by the court.
In analyzing Ms. Miller's Motion and the Debtor's opposition, it is helpful to begin with an overview of two (2) subjects addressed in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, before delving into the details and nuances of the automatic stay provisions invoked by Ms. Miller in the Motion. The two (2) subject areas are: (1) dischargeability; and (2) property of the estate and exemptions.
A debt that is in the nature of alimony, maintenance or support of a spouse, former spouse or child of the debtor (now defined by the term "domestic support obligation"—often shortened to "DSO")
The characterization of a debt as a DSO or a non-DSO marital obligation is a question of federal bankruptcy law. See In re Gianakas, 917 F.2d 759, 762 (3d Cir.1990). Generally speaking, when an obligation is derived from a marital settlement agreement entered into by the parties, determining whether the obligation is in the nature of alimony, maintenance or support, as distinguished from a property settlement, depends on the intent of the parties at the time of the settlement agreement. Id. at 763.
Next, are the provisions relating to property of the bankruptcy estate.
Section 541 of the Bankruptcy Code broadly defines property of the estate as "all legal and equitable interests of the debtor in property as of the commencement of the case," 11 U.S.C. § 541(a)(1), but specifically excludes "earnings from services performed by an individual debtor after the commencement of the case," 11 U.S.C. § 541(a)(6). In a chapter 13 case, § 541(a) is supplemented by § 1306(a), which expands the scope of the bankruptcy estate in two (2) significant ways. First, the temporal restriction, "as of the commencement of the case," does not exist; all property of the kind specified in § 541 acquired by a chapter 13 debtor post-petition is property of the bankruptcy estate. Second, the debtor's post-petition earnings derived from personal services (excluded from the general definition of estate property by § 541(a)(6)), also are included as property of the estate. See 11 U.S.C. § 1306(a).
11 U.S.C. § 522(b)(1) provides that "[n]othwithstanding § 541, an individual debtor may exempt" certain property from the bankruptcy estate. The available exemptions are identified in § 522(b)(2) and (b)(3). "The consequence of the assertion of valid exemption is that an individual debtor's exempt property is not liquidated in a chapter 7 case and is not included in the calculation of the amount unsecured creditors are entitled to receive in distribution in a chapter 13 case under 11 U.S.C. § 1325(a)(4)." In re Funches, 381 B.R. 471, 491 (Bankr.E.D.Pa.2008).
The mechanism for claiming exemptions is provided by 11 U.S.C. § 522(l), which requires that the debtor file a list of property claimed as exempt under § 522(b). Section 522(l) also states: "Unless a party in interest objects, the property claimed as exempt on such list is exempt." Fed. R. Bankr.P. 4003(b)(1) provides that a party in interest may file an objection to the debtor's claimed property exemptions "within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later."
Based on § 522(l) and Rule 4003(b)(1), courts have held that a claimed exemption of property from the bankruptcy estate "becomes effective" when the deadline for objection under Rule 4003(b)(1) has expired and no objections have been filed. See In re Edmonston, 107 F.3d 74, 76 (1st Cir.1997); Wilborn v. Dun & Bradstreet Corp., 180 F.R.D. 347, 352 (N.D.Ill.1998); In re Hines, 2008 WL 2783351, at *2 (Bankr.M.D.N.C. July 15, 2008); In re Bullard, 358 B.R. 541, 542 n. 4 (Bankr.D.Conn.2007); In re Beshirs, 236 B.R. 42, 44 (Bankr.D.Kan.1999).
Property exempted during the bankruptcy case "is not liable during or after the case for" pre-petition debts. 11 U.S.C. § 522(c). This protected status afforded to exempt property applies even if a debt is nondischargeable. See In re Vaughan, 311 B.R. 573, 579 (10th Cir. BAP 2004); In re Farr, 278 B.R. 171, 177 (9th Cir. BAP 2002); see also In re Aloia, 496 B.R. 366, 378 (Bankr.E.D.Pa.2013) (citing § 522(c) for the proposition that a creditor holding a nondischargeable claim "free to exercise its state law rights to recover its
Thus, a DSO not only is nondischargeable in a chapter 13 case, but after the conclusion of the bankruptcy case, the holder of a DSO claim may attempt to collect on the DSO by proceeding against property that the debtor claimed as exempt during the bankruptcy case. See, e.g., In re Rouse, 145 B.R. 546, 549 (Bankr. W.D.Mich.1992).
The automatic stay, 11 U.S.C. § 362(a), is
In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 637 (3d Cir. 1998) (citing H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 340 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5963, 6296, 6297); accord Constitution Bank v. Tubbs, 68 F.3d 685, 691 (3d Cir.1995).
The automatic stay "restrains a broad range of conduct, including the continuation of litigation, the enforcement of pre-petition judgments, the creation or enforcement of liens against property of the estate and, most broadly, any act to collect, assess, or recover a claim against the debtor which arose prepetition." In re Allentown Ambassadors, Inc., 361 B.R. 422, 435 (Bankr.E.D.Pa.2007) (quotations and footnotes omitted).
11 U.S.C. § 362(b) contains twenty-six (26) exceptions to the automatic stay. One of those subsections, § 362(b)(2), to be analyzed further below, concerns debts arising out of marital and parental relationships.
11 U.S.C. § 362(d) authorizes the court to grant relief from the automatic stay, in the form of an order "terminating, annulling, modifying or conditioning" the automatic stay, for "cause." 11 U.S.C. § 362(d). With respect to requests for relief from the stay made by an unsecured creditor:
In re Bell, 476 B.R. 168, 179 (Bankr. E.D.Pa.2012) (citations omitted).
Under § 362(d), the party seeking relief from the stay has an initial burden to demonstrate cause for relief. E.g., In re Ward, 837 F.2d 124, 128 (3d Cir.1988). The ultimate burden of persuasion is governed
On its face, at least two (2), and possibly three (3), subparagraphs of the automatic stay, 11 U.S.C. § 362(a)(1), (a)(2) and (a)(3), restrain a marital creditor from proceeding in state court to enforce a bankruptcy debtor's financial obligations under a marital settlement agreement.
Section 362(b)(2) provides, in pertinent part, that a bankruptcy filing does not operate as a stay:
11 U.S.C. § 362(b) (emphasis added).
Under subparagraph (A), determinations regarding the existence and amount of a DSO are not subject to the stay. Under subparagraph (B), the actual collection of a DSO is not stayed, but there is an important qualification. Collection is not stayed only if the DSO is collected from a source other than property of the bankruptcy estate. Under subparagraph (C), the "withholding of income that is property of the estate or property of the debtor" for payment of a [DSO] "under a judicial or administrative order or a statute" is not subject to the automatic stay. When applicable, this "withholding of income" exception, is broader than § 362(b)(2)(B) in that the exception to the automatic stay allows for the withholding of income that is property of the estate and therefore, includes post-petition
Under the plain language of § 362(b)(2)(A) and (B), the three (3) questions that must be resolved in order to determine whether a particular ongoing state court proceeding involving the collection of money or property from the debtor
If the answers to the first two (2) questions are "yes," based on subparagraph (A), the stay does not apply to the pending state court proceeding insofar as the marital creditor is seeking the establishment or modification of an order.
If the answer to the first question is "yes" and the second question is "no," the answer to the third question must be "yes," in order for the moving party to proceed in state court unimpeded by the automatic stay pursuant to subparagraph (C). Otherwise, the exception to the automatic stay is inapplicable.
11 U.S.C. § 362(b)(2)(C), was enacted as part of the 2005 amendments.
The parties agree that, in order to evaluate the scope of the automatic stay and the propriety of granting relief from the stay, it is necessary to determine whether the
Ms. Miller's position is straightforward. She contends that the debts she seeks to collect are in the nature of alimony or support and therefore, are DSO's. From that starting point, she asserts that:
(Ms. Miller's Brief at 6).
Significantly, the Debtor acknowledges the qualifier "as long as the collection is not from property of the estate." See 11 U.S.C. § 362(b)(2)(B). Nevertheless, she asks that the court determine that, in enforcing her rights under the DSO, she may proceed against the Debtor's Annuity because the Debtor has exempted it in Schedule C pursuant to 11 U.S.C. § 522(d). Ms. Miller does not cite to 11 U.S.C. § 362(b)(2)(C) or make the argument that her efforts to reach the Annuity through the Second Contempt Petition are excepted from the stay by that subsection. Therefore, I do not consider that issue. See generally n.15, supra.
In response, the Debtor disputes that the obligations are DSO's, emphasizing that the determination whether an obligation is a DSO should be made by the bankruptcy court, not the State Court. To the extent that the debts may be DSO's, the Debtor argues that all of the assets subject to collection through the Second Contempt Petition are estate assets that remain subject to the automatic stay under § 362(b)(2)(B). The Debtor further emphasizes that any DSO debts are provided for in full in his chapter 13 plan. As a result, he posits that, not only are there no applicable exceptions to the automatic stay, but also that cause does not exist for granting relief from the stay.
The best method for resolving issues relating to the scope of the automatic stay with respect to marital debts is to focus on two (2) questions. What is the nature of rights the non-debtor seeks to enforce and what remedies does the non-debtor intend to seek in the nonbankruptcy forum? Once those questions are answered, the bankruptcy court can determine whether any of the exceptions to the automatic stay apply under § 362(b)(2) and, if not, whether cause exists for granting relief from the stay under § 362(d).
The root cause of the dispute between the parties is the Debtor's failure to effect a sale of the Residence in a timely fashion after the parties entered into the MSA in September 2009. In all of her Contempt Petitions, Ms. Miller asserted that the Debtor breached the MSA by failing to move the property to sale.
This specific part of the parties' dispute appears to be largely resolved. The Debtor filed the Sale Motion and the Sale Motion has already been granted in this court.
The only other avenue for relief available to Ms. Miller is 11 U.S.C. § 362(d). I conclude that cause under § 362(d) does not exist at this time. Considering the terms of the Debtor's chapter 13 plan, more significantly, his prompt post-petition implementation of the Plan, and the grant of the Sale Motion, relief from the automatic stay appears unnecessary.
Ms. Miller wishes to return to the State Court to seek enforcement of the ongoing obligation labeled as "child support" in Paragraph 4 of the MSA and the $18,360.00 of that obligation determined to be in arrears by the State Court in granting her initial Contempt Petition. (Ex. M-3). This is the crux of the parties' dispute.
The Debtor denies that this obligation is a DSO. He bases his position on a somewhat unusual provision in the MSA. After setting the level of child support at $680.00 per month, Paragraph 4 of the MSA provides:
(emphasis added).
Based on the second sentence in the passage quoted above, the Debtor argues that "[t]he $680.00 monthly payments are not in the nature of support because that obligation is expressly tied to the sale of the marital residence such that [the] $680.00 monthly payments are an additional measure of equitably distributing the proceeds from the sale of the marital property." (Debtors's Brief at 13).
In Gianakas, the Court of Appeals provided clear guidance regarding the methodology that bankruptcy courts should employ in determining whether a marital obligation is in the nature of support. The court instructed:
Gianakas, 917 F.2d at 762-63 (quotations and citations omitted).
A leading treatise breaks out the three (3) Gianakas factors into a more expansive set of factors for a court to consider in distinguishing DSO's from property division obligations:
4 Collier ¶ 523.11[6][a]-[h].
As the Gianakas court stated, the issue presented requires a determination of the parties' intent in entering the MSA, making this federal question largely one of contract interpretation. Neither party having presented any testimonial evidence, I am left to make inferences primarily from the four (4) corners of the MSA itself.
The most compelling indication of the purpose and nature of the ongoing $680.00 per month obligation is the label given to it in the MSA. Significantly, the accuracy of the characterization in the MSA is vigorously reinforced by the fact that the obligation terminates when either a child reaches the age of 18, leaves high school or leaves Ms. Miller's residence—very strong indicators that it is in the nature of support.
As stated above, the Debtor argues that the "deferral" provision demonstrates that the obligation was in the nature of a property settlement. (See Debtor's Brief at 13).
To the extent that deferral of the payment obligation pending the sale of the Residence creates some ambiguity regarding the nature of the obligation, based on the current record, I am not persuaded that the stream of payments mandated by Paragraph 4 of the MSA was a division of marital property. Respectfully, I fail to
What purpose then, did the deferral provision serve? The inference I draw from the content of the MSA is that the parties contemplated a prompt sale of the Residence. Ms. Miller recognized that, during the anticipated short interval prior to sale, the Debtor would have difficulty paying the monthly support obligation while also maintaining the mortgage payments and upkeep on the property. Thus, it would appear that the deferral of the monthly support payment was intended to be a short-term measure, designed to facilitate the sale and maximize the net proceeds from the sale of the Residence. For reasons not in the record, four (4) years passed after the execution of the MSA and the Residence has not been sold. The State Court appears to have found the Debtor culpable for this delay and (perhaps also concluding that Ms. Miller lost her share of the equity in the Residence during the delay) and determined that the appropriate remedy was to treat the support obligation as being in effect prior to the sale of the property.
The Debtor makes one (1) other argument in support of his position that the $680.00 per month obligation is not a DSO. The Debtor correctly points out that Gianakas instructs that one (1) of the factors to be considered is the parties' financial circumstances at the time of the settlement. He states: "At the time of the divorce, Movant was the primary earner for the family and, in large part due to the injuries sustained by Debtor, was the primary support for the children." (Debtor's Brief at 14). Perhaps recognizing that the record regarding this assertion regarding the relative financial condition of the parties at the time of the MSA was not developed at the hearing, the Debtor contends in his post-hearing brief that his dependency and Ms. Miller's "much greater future earning capacity" can be "derived from the Marital Settlement Agreement and the limited nature of Debtor's income potential after his injury which gave rise to the annuity." (Id.). He then reasons:
(Id. at 15).
The inference that the Debtor asks me to draw regarding the parties' intent in entering into the MSA in 2009 is simply unwarranted. The Debtor is correct that the MSA provides for a 52/48% split in the Debtor's favor of the net proceeds the parties expected to receive from the sale of the Residence and a 60/40% split of the minor children's medical and college expenses (with the Debtor shouldering the lesser burden). Perhaps those provisions support the inference that, in September 2009, Ms. Miller's earning capacity or overall financial condition was superior to
For these reasons, the MSA provisions regarding "support deferral," property allocation or the medical/college expense allocations in the MSA, do not persuade me that the Debtor's $680.00 per month payment obligation was anything other than what the parties labeled it to be—a support obligation. For purposes of the Bankruptcy Code, I find that the State Court's determination of $18,360.00 of past-due child support and the Debtor's ongoing payment obligation under the MSA to be in the nature of support and therefore, a DSO.
The next question is whether, pursuant to 11 U.S.C. § 362(b)(2)(B), the automatic stay applies to actions Ms. Miller might take in the State Court to attempt to collect the past due and ongoing DSO from the Annuity. Ms. Miller acknowledges that she cannot proceed against the Annuity (without relief from the automatic stay) if the Annuity is property of the bankruptcy estate. She does not dispute that the Annuity was a property interest of the Debtor that became estate property under 11 U.S.C. § 541(a) upon the commencement of the case. She argues only that once the Debtor exempted the Annuity it was no longer property of the estate and became subject to her DSO collection rights under the § 362(b) stay exception.
As a result, the Annuity currently is property of the bankruptcy estate. It follows that the § 362(b) exception to the automatic stay is inapplicable; the stay is in effect with respect to the Annuity.
The final question with respect to the ongoing and past due DSO is whether Ms. Miller should be granted relief from the automatic stay for "cause" pursuant to § 362(d). As stated in Part III.C.1, supra, this is largely a question whether "the equities of freeing the creditor from the restraint of the automatic stay may outweigh the potential negative impact that such relief would have on the bankruptcy process." Bell, 476 B.R. at 179.
The ongoing DSO obligation must be considered separately from the amounts that were past due when the bankruptcy case was filed.
With respect to the Debtor's ongoing DSO, the Debtor has presented no serious defense. The equities and public policy indisputably favor Ms. Miller's right to enforce her present and ongoing child support rights. There is no countervailing bankruptcy policy that would justify restraining Ms. Miller from enforcing those rights. Congressional policy elevating the status of pre-petition state court support orders is manifested in several Code provisions, most notably 11 U.S.C. § 101(14A)(C) and § 362(b)(2)(C). As one court observed:
In re Peterson, 410 B.R. 133, 135 (Bankr. D.Conn.2009) (emphasis deleted). Indeed, unless the Debtor fully satisfies his post-petition DSO obligation, he many not confirm a chapter 13 plan. See 11 U.S.C. § 1325(a)(8).
Consequently, I will grant Ms. Miller relief from the automatic stay to enforce her right to collect from property of the estate the DSO obligation falling due post-petition.
In comparison to the Debtor's ongoing duty to pay his DSO, consideration of Ms. Miller's request for relief to collect
At the same time, however, the past due DSO is a priority claim in the bankruptcy case, see 11 U.S.C. § 507(a)(1)(A). As such, it must be provided for in a debtor's chapter 13 plan. See 11 U.S.C. § 1322(a)(2) (a chapter 13 plan "shall provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim"). Thus, Congress contemplated that DSO arrears may be addressed in a chapter 13 plan. See Collier Family Law and the Bankruptcy Code ¶ 8.04[1] (Henry J. Sommer and Margaret Dee McGarrity 2013) ("Collier Family Law").
In this case, the Debtor has proposed a chapter 13 plan that provides for full payment of his priority claims, including Ms. Miller's DSO. Thus, the question is not whether Ms. Miller will be repaid the delinquent DSO, but rather, which court will set the repayment terms. Should this be done by the state court under applicable nonbankruptcy law or by the bankruptcy court consistent with 11 U.S.C. §§ 1322(a)(2), § 1325(a)?
In this context, even if I were to assume that there is some presumption in favor of the application federal bankruptcy law in this context, the interests of the DSO creditor are considerable. Treatment of past due support in a chapter 13 plan may delay collection of the debt. Bankruptcy courts should interfere as little as possible with the operation of state courts in establishing and enforcing child support orders. See, e.g., In re Diaz, 647 F.3d 1073, 1092 n. 16 (11th Cir.2011).
Consequently, when a DSO creditor seeks relief from the automatic stay to proceed in state court to collect a past due DSO that is provided for in the debtor's plan as a priority debt, the determination whether "cause" exists to grant relief from the automatic stay requires that the bankruptcy court evaluate whether the case has been filed in good faith, much in the same manner as the court determines whether the automatic stay should be extended under 11 U.S.C. § 362(c)(3)(B). Essentially, this is a determination whether the case was filed in both subjective good faith (for a proper bankruptcy purpose and not merely for delay or to target a particular creditor) and objective good faith (i.e., there is some reasonable prospect that the chapter 13 rehabilitation will be successful). See, e.g., In re Ferguson, 376 B.R. 109, 123-25 (Bankr.E.D.Pa.2007).
In this case, I conclude that the Debtor's defense under § 362(d) founders on the objective good faith prong.
The Debtor's makes the classic argument. Stay relief is inappropriate because the past due DSO is provided for, in full, in his chapter 13 plan as a priority claim. However, the Debtor made no showing that his plan appears sufficiently feasible to justify the continued restraint on his dependents in enforcing their support rights, even under the diluted standard that applies early in a reorganization bankruptcy case.
Further, even if I were to take into consideration the information in the Debtor's bankruptcy schedules, which were filed with this court under oath, the Debtor would fail to make his case.
In Schedule I, the Debtor shows monthly income totaling $4,746.63.
Even assuming that the Debtor's housing expenses (disclosed as $2,634.10 for mortgage and $342.01 for electric, heat and water utilities) may decrease significantly once the Residence is sold and the Debtor finds other housing, it is difficult to envision how the Debtor will have reduced this expense sufficiently to provide for his disclosed expenses and chapter 13 plan obligation. At a minimum, given the Debtor's income and expense disclosures in the Schedules, it was incumbent upon him to provide some further explanation demonstrating that his proposed plan was not filed merely to thwart his ex-wife's DSO collection efforts and that the plan has some reasonable prospect of success.
In short, Ms. Miller met her burden of production on the question whether there is cause for relief from the automatic stay and the Debtor failed to satisfy his burden of proof. See 11 U.S.C. § 362(d)(1), (g). Consequently, I will grant Ms. Miller relief to invoke all of her state court remedies, including those directed against property of the estate, in order to collect the both the past-due pre-petition and ongoing DSO obligation.
Ms. Miller also seeks relief to proceed in the State Court to enforce the Debtor's obligation under the MSA to repay Calvin $8,000.00. The Debtor disputes this debt's status as a DSO. He depicts that debt as "a separate obligation" to Calvin. (Debtor's Brief at 12).
Based on the content of the MSA, I find that Ms. Miller has come forward with enough evidence to establish that the $8,000.00 debt to Calvin is in the nature of support.
The MSA does not merely require the Debtor to repay Calvin the $8,000.00 he took from an account in Calvin's name. If that were the extent of the recital in the MSA, I might agree with the Debtor that there is an insufficient evidentiary basis to find that the obligation is anything other than an ordinary debt. However, the MSA goes further and explains that the purpose of the repayment of the borrowed
Because the Debtor's $8,000.00 payment obligation to Calvin is a DSO that was past-due as of the commencement of the bankruptcy case, it should be treated in the same manner as the $18,360.00 past due support discussed earlier. Enforcement of this MSA obligation is not excepted from the automatic stay under 11 U.S.C. § 362(b)(2)(B), but relief from the automatic stay is appropriate under § 362(d).
The final issue involves Ms. Miller's request that she be permitted to seek attorney's fees for enforcing her rights under the MSA. Fee-shifting is provided in Paragraph 25 of the MSA.
The Debtor argues, that, categorically, "attorneys fees awarded ... in prosecution [of] the equitable distribution [are] not in the nature of alimony, maintenance, or support." (Debtor's Brief at 14). This is a bootstrap argument because it assumes that Ms. Miller seeks to enforce equitable distribution rights, not her DSO rights under the MSA. The more accurate question is whether the award of attorney's fees for enforcing a DSO is itself a DSO.
As a general principle, categorization of attorney's fees arising from domestic relations litigation as a DSO requires that the award be based, to some degree, on the parties' relative financial need. See, e.g., In re Rogowski, 462 B.R. 435, 446 (Bankr.E.D.N.Y.2011); In re Spence, 2009 WL 3483741, at *4 (Bankr.S.D.Fla. Oct. 26, 2009). By comparison, if the fees were awarded entirely as a matter of contractual fee shifting or as a sanction, for example, it is difficult to justify treating the debt as being in the nature of support. However, when the underlying domestic relations litigation giving rise to the fee award was the establishment or enforcement of a support obligation, many courts have reasoned that such attorney's fees are themselves inherently in the nature of support. See, e.g., In re Hudson, 107 F.3d 355, 357 (5th Cir. 1997) (because purpose of proceeding is to provide support, attorney fees incurred inure to the benefit of dependent party and are in the nature of support); In re Louttit, 473 B.R. 663, 666-67 (Bankr.W.D.Pa.2012) (citing authorities); In re Herbert, 304 B.R. 67, 78 (Bankr. E.D.N.Y.2004).
In Pennsylvania, the award of counsel fees in connection with the establishment and enforcement of support orders is discretionary with the court and
In this case, the State Court awarded Ms. Miller counsel fees of $3,500.00 for enforcement of the DSO arrears that accrued prior to January 2013. However, the State Court's order does not explain the basis for the court's determination. Certainly, the circumstances underlying the award—a longstanding failure to pay the child support required by the MSA—suggests that the State Court may well have perceived the award as an aspect of the support obligation itself. Absent reimbursement for counsel fees, it is reasonable to expect that Ms. Miller may have had to devote resources toward the payment of legal fees that otherwise would have been available to support her dependent children. At the same time, however, the fees may have been awarded based on the Debtor's failure to comply with provision of the MSA having to with subjects other than support. Furthermore, the MSA has a simple fee-shifting agreement that does not appear dependent upon consideration of relative financial condition of the parties. See generally McMullen v. Kutz, 603 Pa. 602, 985 A.2d 769, 776-77 (2009) (treating award of counsel fees in enforcing marital settlement agreement with fee-shifting provision as matter of contract, but holding that court may consider whether fees claimed are reasonable and may reduce fees claimed if appropriate).
In these circumstances, I conclude, somewhat reluctantly, that Ms. Miller has not established that the attorney's fees claim is a DSO due to the uncertainty regarding the State Court's intent in awarding fees. However, I consider it appropriate, in the exercise of my discretion, to modify the automatic stay to permit Ms. Miller to seek a clarification from the State Court regarding the January 9, 2013 attorney's fee award, but not to enforce the award at this time. If the State Court clarifies that the award was designed, in material part, to provide a support function because it was based on the needs of the dependent children, then the attorney's fee award, like the other aspects of the January 9, 2013 contempt order, will be treated as a DSO and, upon a renewed request to this court, I will be prepared to grant relief from the automatic stay under 11 U.S.C. § 362(d). If the attorney's fee award is not a DSO, the Debtor will retain the power to treat it as a general unsecured claim in his chapter 13 plan.
Similarly, with respect to Ms. Miller's request for counsel fees for prosecuting the Second Contempt Petition, I will modify the automatic stay to grant Ms. Miller authority to seek, but not enforce any attorney's fees that the State Court might award to permit the State Court to explain the basis for any award it might grant and to provide this court to consider the DSO or non-DSO nature of the award.
For the reasons set forth above, Ms. Miller's Motion will be granted in large part, but also denied in part. An order consistent with this Opinion will be entered.
It is hereby
(1) The Motion is
(2) Ms. Miller may prosecute her Second Petition for Contempt, now pending in the Court of Common Pleas, Montgomery County, PA ("the State Court") and presently scheduled for a hearing on
(3) Ms. Miller is
(4) Ms. Miller's request for relief from the automatic stay to enforce the provisions of the parties marital settlement agreement ("the MSA") providing for the sale of the marital residence is
(5) Ms. Miller's request for a determination that any action to enforce the Debtor's past due and ongoing obligation labeled as "child support" in paragraph 4 of the MSA (
(6) Ms. Miller's request for relief from the automatic stay to proceed against the Annuity to enforce
(7) Ms. Miller's request for a determination that any action to enforce the Debtor's obligation under the MSA to repay
(8) Ms. Miller's request for relief from the automatic stay to proceed against the Annuity to enforce the Debtor's obligation under the MSA to repay
(9) Ms. Miller's request for a determination that the
(10) Ms. Miller is
(11) To the extent relief from the automatic stay is not
(12) Notwithstanding Fed. R. Bankr.P. 4001(a)(3), this order shall be
In his Schedule I, the Debtor disclosed average monthly income of $4,746.63 (consisting of $610.44 net pay as a car wash attendant; $1,621.00 in Social Security benefits; $2,487.94 from his annuity; and $27.25 representing the monthly pro-ration of expected tax refund). (See Doc. # 15).
In Schedule J, the Debtor disclosed average monthly expenses of $6,797.41, an amount far in excess of his monthly income. The shortfall between disclosed income and expenses is $2,050.78, even before considering the proposed plan payment of $429.55. (See id.).
The Debtor's disclosed monthly expenses includes $2,634.10 for the monthly mortgage payment on the Residence. Presumably, the Debtor's housing expenses will decrease, but it would seem unlikely that the Debtor's housing expense will decrease enough to make up his budget shortfall of almost $2,500.00.
(emphasis added).
It is unnecessary to consider these issues in this case.
Upon closing, no issues will arise regarding division of the net proceeds as there will be no net proceeds. See Part II.C., supra.
(Id. at 14).
I reiterate that I have considered the schedules only for the sake of being complete and thorough. Even without consideration of the schedules, the Debtor made no showing to support the feasibility of his chapter 13 plan.
$ 610.44 net income from employment
1, 621.00 Social Security
2, 487.94 the Annuity
27.25 pro-rated 2012 tax refund
The Debtor misstates the holding of the case. In Walker, the district court affirmed a bankruptcy court decision, see 439 B.R. 854 (Bankr.W.D.Pa.2010), that determined that a spouse's debt arising from a marital settlement agreement in which the debtor agreed to pay off student loans that both parents had taken for their child (and to hold the non-debtor spouse harmless on the obligation) was dischargeable in the debtor's chapter 13 case. However, nothing in either the bankruptcy court opinion or district court opinion suggests that the plaintiff asserted that the obligation was a DSO and there is nothing in either opinion that speaks to the issue of distinguishing a DSO debt from a non-DSO debt. The case merely applies a simple principle that is derived from the plain language of the Bankruptcy Code: a non-DSO debt encompassed by 11 U.S.C. § 523(a)(15) is dischargeable under 11 U.S.C. § 1328(a).
