Dischargeability of Marital Debts/ When are they not discharged

Recently in preparation for a seminar which I am presenting I ran across a very interesting case regarding the dischargeability of a debt. The case is Stocker v Stocker, 9th District, Case No. 12CA 0021
( December 2012). It would appear that at least in the 9th Ohio Appellate District a debt may not be discharged even though it is listed in the bankruptcy petition if the debt is found to be a marital debt as defined by Section 523(a) ( 15) of the Bankruptcy Act. I have summarized the facts and decision below.

FACTS:

1. Parties entered into a settlement agreement to resolve their divorce.
2. The parties agreed as to their marital home to sell the home and that until such time as the hold sold, the Husband would pay the monthly obligation on the first mortgage and the Wife would pay the obligation on the line of credit.
3. The parties also agreed that if the home sold for less then what was owed on the combined mortgage balances, the parties would share equally in the payment of any deficiency.
4. Both parties advised each other that they were considering the filing of bankruptcy and thus the divorce decree recited that nothing in the divorce decree prevented either party from filing for bankruptcy or discharge of any of the debts set forth in the divorce decree.
5. Prior to the sale of the home but post-divorce, both parties file for bankruptcy and stop paying the mortgage payments.  Husband filed for Chap7 and was discharged in November 2012. Wife filed for Chapter 13 and was discharged in March 2012.
6. In December 2010 the home sold for $ 2,472.89 less than the combined mortgages. Wife paid the amount of the deficiency. Wife filed for contempt against the husband for failure to make the payment on the first mortgage. Husband found in contempt and ordered to Wife $4,896.68.
7. This is the amount which the Court determined was due. To arrive at this amount the Court determined that if both had paid their respective mortgages each would have netted $ 2,850.43. After adjusting for the payments that the Wife didn’t make on the line of credit, the wife would have received $ 4,896.68.
8. Husband appeals. Affirmed.

DECISION:

In determining that the trial Court had acted appropriately the Court of Appeals analyzed the Court’s decision in light of the provisions of the BAPCPA ( the Bankruptcy Abuse Prevention and Consumer Act of 2005) and found:

1. Federal law determines whether a debt is non dischargeable in bankruptcy. However, state and federal courts share concurrent jurisdiction to determine whether a debt should be characterized as non dischargeable.

2. Court of Appeals rejected the Husband’s argument that the mortgage payments had been discharged in bankruptcy. The husband filed with the Court his notice of discharge with the trial court. However, the notice of discharged did not indicate which debts were discharged. Therefore the trial court was not precluded from deciding if the debt fell with Section 523(A)(15) making it non dischargeable under federal law.

Court rejected the husband’s argument that the wife did not object to the husband’s discharge in the husband’s bankruptcy proceeding and therefore the trial court exceeded it’s jurisdiction in ordering the husband to pay the wife. The Court of Appeals noted that a non debtor spouse no longer has an affirmative duty to file an adversary proceeding when seeking to have a non dischargeablity determination made pursuant to 11
USC 523 (a)(15). Therefore, the trial court was within it’s jurisdiction to decide if the debt should be characterized as non dischargeable.

4. Husband argued that because there was no hold harmless language in the decree that the Section 523(a)(15) does not apply and the debt is dischargeable. The court rejected that argument and found that the absence of “ hold harmless language” by itself is not dispositive of whether a debt falls within Sec 523(a)(15), but it is a factor to consider when determining whether a debt even exists. The Court found that under the plain language of the divorce decree the wife had a right to seek enforcement of the husband’s obligation to pay the first mortgage. Thus, the husband in the divorce decree incurred a debt in favor of the wife and is non dischargeable under 523( a)(15). The husband’s bankruptcy only discharged his obligation to the bank. The husband “was not permitted to discharge the new debt he incurred in the divorce decree in favor of the wife because the husband became obligated under the separation agreement to pay a third party debt, a debt in favor of the other spouse arises which is non dischargeable under 523(a)(15).