March 28, 2017 | Joint Meeting of American Inns of Court

Materials for Joint Meeting of the Judith K. Fitzgerald Western Pennsylvania

Bankruptcy American Inn of Court and the Matrimonial American Inn of Court

Cases:

Bennett v. Bennett (In re Bennet), 171 B.R. 181 (Bankr. E.D. Pa. 1994).

Diamond v. Diamond, 715 A.2d 1190 (Pa. Super. 1996).

Eury v. Eury (In re Eury), 544 B.R. 563 (Bankr. W.D. Pa. 2016).

Farelli v. Farelli (In re Farelli), 347 B.R. 501 (Bankr. W.D. Pa. 2006).

Gunther v. Glabb (In re Glabb), 261 B.R. 170 (Bankr. W.D. Pa. 2001).

In re Lincoln, 264 B.R. 370 (Bankr. E.D. Pa. 2001).

Kennedy v. Kennedy (In re Kennedy), 442 B.R. 399 (Bankr. W.D. Pa. 2010).

Patterson v. Shumate, 504 U.S. 753 (1992).

Polliard v. Polliard (In re Polliard), 152 B.R. 51 (Bankr. W.D. Pa. 1993).

Price v. Price (In re Price), 545 B.R. 114 (Bankr. W.D. Pa. 2015).

Schorr v. Schorr (In re Schorr), 299 B.R. 97 (Bankr. W.D. Pa. 2003).

Urmann v. Walsh, 523 B.R. 472 (Bankr. W.D. Pa. 2014).

Walsh v. Burgeson (In re Burgeson), 504 B.R. 800 (Bankr. W.D. 2014).

Statutes, Rules and Other Authority:

11 U.S.C. §§ 327(e), 392(b) and 330.

11 U.S.C. § 362(b)(2).

11 U.S.C. § 523(a)(5).

Federal Rule of Bankruptcy Procedure 2014.

Federal Rule of Bankruptcy Procedure 2016.

4 Collier on Bankruptcy § 523.11 (16th ed. 2017).

Diane Brazen Gordon, Esq., Divorce Debts: Overview of the Dischargeability of Divorce Debts

in Bankruptcy.

Official Form 108, Statement of Intention for Individuals Filing Under Chapter 7.

Official Form 122A-2, Chapter 7 Means Test Calculation.

Official Form 122C-1, Chapter 13 Statement of Current Monthly Income and Calculation of

Commitment Period.

Official Form 122C-2, Chapter 13 Calculation of Your

Disposable Income.

Bennett v. Bennett (In re Bennett)United States Bankruptcy Court for the Eastern District of Pennsylvania

December 13, 1994, Decided

Bankruptcy No. 94-10039 DWS, Chapter 7, Adversary No. 94-0269

Reporter175 B.R. 181 *; 1994 Bankr. LEXIS 1942 **

In re HOWARD W. BENNETT, Debtor. NANCY L. BENNETT, Plaintiff, vs. HOWARD W. BENNETT, Defendant.

Core Termsspouse, equitable distribution, marital property, pension plan, divorce, rights, state court, divorce proceeding, non-debtor, bankruptcy filing, vested, divorce action, state law, dischargeable, initiation, pensions, alimony, estranged, marital residence, spouse's interest, vested interest, property right, ex-spouse's, equitable, ownership, marriage, notice, cases

Case Summary

Procedural PostureOpinion by the bankruptcy court on plaintiff's complaint to determine dischargeability of debt pursuant to 11 U.S.C.S.§§727(b) and 523(a)(5).

OverviewPlaintiff, debtor's estranged wife, initiated divorce proceedings in state court prior to debtor's Chapter 7 filing. Debtor's petition for relief listed plaintiff in his schedules and statements as an unsecured creditor and claimed the pension plan was exempt under bankruptcy code. No final divorce decree or equitable distribution of property order had been entered by the state court. Plaintiff sought a determination from the bankruptcy court that her claim to debtor's pension was not dischargeable under bankruptcy code because it was not a pre-petition debt or because it was a debt in the nature of alimony to, maintenance for, or support of a spouse. The court held: 1) plaintiff's right to seek equitable distribution of debtor's pension did not give her a claim under bankruptcy law, and 2) plaintiff's rights in the pension plan were vested property interests enforceable under applicable state law against debtor spouse.

OutcomeThe court granted judgment on behalf of plaintiff because her rights to debtor spouse's pension plan were enforceable under state law and not dischargeable in debtor's bankruptcy.

LexisNexis® Headnotes

Bankruptcy Law > Discharge & Dischargeability > General Overview

Bankruptcy Law > Discharge & Dischargeability > Liquidations > General Overview

HN1[ ] Bankruptcy code, 11 U.S.C.S. § 727 provides for the debtor's Chapter 7 discharge of, with specified exceptions, all debts that arose pre-petition.

Bankruptcy Law > Claims > Types of Claims > Unsecured Nonpriority Claims

HN2[ ] The equitable distribution rights of the dependent non-debtor if determined not to be vested property could be treated as an unsecured property settlement claim in the bankruptcy.

Bankruptcy Law > Claims > Types of Claims > Definitions

HN3[ ] A debt means a liability on a claim. 11 U.S.C.S. § 101(12).

Bankruptcy Law > Claims > Types of Claims > Definitions

HN4[ ] See 11 U.S.C.S. § 101(5).

Page 2 of 8

Family Law > ... > Property Rights > Characterization > Marital Property

Family Law > ... > Dissolution & Divorce > Property Distribution > General Overview

Family Law > ... > Property Distribution > Characterization > Marital Property

Family Law > ... > Property Distribution > Classification > Personal Property

Family Law > ... > Classification > Retirement Benefits > Pensions

Family Law > ... > Property Distribution > Inferences & Presumptions > Marital Property

HN5[ ] All real and personal property acquired by either party during a marriage is presumed to be marital property regardless of how title to the property is actually designated. 23 Pa. Cons. Stat. Ann. § 3501(b). Cases interpreting this general rule specifically hold that pension plans are marital property.

Family Law > Marital Termination & Spousal Support > Dissolution & Divorce > General Overview

Family Law > ... > Dissolution & Divorce > Property Distribution > General Overview

Family Law > ... > Property Distribution > Characterization > Marital Property

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN6[ ] Under Pennsylvania law, in an action for divorce, the court shall, upon the request of the parties, equitably divide, distribute or assign marital property. 23 Pa. Cons. Stat. Ann. § 3502.

Bankruptcy Law > Claims > Types of Claims > Definitions

Business & Corporate Compliance > ... > Contracts Law > Standards of Performance > Creditors & Debtors

HN7[ ] The courts have been generally in agreement that equitable distribution rights in pension plans established by court order or agreement prior to bankruptcy are property interests of the non-debtor former spouse rather than claims dischargeable in bankruptcy.

Commercial Law (UCC) > Secured Transactions (Article 9) > Default > General Overview

Family Law > Marital Duties & Rights > Property Rights > General Overview

Family Law > ... > Property Rights > Characterization > General Overview

Family Law > Marital Termination & Spousal Support > General Overview

Family Law > Marital Termination & Spousal Support > Dissolution & Divorce > General Overview

Family Law > ... > Dissolution & Divorce > Jurisdiction > General Overview

Family Law > ... > Dissolution & Divorce > Property Distribution > General Overview

Family Law > ... > Property Distribution > Characterization > Marital Property

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN8[ ] Upon the initiation of a divorce action in Pennsylvania, all marital property is placed under the trial court's jurisdiction. As such, the property is held "in custodia legis, or under the wardship of the court, pending the outcome of the divorce proceeding. Liens and judgments obtained against one spouse after the divorce proceeding is initiated but before an equitable distribution of marital property is decided by the court do not attach to the marital property. Such liens against one spouse are subject to any obligations to convey the marital property imposed upon that spouse by the divorce court.

Bankruptcy Law > Discharge & Dischargeability > Liquidations > General Overview

Civil Procedure > Settlements > Settlement Agreements > General Overview

HN9[ ] Plaintiff spouses' rights in the pension plan are vested property interests enforceable under applicable state law against her spouse in bankruptcy.

Counsel: [**1] For Debtor/Defendant: Jeffrey A. Fournier, Esquire, Bristol, PA.

For Plaintiff: Michael P. Kelly, Esquire, Langhorne, PA.

175 B.R. 181, *181; 1994 Bankr. LEXIS 1942, **1942

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Chapter 7 Trustee: Michael Kaliner, Esquire, Fairless Hills, PA.

United States Trustee: Joseph Minni, Esquire, Philadelphia, PA.

Judges: DIANE WEISS SIGMUND, United States Bankruptcy Judge

Opinion by: DIANE WEISS SIGMUND

Opinion

[*182] OPINION

By: DIANE WEISS SIGMUND, United States Bankruptcy Judge

Before the Court is Nancy L. Bennett's (the "Plaintiff") Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. §§ 727(b) and 523(a)(5) (the "Complaint"). 1 Plaintiff is the Debtor's estranged wife, having initiated a divorce proceeding in state court prior to the Debtor's bankruptcy filing. Plaintiff seeks a determination from this Court that her claim to the Debtor's pension is not dischargeable under (1) 11 U.S.C. § 727(b) because it is not a pre-petition debt or alternatively (2) 11 U.S.C. § 523(a)(5) because it is a debt in the nature of alimony to, maintenance for, or support of a spouse. We agree with Plaintiff that her interest in the Debtor's pension is not [**2] dischargeable but not for the reasons she has posited. Rather, we conclude that Plaintiff's marital interest in the Debtor's pension plan is not a claim against the Debtor and therefore not subject to discharge in bankruptcy.

BACKGROUND.

The Plaintiff and Debtor were married on October 7, 1961. Stipulation P1. Beginning on August 25, 1955, and throughout the marriage, Debtor was and remains employed by Hill Refrigeration, Inc. as a factory production worker. Stipulation P3. The Debtor is currently 57 years old. Stipulation P5. The Debtor has rights in and to a pension plan from his employer (the "Pension Plan"). Under the Pension Plan, Debtor is eligible to receive benefits when he retires at the normal age of 65 or anytime now if he elects early retirement.

1 At the request of the parties, this proceeding was decided on the pleadings, a Stipulation of Facts (the "Stipulation"), and the Exhibits thereto.

Exhibit H. Plaintiff was a homemaker and is employed part time by Trenton Window Cleaning. Plaintiff [**3] has no rights in or to a pension plan from Trenton Window Cleaning. Stipulation PP4, 22.

Plaintiff and Debtor separated November 3, 1988 and have maintained separate households since that time. Stipulation P7. On November 29, 1989, Plaintiff filed a no-fault divorce complaint with the Court of Common Pleas of Bucks County, Pennsylvania (the "State Court"). Stipulation P8, Exhibit A. At that time and now, the Plaintiff and Debtor had no written agreement as to alimony, property division and other financial matters. Stipulation P9. On December 26, 1990, Plaintiff filed a complaint for support, alimony, costs, attorneys fees and other claims in State Court. Stipulation P10 and Exhibit B. By order dated July 2, 1993, the State Court approved the grounds for divorce and determined the divorce action "to be ready for the resolution of all pending claims for alimony, equitable distribution of property, counsel fees and expenses." Stipulation P11, Exhibit C. Pursuant to an order dated August 27, 1993, the State Court awarded Plaintiff alimony pendente lite in the amount of $ 93.50 per week effective May 22, 1993. Stipulation, Exhibit D. No final divorce decree or equitable distribution [**4] of property order has been entered by the State Court.

On January 3, 1994, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code listing Plaintiff in his schedules and statements as an unsecured creditor. The Debtor amended his schedules and statements to include the Pension Plan which he then claimed as exempt under § 522(d)(10). Stipulation P16. Other than a mobile home which Plaintiff and the Debtor agree has de minimis equity and which they both have abandoned, the Debtor's chapter 7 estate has no assets. Thus, the focus of their dispute is the Pension Plan.

DISCUSSION.

I.

HN1[ ] Code § 727 provides for the debtor's Chapter 7 discharge of, with specified exceptions, all debts that arose pre-petition. Thus, before considering Plaintiff's contention that a specified exception (ie. § 523(a)(5)) or the post-petition nature of her claim controls the outcome of this litigation, we must ask whether the Plaintiff's equitable distribution right to the Pension Plan, which but for the [*183] bankruptcy would have resulted in the non-debtor obtaining sole title to some of the

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marital property, is a debt. HN2[ ] The equitable distribution rights of the dependent non-debtor [**5] if determined not to be vested property could be treated as an unsecured property settlement claim in the bankruptcy. Sommer and McGarrity, Collier Family Law and the Bankruptcy Code P6.02[3] at 6-9 (1994).

HN3[ ] A debt means a liability on a claim. Bankruptcy Code § 101(12). HN4[ ] The Bankruptcy Code defines "claim" in § 101(5) to mean:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

11 U.S.C. § 101(5). Cases interpreting § 101(5) have uniformly held that the definition of "claim" is to be interpreted broadly. See, e.g., Torwico Electronics, Inc. v. State of New Jersey, Dept. of Env. Protection, 8 F.3d 146, 148 (3d Cir. 1993). However broad, the definition of claim is not without limits.

In order to determine [**6] whether a Plaintiff holds a claim, we need to examine applicable state law to understand the nature and extent of Plaintiff's interest in the Pension Plan. See Grogan v. Garner, 498 U.S. 279, 283, 112 L. Ed. 2d 755, 111 S. Ct. 654 (1991); Butner v. United States, 440 U.S. 48, 55, 59 L. Ed. 2d 136, 99 S. Ct. 914 (1979). We begin with 23 Pa.C.S.A. § 3501(a) which defines what property constitutes marital property in the event of a divorce. "Marital property" shall mean "all property acquired by either party during the marriage," with certain exceptions which are not relevant here. HN5[ ] Further, all real and personal property acquired by either party during a marriage is presumed to be marital property regardless of how title to the property is actually designated. 23 Pa.C.S.A. § 3501(b). DiFlorido v. DiFlorido, 459 Pa. 641, 331 A.2d 174 (1975).

Cases interpreting this general rule specifically hold that pension plans are marital property. See Berrington v. Berrington, 409 Pa. Super. 355, 598 A.2d 31 (1991), [**7] aff'd, 534 Pa. 393, 633 A.2d 589 (1993); Zollars v. Zollar, 397 Pa. Super. 204, 579 A.2d 1328 (1990) , appeal denied, 527 Pa. 603, 589 A.2d 693

(1991); Flynn v. Flynn, 341 Pa. Super. 76, 491 A.2d 156 (1985). The Debtor conceded as much in his brief. Debtor's Brief at 8-9.

HN6[ ] Also under Pennsylvania law, in an action for divorce, the court shall, upon the request of the parties, "equitably divide, distribute or assign" marital property. 23 Pa.S.C.A. § 3502. Here, the State Court determined, pursuant to its July 2, 1993 order, that the marital property was ready for equitable distribution. However, no order of distribution or agreement had been concluded at the time of the bankruptcy filing.

We do not believe that Plaintiff's right to seek equitable distribution of the Pension Plan gives her a claim. By initiating the divorce proceeding, Plaintiff did not obtain a right to monetary payments from the Debtor with respect to the Pension Plan. While she and Debtor could have entered into an agreement whereby Debtor [**8] would have agreed to make certain payment to her in satisfaction of her interest in the Pension Plan, that did not happen here. What Plaintiff has is the right to secure a court order determining the extent of her interest in the Pension Plan which when secured will under applicable law relating to pension plans be a basis to require the pension plan administrators of the Pension Plan to pay her directly. In Wisniewski v. Piasecki (In re Piasecki), 171 Bankr. 49 (N.D. Ohio 1994), the court reasoned likewise in finding that an ex-spouse's independent ownership rights under her husband's pension plan had not created a debtor and creditor relationship between them. As stated by the court, "Without Defendant's election to pay Plaintiff in lieu of taking under the pension plan, there is no liability on a claim. The payment obligation is strictly between Plaintiff and the GMC pension plan administrator." Id. at 52.

[*184] HN7[ ] The courts have been generally in agreement that equitable distribution rights in pension plans established by court order or agreement prior to bankruptcy are property interests of the non-debtor former spouse rather [**9] than claims dischargeable in bankruptcy. See, e.g. Bush v. Taylor, 912 F.2d 989, 993-94 (8th Cir. 1990); Benich v. Benich (In re Benich), 811 F.2d 943 (5th Cir. 1987); In re Chandler, 805 F.2d 555 (5th Cir. 1986); Teichman v. Teichman (In re Teichman), 774 F.2d 1395, 1398 (9th Cir. 1985); Resare v. Resare, 154 Bankr. 399, 401 (D.R.I. 1993); 2 Long v.

2 Bush, Benich, Teichman and Resare involve military pensions which are subject to federal statute that provides for

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Donahue (In re Long), 148 Bankr. 904 (Bankr. W.D. Mo. 1992); Ledvinka v. Ledvinka (In re Ledvinka), 144 Bankr. 188, 191 (Bankr. M.D. Ga. 1992); Seligman v. Seligman, 14 Cal. App. 4th 300 (1993).

[**10] Several of these cases are particularly instructive. In Long, the parties' decree of dissolution which effected the divorce also divided the debtor's pensions between the parties. Because bankruptcy intervened before a qualified domestic relations order ("QDRO") was issued which would give the ex-spouse her enforceable interest in debtor's ERISA-qualified plan, the debtor contended that his ex-spouse's interest amounted to an unperfected judgment lien created by the divorce decree and was dischargeable as a debt arising from a property settlement. The court found otherwise, reasoning that the decree of dissolution gave the ex-spouse a right to obtain the QDRO and transfer legal ownership of her portion of the debtor's pensions awarded as marital property. "Prohibiting entry of the QDRO post-petition would not increase the assets of the estate available to creditors, but would only increase Debtor's pension interests at the expense of his former wife." 148 Bankr. at 905. The court characterized the ex-spouse's act of obtaining the QDRO as "more akin to exercising a property right than to debt collection." Id. at 907-08. [**11] As such, she had something other than a right to payment from the debtor or his property which could not be classified as a debt. 148 Bankr. at 908. In Seligman, a California state court considering the Bankruptcy Code's definition of "claim" as applied to community property exempted by a debtor spouse in bankruptcy concluded that "a court ordered division of community property does not give rise to a 'right to payment' of money" as specified in § 101(5). Because the wife's prospective obligations required performance, not payment, which performance, the court further concluded, could not be converted into a monetary payment, the husband did not hold a "claim" in the bankruptcy subject to discharge. The court noted that Debtor's pensions were excluded from property of the estate pursuant to § 541(c)(2). Patterson v. Shumate, 119 L. Ed. 2d 519, 112 S. Ct. 2242 (1992).

II.

Having determined that under Pennsylvania law the Plaintiff's rights in the Pension Plan are property

payment to the former spouse after appropriate court order. 10 U.S.C. § 1408. The former spouses having obtained such orders, the courts found their interests to be property rights, not debts.

interests, not claims does not, however, conclude our analysis. We must also consider just how far the former spouses's interest must be [**12] established at the time of the other spouse's bankruptcy in order to be unaffected by the rights created by the bankruptcy filing. Again that analysis is controlled by Pennsylvania law. See Barnhill v. Johnson, 503 U.S. 393, 112 S. Ct. 1386, 1389, 118 L. Ed. 2d 39 (1992); Butner, 440 U.S. at 55. See also Collier Family Law and the Bankruptcy Code, P7.06(2) at 7-36.

The status of the non-debtor spouse's interest in marital property when bankruptcy intervenes prior to the adjudication of equitable distribution was considered by my colleague the Honorable Bruce I. Fox in In re Wilson, 85 Bankr. 722 (Bankr. E.D. Pa. 1988). Wilson involved a motion for relief from the stay filed by the debtor's estranged wife seeking to continue state court litigation for equitable distribution of marital property. One of the issues raised in Wilson was whether the non-debtor spouse had a cognizable interest in an equitable division of the marital property if a bankruptcy petition was [*185] filed after the divorce complaint was filed but prior to the state court determination of equitable [**13] distribution. Judge Fox concluded that "the state law right to seek equitable distribution 'vests' at the time the divorce proceeding is commenced and equitable distribution is requested." Id. at 726. Whether that vested interest in marital property not yet fixed by agreement or order would be cut off by the estranged spouse's subsequent bankruptcy filing was not addressed in Wilson but is the issue herein.

In order to answer this question we need to first examine Pennsylvania law concerning the rights of a spouse during the period commencing with the divorce complaint and concluding with the order of equitable distribution. HN8[ ] Upon the initiation of a divorce action in Pennsylvania, all marital property is placed under the trial court's jurisdiction. Keystone Savings Association v. Kitsock, 429 Pa. Super. 561, 633 A.2d 165 (1993); Fidelity Bank v. Carroll, 416 Pa. Super. 9, 610 A.2d 481 (1992); Weaver v. Weaver, 413 Pa. Super. 382, 605 A.2d 410 (1992). As such, the property is held "in custodia legis, or under [**14] the wardship of the court, pending the outcome of the divorce proceeding." Carroll, 416 Pa. Super. at 14, 610 A.2d at 483. Liens and judgments obtained against one spouse after the divorce proceeding is initiated but before an equitable distribution of marital property is decided by the court do not attach to the marital property. Kitsock, 429 Pa. Super. at 166, 633 A.2d at 168; Carroll, 416 Pa. Super. at 13, 610 A.2d at 483. Such liens against one

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spouse are subject to any obligations to convey the marital property imposed upon that spouse by the divorce court. Weaver, 413 Pa. Super. at 386; 605 A.2d at 412. 3

[**15] Two Pennsylvania bankruptcy courts have addressed the impact of a bankruptcy filing on the vested property interest of a non-debtor spouse prior to equitable distribution. In Polliard v. Polliard (In re Polliard), 152 Bankr. 51 (Bankr. W.D. Pa. 1993), the court concluded that the non-debtor spouse's vested interest in the debtor's share of the marital property, which was subject to an equitable distribution action commenced prior to the bankruptcy filing, was cut off by the bankruptcy filing where the domestic relations court had not, at the time of the bankruptcy, fixed the equitable distribution rights. The non-debtor spouse had only an unsecured claim in bankruptcy for an amount equal to any equitable distribution award of an interest in debtor's property. In reaching this conclusion, the court stated that if it held otherwise it feared that "spouses might intentionally give all of the property to the solvent spouse, leaving the insolvent spouse with nothing for his creditors." Id. at 54. 4

[**16] In In re McCulley, 150 Bankr. 358 (Bankr. M.D. Pa. 1993), a husband and wife filed for divorce and thereafter they each filed separate Chapter 7 bankruptcy petitions. During the marriage, their

3 As stated by the court in Weaver, the post-divorce filing judgment creditor "acquired no greater rights in the [marital property] than those of the debtor spouse. [The judgment creditor] succeeds only to that which the debtor spouse's interest in the marital property turns out to be." 413 Pa. Super. at 386, 605 A.2d at 412.

4 We do not find that it necessarily follows that a divorcing spouse would prefer his or her estranged spouse over his or her creditors. Concluding otherwise, the Polliard Court dismissed, as bad policy, the view of the Sixth Circuit Court of Appeals as expressed in White v. White (In re White), 851 F.2d 170 (6th Cir. 1988) that since state law, not the Bankruptcy Code, defines a debtor's interest in property, until the state court makes a determination of the property rights as between the debtor and the non-debtor spouse, what is property of the debtor's estate is unclear. In any event, that is not the situation here where the Debtor has claimed the Pension Plan as exempted from his estate. Following the rule in Polliard, the Debtor would be entitled to retain a 100% interest in the Pension Plan while conferring no benefit on creditors and effectively denying his estranged spouse her state law rights since her resulting claim would be dischargeable.

residence was titled solely in the wife's name. The husband wanted to utilize the residential exemption under § 522(d)(1) in his Chapter 7 case by retaining $ 7500 in value out of his share of the marital residence. The court concluded that the husband's interest in the marital residence was no more than an unsecured claim because legal title on the date of the bankruptcy was in the wife's name, and the rights of the [*186] wife's trustee under § 544 would be superior to those of the non-titled husband.

We respectfully disagree with these decisions. The Polliard court was persuaded by the view of other courts that had held, based on the laws of other states, that "the non-debtor's interests in the debtor's share of marital property which are the subject of equitable distribution proceedings in a divorce action commenced prior to the bankruptcy filing, are cut off by the bankruptcy filing where the domestic relations court has not, at the time of the bankruptcy filing, [**17] fixed the equitable distribution rights by judgment." (citations omitted). Polliard, 152 Bankr. at 54. The Polliard Court relied, inter alia, on Perlow v. Perlow, 128 Bankr. 412 (E.D. N.C. 1991) wherein the court adopted the reasoning of In re Fisher, 67 Bankr. 666 (Bankr. Colo. 1986) 5 to find that the vested property rights not "perfected" by the filing of a lis pendens giving notice of the divorce proceeding or the subject of execution proceedings were cut off by the bankruptcy filing. 128 Bankr. at 415. In Fisher, the court recognized the trustee's status as a hypothetical lien creditor and hypothetical bona fide purchaser pursuant to § 544 and noted that the wife's failure to file a lis pendens to give notice of the divorce proceeding so as to perfect her vested right in the real property owned by the debtor would have allowed the husband debtor to convey his property free of his wife's vested interests. As such, it concluded that a judgment lien creditor or bona fide purchaser of real property would have taken title free and clear of the wife's [**18] interest under Colorado law which required the wife to establish a separate recorded interest in the real estate. Since Pennsylvania law does not require such a step to be taken to protect a spouse's interest in marital property, the underpinnings of the Fisher and Perlow decisions make their holdings inapplicable to a case decided under Pennsylvania law.

5 The decision in Fisher was relied upon by the Court in McCulley for the same proposition. It was also relied upon by Judge Fox in Wilson but solely for the proposition that a non-debtor spouse's interest in the marital property vests upon the initiation of divorce proceedings.

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6

[**19] The Polliard court, citing Weaver and Carroll, recognized the "bright line rule in Pennsylvania that the filing of a divorce wherein equitable distribution is requested automatically places all marital property in custodia legis, thus insulating it from claims of creditors." However, it found that line "blurred" 7 by the Carroll court's footnote that the creditor had the remedy, not utilized in that case, to force the husband into bankruptcy wherein "the divorce proceeding would have been stayed pending resolution of the claims of Mr. Carroll's various creditors." [*187] Carroll, 416 Pa. Super. at 14 n.4, 610 A.2d at 483 n.4. While stating its prior belief that bankruptcy law, enforcing state law,

6 The other cases relied upon by Polliard consider the non-debtor spouse's rights under New York law where at no point prior to judgment is there any contingent or present vested interest in marital property. See In re Greenwald, 134 Bankr. 729, 731 (Bankr. S.D.N.Y. 1991). That is, of course, different from the law of Pennsylvania where a vested interest is created upon initiation of divorce proceedings.

7 Similarly, the Polliard court looked to the state court's decision in Ibarra v. Prudential Property & Casualty Insurance Company, 402 Pa. Super. 27, 585 A.2d 1119 (1990) to support the weakening of the theory that the filing of a divorce vests title in marital assets. In Ibarra, the state court concluded that the definition of "marital property" in the Pennsylvania Divorce Code could not be applied to determine the ownership of a motor vehicle for the purposes of Pennsylvania's Motor Vehicle Financial Responsibility Thaw, 75 Pa.C.S.A. §§ 1701-1798.4 (1984) ("MVFRL") 585 A.2d at 1120. The state court concluded that the provisions of the Divorce Code determine ownership for the purposes of "matrimonial causes", proceedings for divorce and court orders of equitable distribution, alimony pendente lite, alimony, and support but may not be applicable to other areas of the law. Id. at 1122. The Court's conclusion that the provisions of the MVFRL determine "ownership" for the purposes of financial responsibility for injuries in a car accident simply has no bearing on the status of a spouse's equitable distribution rights upon the filing of bankruptcy by her estranged spouse. Indeed Ibarra seems to direct us to apply the Divorce Code here. Myers v. Myers, 397 Pa. Super. 450, 580 A.2d 384 (1990), also relied upon by Polliard, provides no support for a change in the well grounded principle of custodia legis. That case made clear that the reason the former spouse's right to equitable distribution was abated by her spouse's death was that her right was tied to the divorce action which itself was abated by the death of the spouse. Since the divorce has been granted in this case and the equitable distribution was ripe for resolution when the bankruptcy was filed, Myers is not applicable here.

would give a trustee no greater rights than a judgment or execution creditor, the Polliard court then concluded that the "Superior Court's analysis would deny a lien to a judgment creditor but would yield to the powers of a bankruptcy trustee." 152 Bankr. at 54. To the extent the state court was expressing that view, and we do not conclude that it was, it is simply incorrect as a matter of bankruptcy [**20] law which does not confer on the trustee, who takes property subject to all valid liens, claims and equities, any better title or right to the debtor's property than belongs to the debtor or his creditors at the time the case commenced. Wilson, 85 Bankr. at 725-26. While § 544 gives the trustee certain additional powers, those rights and powers are those of a hypothetical judicial lien or execution creditor. Given the acknowledged inferiority of such a creditor's rights vis a vis the non-debtor spouse who has initiated divorce proceedings, it would be illogical to conclude that the trustee's rights would be greater.

[**21] Finally, to the extent the Fisher line of cases hold that filing a lis pendens would "perfect" the non-debtor spouse's interest, we note that in Pennsylvania, the initiation of a divorce proceeding does provide notice, at least constructively, that property may be subject to equitable distribution. In Carroll, Weaver, and Kitsock, the Pennsylvania Superior Court concluded that the filing of the divorce proceeding gave creditors constructive notice that marital property was involved in divorce litigation and subject to distribution by the court. Carroll, 416 Pa. Super. at 14, 610 A.2d at 483 ("At the time the Bank's judgment was filed, the marital residence was the subject of equitable distribution in the pending divorce action. Therefore, the Bank was aware, at least constructively, that Mr. Carroll's interest in the property was involved in divorce litigation and subject to distribution by the court."); Weaver, 413 Pa. Super. at 386, 605 A.2d at 412 ("When the … judgment was filed, the record in the Prothonotary's office showed that the Weaver real estate was the subject of proceedings [**22] for equitable distribution in the pending divorce action between the owners. Therefore, [the judgment lienor] was chargeable with the knowledge that the one-half interest against which he asserted a lien was involved in divorce litigation and was subject to distribution by the court."); Kitsock, 429 Pa.Super. at 166 n.5, 633 A.2d at 168 n.5. (The creditor clearly could have easily learned that the marital residence was the subject of divorce proceedings prior to lending money to the one spouse by simply checking the docket in the Court of Common Pleas.) A trustee under § 544 would similarly have constructive notice of the pending divorce action and equitable distribution

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and, like other creditors, would assume a position subject to the pending equitable distribution.

In McCulley, we also find that the Court, relying on In re Fisher, failed to give proper deference to the laws of Pennsylvania in determining the debtors' interest in the marital residence. In concluding that the debtor wife's fee simple interest in the residence was solely property of her estate, the court ignored the clear language of 23 Pa.C.S.A. § 3501(b) which states that [**23] all property acquired by either party during the marriage is presumed to be marital property "regardless of whether title is held individually, …". Moreover, the court's citation to In re Murray, 31 Bankr. 499, 502 (Bankr. E.D. Pa. 1983), for the broad proposition that a bankruptcy court need not refer to the Pennsylvania divorce law is misplaced. In Murray, the bankruptcy court held, on what it later acknowledged to be "unique facts", that § 363(h) permitted the trustee to sell jointly owned or tenants in common property without regard to Pennsylvania divorce law. See Wilson, 85 Bankr. at 725 (§ 363(j) requires division of proceeds of § 363(h) sale according to interests of debtor's spouse or co-owner as defined by state law); Johnson v. Johnson (In re Johnson), 51 Bankr. 439, 443-44 (Bankr. E.D. Pa. 1985) (leave granted for equitable distribution proceeding to proceed in state court so that debtor's interest in the property could be determined prior to bankruptcy court's determination of whether the elements of § 363(h) are satisfied).

[*188] CONCLUSION.

We conclude that Plaintiff's [**24] rights in the Pension Plan are not claims at all and, therefore, they are not subject to discharge under § 727(b). Given this conclusion, Plaintiff's requested disposition under § 523(a)(5) is misplaced because § 523(a)(5) deals with claims arising under an agreement, order, or other property settlement document. For the same reason Plaintiff's argument that her rights in the Pension Plan are post-petition debts which are not subject to discharge under § 727(b) does not follow. HN9[ ] Rather Plaintiff's rights in the Pension Plan are vested property interests enforceable under applicable state law against her spouse in bankruptcy.

An Order consistent with the foregoing Opinion will be entered.

DIANE WEISS SIGMUND

United States Bankruptcy Judge

Dated: December 13, 1994

ORDER

AND NOW, this 13th day of December, 1994, upon consideration of Plaintiff's Complaint to Determine Dischargeability of Debt Pursuant toll U.S.C. §§ 727(b) and 523(a)(5), and the record of the hearing of this matter, and for the reasons stated in the accompanying Opinion, it is hereby ORDERED that:

1. Judgment is granted in favor of Plaintiff; and

2. Plaintiff's rights in the Debtor's Pension Plan [**25] are vested property rights, enforceable under applicable state law and not dischargeable in Defendant's bankruptcy.

DIANE WEISS SIGMUND

United States Bankruptcy Judge

End of Document

175 B.R. 181, *187; 1994 Bankr. LEXIS 1942, **22

Diamond v. Diamond

Superior Court of Pennsylvania

June 23, 1998, Argued ; August 5, 1998, Filed

No. 4263 Philadelphia 1996

Reporter715 A.2d 1190 *; 1998 Pa. Super. LEXIS 1659 **

SANDRA B. SCHER DIAMOND, Appellee v. HAROLD DIAMOND, Appellant

Prior History: [**1] Appeal from the ORDER DATED October 23, 1996, Docketed October 24, 1996 in the Court of Common Pleas of PHILADELPHIA County FAMILY, No. NOVEMBER TERM, 1995 No. 008463. Before TERESHKO, J.

Disposition: The citation of contempt vacated. The motion to quash dismissed, and case remanded for further proceedings consistent with this Opinion.

Core Termscontempt, criminal contempt, trial court, interlocutory, counsel fees, discovery, fine, depositions, contemnor, documentation, indirect, divorce, interim, civil contempt, parties, records, copies, immediately appealable, financial institution, interrogatories, contemptuous, citations, alimony, ledgers, orders, no evidence, non-appealable, inheritance, proceedings, pendente

Case Summary

Procedural PostureAppellant ex-husband sought review of a judgment from the Court of Common Pleas of Philadelphia County (Pennsylvania), which entered an order adjudicating appellant in contempt of a discovery order and fining him $ 500. In addition, the trial court directed appellant ex-husband to pay appellee ex-wife interim counsel fees.

OverviewAfter filing a divorce action, appellee ex-wife served appellant ex-husband with interrogatories. Appellee subsequently filed a petition requesting that appellant be found in contempt for failing to adequately answer the interrogatories. The trial court entered an order adjudicating appellant in contempt fining him $ 500 and

awarded appellee counsel fees to conduct discovery. Upon review, the court reversed the contempt order. The court held that the contempt order was reviewable under the collateral order doctrine where the contempt was criminal and was directed to appellant's independent conduct that was not related to the underlying divorce action. The court found that the contempt ordered was punitive and criminal because the fine imposed was both unconditional and payable to the court. The court found there was insufficient evidence to establish appellant failed to make a good faith effort to comply with the discovery order where appellee's attorney did not schedule a deposition and appellee did not notify appellant that documents produced were illegible. The court held that orders regarding discovery sanctions and award of interim counsel fees were interlocutory.

OutcomeThe court reversed an order that held appellant ex-husband in contempt for violating a discovery order. The court held the order of criminal contempt was a reviewable collateral order where it was directed to appellant's independent conduct that was not related to the ultimate issues in the underlying divorce action. The court affirmed the order relating to counsel fees awarded to appellee ex-wife finding that the order was nonappealable.

LexisNexis® Headnotes

Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders

HN1[ ] An appeal "as of right" will lie only from a final order unless otherwise permitted by statute or rule. A final order is an order which (1) disposes of all claims and of all parties; or (2) is expressly defined as a final order by statute; or (3) is a final order as to fewer than all claims and all parties but the appeal of the order has been expressly determined by the trial court or other

Page 2 of 9

governmental unit as one which will facilitate resolution of the entire case. For an order to be final and ripe for appeal it must resolve all pending issues and constitute a complete disposition of all claims raised by all parties.

Civil Procedure > Appeals > Appellate Jurisdiction > Collateral Order Doctrine

HN2[ ] Unless an interlocutory order falls within Pa. R. App. P. 311, an appeal therefrom may be taken only with permission. An exception to this general rule, known as the "collateral order doctrine", which provides that an order is considered final and appealable if it satisfies the following three-pronged test: (1) it is separable from and collateral to the main cause of action; (2) the right involved is too important to be denied review; and (3) the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.

Civil Procedure > Discovery & Disclosure > Discovery > Misconduct During Discovery

Civil Procedure > Sanctions > Contempt > General Overview

Civil Procedure > Sanctions > Contempt > Civil Contempt

Civil Procedure > Appeals > Appellate Jurisdiction > Interlocutory Orders

HN3[ ] Generally, an order imposing sanctions for discovery violations is interlocutory and not reviewable until the final disposition of the underlying litigation. This is true even where the party refusing to provide discovery is held in civil contempt in an effort to coerce compliance with a discovery order.

Civil Procedure > Discovery & Disclosure > Discovery > Misconduct During Discovery

Civil Procedure > Sanctions > General Overview

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > Elements

HN4[ ] If the dominant purpose of the court in imposing contempt is to prospectively coerce the contemnor to comply with an order of the court, the adjudication is civil. If, however, the dominant purpose is to punish the contemnor for disobedience of the court's

order or some other contemptuous act, the adjudication of contempt is criminal.

Civil Procedure > Discovery & Disclosure > Discovery > Misconduct During Discovery

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > Penalties

Criminal Law & Procedure > Sentencing > Fines

HN5[ ] A civil adjudication of contempt coerces with a conditional or indeterminate sentence of which the contemnor may relieve himself by obeying the court's order, while a criminal adjudication of contempt punishes with a certain time of imprisonment or a fine which the contemnor is powerless to escape by compliance. The civil-criminal classification of contempt exists solely for determination of a contemnor's procedural rights and a court's sentencing options. Quite simply, a contemnor who will be sentenced to a determinate term of imprisonment or a fixed fine, which he is powerless to escape by purging himself of the contempt, is entitled to the essential procedural safeguards that attend criminal proceedings generally. Second, a court is not permitted to impose a coercive sentence conditioned on the contemnor's performance of some act that is incapable of performance.

Civil Procedure > Sanctions > Contempt > General Overview

Civil Procedure > Appeals > Appellate Jurisdiction > Collateral Order Doctrine

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > General Overview

HN6[ ] The imposition of a criminal sanction is clearly collateral to the underlying proceeding in which it occurs because, by its nature, it is directed to an individual's independent conduct and not to the ultimate issues which are at stake in the underlying action. A determination of criminal contempt is a criminal conviction, conferring on the contemnor all the negative characteristics of being a convicted criminal.

Civil Procedure > Sanctions > Contempt > General Overview

Civil Procedure > Appeals > Appellate

715 A.2d 1190, *1190; 1998 Pa. Super. LEXIS 1659, **1

Page 3 of 9

Jurisdiction > Collateral Order Doctrine

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > General Overview

HN7[ ] Indirect criminal contempt orders entered prior to the conclusion of the underlying case are entitled to immediate appellate review.

Civil Procedure > Sanctions > Contempt > General Overview

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > General Overview

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > Elements

HN8[ ] Four elements must be present to support a finding of criminal contempt for failure to comply with a court order: (1) the order must be definite, clear, specific and leave no doubt or uncertainty in the mind of the person to whom it was addressed of the conduct prohibited; (2) the contemnor must have had notice of the specific order or decree, (3) the act constituting the violation must have been volitional, and (4) the contemnor must have acted with wrongful intent. Moreover, proof of non-compliance alone is insufficient to support the conviction. Instead, it must be proven, inter alia, that the alleged contemnor's failure to comply with the order was willful or at least reckless.

Counsel: Wendy Glazer, Philadelphia, for appellant.

Dorothy K. Phillips, Philadelphia, for appellee.

Judges: BEFORE: POPOVICH, ORIE MELVIN, and SCHILLER, JJ. OPINION BY SCHILLER.

Opinion by: SCHILLER

Opinion

[*1192] OPINION BY SCHILLER, J.

Filed August 5, 1998

Appellant, Harold Diamond, appeals from the October 23, 1996, order of the Court of Common Pleas of Philadelphia County holding him in contempt and imposing a fine of $ 500. In the same order, the court also ordered appellant to pay interim counsel fees. We vacate the citation of contempt. The appeal is dismissed

as to the issue of interim counsel fees on the basis that an appeal from such an order is interlocutory.

FACTS:

Harold Diamond ("Husband") and Sandra B. Scher Diamond ("Wife") were married on November 2, 1979. Wife filed a divorce complaint on November 9, 1995, requesting, inter alia, spousal support, alimony pendente lite, alimony, equitable distribution, counsel fees and costs. Soon after, Wife served Husband with interrogatories, [**2] which Husband eventually answered. Dissatisfied with Husband's answers to these interrogatories, Wife filed a petition seeking leave of court to take discovery. 1 On August 9, 1996, the trial court granted Wife leave to take Husband's deposition, to conduct records depositions, and directed Husband to produce certain financial documentation. Wife thereafter filed a petition for contempt as a result of Husband's failure to provide complete answers to her interrogatories, and a request for counsel fees in order to conduct the discovery she had been awarded pursuant to the August 9, 1996, order. On October 23, 1996, the trial court entered an order adjudicating Husband in contempt of the August 9, 1996, order and fining him $ 500. 2 In addition, the trial court directed Husband to pay to Wife "interim counsel fees" of $ 3,000. It is from this order that Husband appeals.

[**3]

DISCUSSION:

Husband raises several issues on appeal:

1. Whether the order entered by the trial court is final and appealable?

1 We note that at the time Wife filed for leave to take discovery, i.e. July 17, 1996, Pa.R.Civ.P. 1920.22 (a) provided that, except for interrogatories, a party to a divorce could not serve discovery requests absent leave of court. That Rule was rescinded effective July 1, 1997, in favor of Pa.R.Civ.P. 1930.5 which states that discovery shall be without leave of court in accordance with Pa.R.Civ.P. 4001 et seq. in complex support, alimony, equitable distribution, counsel fee and expense applications. Leave of court is still required for discovery in a custody, simple support, or protection from abuse case. See Pa.R.Civ.P. 1930.5(a).

2 By order dated March 18, 1997, the trial court entered a further order clarifying that the $ 500 fine was "payable to the Prothonotary as a consequence of [Husband] having been found in contempt of the Order of 8/9/96."

715 A.2d 1190, *1190; 1998 Pa. Super. LEXIS 1659, **1

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2. Whether the trial court erred in failing to provide to Husband the procedural safeguards to which he was entitled for indirect criminal contempt?

3. Whether the trial court erred in finding Husband in contempt?

4. Whether the trial court erred in awarding counsel fees pursuant to 42 Pa.C.S.A. 2503?

5. Whether the trial court erred in its imposition of sanctions against Husband?

6. Whether the trial court erred in its award of interim counsel fees to Wife?

We must first decide whether we have jurisdiction to hear Husband's appeal. The law is well-settled that HN1[ ] an appeal "as of right" will lie only from a final order unless otherwise permitted by statute or rule. White v. Southeastern Pennsylvania Transportation Authority, 366 Pa. Super. 16, 530 [*1193] A.2d 870 (Pa. Super. 1987), alloc. [**4] denied, White v. Southeastern Pennsylvania Transp. Authority, 520 Pa. 578, 549 A.2d 137 (1988)(citations omitted). A final order is an order which (1) disposes of all claims and of all parties; or (2) is expressly defined as a final order by statute; or (3) is a final order as to fewer than all claims and all parties but the appeal of the order has been expressly determined by the trial court or other governmental unit as one which will facilitate resolution of the entire case. Pa.R.A.P. 341(b); G.B. v. M.M.B, 448 Pa. Super. 133, 670 A.2d 714 (Pa. Super. 1996)(for an order to be final and ripe for appeal it must resolve all pending issues and constitute a complete disposition of all claims raised by all parties).

HN2[ ] Unless an interlocutory order falls within Pa.R.A.P. 311, 3 an appeal therefrom may be taken only with permission. See 42 Pa.C.S.A. 702(b); Pa.R.A.P. 312, 1311. An exception to this general rule, known as the "collateral order doctrine", was first set forth by the United States Supreme Court in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949), and subsequently adopted by the Pennsylvania Supreme Court in Bell v. Beneficial Consumer Discount Company, 465 Pa. 225, 348 A.2d 734 (1975). [**5] Ultimately it was codified at Pa.R.A.P. 313, which provides that an order is considered final

3 Pa.R.A.P. 311 describes specific interlocutory orders which are appealable as of right.

and appealable if it satisfies the following three-pronged test:

(1) it is separable from and collateral to the main cause of action;

(2) the right involved is too important to be denied review; and

(3) the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.

Pa.R.A.P. 313(b); See Cohen, 337 U.S. at 546; Fried v. Fried, 509 Pa. 89, 94, 501 A.2d 211, 214 (1985). 4 Because prior permission was not sought to bring this appeal, and the present order does not fall within Pa.R.A.P. 311, we must determine whether it satisfies the Cohen three-prong test, thereby permitting immediate appellate review under Rule 313.

[**6] HN3[ ] Generally, an order imposing sanctions for discovery violations is interlocutory and not

4 There are a few other exceptions specific to domestic relations cases which are not applicable here. These exceptions include the entry of an order which effectively precludes a litigant from presenting the merits of his or her claim, e.g., Curran v. Curran, 446 Pa. Super. 633, 667 A.2d 1155 (Pa. Super. 1995)(decree of divorce entered after bifurcation order severing economic issues from action for divorce is immediately appealable), and orders affecting the parties' minor children which, for policy reasons, are granted immediate appellate review. See, e.g., G.B. v. M.M.B., 448 Pa. Super. 133, 670 A.2d 714 (Pa. Super. 1996)(a custody order entered within the context of the divorce action will be considered final and appealable if it is entered after the court has completed its hearing on the merits and it is intended by the court to constitute a complete resolution of the parties' pending custody claims); Dubin v. Dubin, 372 Pa. Super. 84, 538 A.2d 1362 (Pa. Super. 1988)(child support order entered in connection with divorce is immediately appealable to protect the interests of the child); Freedman v. McCandless, 539 Pa. 584, 654 A.2d 529 (1995)(order in paternity proceeding requiring blood test of a putative father is immediately appealable in all cases for child support where blood tests are ordered and the alleged father seeks to appeal blood test order based on claim of estoppel). See also Griffin v. Griffin, 384 Pa. Super. 210, 558 A.2d 86 (Pa. Super. 1989)(order enforcing child support through attachment proceedings is immediately appealable).

715 A.2d 1190, *1192; 1998 Pa. Super. LEXIS 1659, **3

Page 5 of 9

reviewable until the final disposition of the underlying litigation. See, e.g., Bruno v. Elitzky, 515 Pa. 47, 526 A.2d 781 (1987)(order striking defendants' defenses as a result of their failure to answer interrogatories was interlocutory and non-appealable); West v. Andersen, 426 Pa. Super. 127, 626 A.2d 606 (Pa. Super. 1993)(order imposing counsel fees as a sanction for party's refusal to be deposed was interlocutory and non-appealable). This is true even where the party refusing to provide discovery is held in civil contempt in an effort to coerce compliance with a discovery order. See, e.g., Fox v. Gabler, 377 Pa. Super. 341, 547 A.2d 399 (Pa. Super. 1988)(order holding defendant in civil contempt for violating the court's previous order which required, inter alia, that defendant provide discovery, and directing defendant to post a bond of $ 10,000 or face incarceration, was interlocutory and not appealable). However, we have not previously addressed the issue of appealability [*1194] where, as here, a criminal contempt order is entered as a result of an asserted violation of a discovery order. [**7] For the reasons which follow, we expressly hold that such an order is appealable under Pa.R.A.P. 313.

A review of the law distinguishing criminal and civil contempt is instructive on this point. The Pennsylvania Supreme Court characterized the differences between these two concepts as follows:

There is nothing inherent in a contemptuous act or refusal to act which classifies that act as 'criminal' or 'civil'. The distinction between criminal and civil contempt is rather a distinction between two permissible judicial responses to contumacious behavior. For example, it is clear that a contemptuous refusal to testify before a grand jury may be dealt with either as criminal contempt, civil contempt, or both.

These judicial responses are classified according to the dominant purpose of the court. HN4[ ] If the dominant purpose is to prospectively coerce the contemnor to comply with an order of the court, the adjudication is civil. If, however, the dominant purpose is to punish the contemnor for disobedience of the court's order or some other contemptuous act, the adjudication of contempt is criminal.

Dominant purpose of coercion or punishment is expressed in the sanction imposed. HN5[ ] [**8] A civil adjudication of contempt coerces with a conditional or indeterminate sentence of which the contemnor may relieve himself by obeying the court's order, while a criminal adjudication of contempt punishes with a

certain time of imprisonment or a fine which the contemnor is powerless to escape by compliance.

The civil-criminal classification of contempt exists solely for determination of a contemnor's procedural rights and a court's sentencing options. Quite simply, a contemnor who will be sentenced to a determinate term of imprisonment or a fixed fine, which he is powerless to escape by purging himself of the contempt, is entitled to the essential procedural safeguards that attend criminal proceedings generally. Second, a court is not permitted to impose a coercive sentence conditioned on the contemnor's performance of some act that is incapable of performance.

In re Martorano, 464 Pa. 66, 77-80, 346 A.2d 22, 27-29 (1975)(emphasis added)(footnotes, citations omitted). Stated simply, in a civil contempt order the contemnor is able to purge himself of the contempt and thus holds the keys to the jailhouse door. See, e.g., Colbert v. Gunning, 368 Pa. Super. 28, 533 A.2d 471, [**9] 472 (Pa. Super. 1987); Markey v. Marino, 361 Pa. Super. 92, 521 A.2d 942, 945 (Pa. Super. 1987), alloc. denied, Markey v. Marino, 516 Pa. 614, 531 A.2d 781 (1987); Knaus v. Knaus, 387 Pa. 370, 379, 127 A.2d 669, 673 (1956).

In this case, the fine imposed was both unconditional and payable to the court. Thus the punishment was both "certain" and beyond appellant's power to escape. These facts clearly render that part of the judge's order criminal instead of civil. Vito v. Vito, 380 Pa. Super. 258, 551 A.2d 573, 574 (Pa. Super. 1988), citing with approval Hicks v. Feiock, 485 U.S. 624, 631-632, 99 L. Ed. 2d 721, 108 S. Ct. 1423 (1988)("If the relief provided is a fine, it is remedial when it is paid to the complainant, and punitive when it is paid to the court, though a fine that would be payable to the court is also remedial when the defendant can avoid paying the fine simply by performing the affirmative act required by the court's order"). See also Crozer-Chester Medical Center v. Moran, 522 Pa. 124, 134, 560 A.2d 133, 138 (1989)(fine imposed for past violations was criminal and not civil in nature). 5

[**10]

5 This conclusion is buttressed by the trial court's opinion in which the court states that its order was intended to "punish" Husband as a sanction for failure to comply with the court's discovery order. Slip Opinion, October 1, 1997, Diamond v. Diamond, Court of Common Pleas of Philadelphia County, November Term 1995, No. 008463.

715 A.2d 1190, *1193; 1998 Pa. Super. LEXIS 1659, **6

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This conclusion does not, however, end our inquiry; for we must now examine whether an immediate appeal from the imposition of indirect criminal sanctions falls within Pa.R.A.P. 313. We have no hesitation in concluding that it does. First, HN6[ ] the imposition of a criminal sanction is clearly collateral to the underlying proceeding in which it occurs because, by its nature, it is directed to an [*1195] individual's independent conduct and not to the ultimate issues which are at stake in the underlying action. Second, a determination of criminal contempt is a criminal conviction, 6 conferring on the contemnor all the negative characteristics of being a convicted criminal. The right of a citizen to be free of the stigma of an unfair or an unfounded criminal conviction is a hallmark of American jurisprudence; thus the right to be free from the taint of such a conviction is too important to be denied immediate review. See U.S. Const. amend. V; Pa. Const. Art. 1, 8. See also Ingebrethsen v. Ingebrethsen, 443 Pa. Super. 256, 661 A.2d 403 (Pa. Super. 1995). 7 Third, although we can agree in theory with appellee that appellant's right to appeal the contempt citation would not be irreparably lost [**11] if we ruled this appeal interlocutory, that argument focuses too narrowly on the right of appeal, as opposed to the right of each citizen to be free of the stigma of an unfounded criminal conviction. In this latter instance each day that an unfounded criminal conviction hangs over one's head is irreparably lost, and there is a compelling interest for all in having a challenge to that conviction examined immediately. 8

6 "Criminal contempt is a crime in the ordinary sense; it is a violation of the law, a public wrong which is punishable by fine or imprisonment or both. … Criminally contemptuous conduct may violate other provisions of the criminal law; but even when this is not the case convictions for criminal contempt are indistinguishable from ordinary criminal convictions, for their impact on the individual defendant is the same. Indeed, the role of criminal contempt and that of many ordinary criminal laws seem identical - protection of the institutions of our government and enforcement of their mandates." Cipolla v. Cipolla, 264 Pa. Super. 53, 398 A.2d 1053, 1055 (Pa. Super. 1979), citing Bloom v. Illinois, 391 U.S. 194, 201, 20 L. Ed. 2d 522, 88 S. Ct. 1477 (1968).

7 In Ingebrethsen v. Ingebrethsen, 443 Pa. Super. 256, 661 A.2d 403 (Pa. Super. 1995), the Superior Court, per Judge Hoffman, refused to dismiss as moot an appeal from an indirect criminal contempt order, even though the alleged contemnor had already served the ninety day sentence, because of the trial court's egregious denial of procedural due process.

[**12]

[**13] We therefore conclude that HN7[ ] indirect criminal contempt orders entered prior to the conclusion of the underlying case satisfy all three prongs of the Cohen test, and, consequently, are entitled to immediate appellate review. We caution that our holding today is to be narrowly construed, and is not intended to give litigants an avenue to avoid the general rule that orders which are entered prior to the conclusion of a divorce action are deemed to be interlocutory and non-appealable. Fried v. Fried, 509 Pa. 89, 501 A.2d 211 (1985). 9 At the same time we do not wish to impinge on the power of trial judges to control litigation, and this opinion should not be construed as limiting a trial judge's ability to use criminal contempt as a sanction.

8 Although it is not crucial to our determination in this case, we note that Husband's conviction for criminal contempt could have consequences beyond those imposed by the trial court. Husband, who is an attorney, is bound by the Rules of Professional Conduct, in which Rule 8.4 states that it is "professional misconduct for a lawyer to … (b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects; [or] …(d) engage in conduct which is prejudicial to the administration of justice.." Further, the preamble to the Rules states, "A lawyer should demonstrate respect for the legal system and for those who serve it, including judges, other lawyers and public officials. While it is a lawyer's duty, when necessary, to challenge the rectitude of official action, it is also a lawyer's duty to uphold legal process." A conviction for indirect criminal contempt could result in separate disciplinary proceedings for a violation of the Rules of Professional Conduct, thus providing additional justification for our decision to grant immediate appellate review of this indirect criminal contempt conviction.

9 Fried v. Fried, 509 Pa. 89, 501 A.2d 211 (1985)(interim orders awarding economic relief are interlocutory pending the resolution of the divorce). Accord, e.g., Caplan v. Caplan, 713 A.2d 674 (Pa. Super. May 28, 1998)(order determining validity of a marriage is interlocutory unless it ends the litigation); Calibeo v. Calibeo, 443 Pa. Super. 694, 663 A.2d 184 (Pa. Super. 1995)(neither spousal support nor alimony pendente lite orders are appealable until all economic claims are resolved); O'Brien v. O'Brien, 359 Pa. Super. 594, 519 A.2d 511 (Pa. Super. 1987)(order requiring accounting and preventing dissipation of marital funds during pendency of divorce was interlocutory and non-appealable); Shazes v. Baltuskonis, 359 Pa. Super. 599, 519 A.2d 514 (Pa. Super. 1987)(order awarding husband interim exclusive possession of the marital home was interlocutory and non-appealable).

715 A.2d 1190, *1194; 1998 Pa. Super. LEXIS 1659, **10

Page 7 of 9

Moreover, we are cognizant of the fact that, as in this case, an interlocutory appeal can force the underlying case to an [*1196] abrupt and protracted halt and trap the litigants in the nightmare of their domestic relations purgatory. Thus, in order to avoid such a delay in the disposition of the underlying case, we recommend that, when considering the use of criminal contempt, a trial judge assign a separate case number to the criminal matter so that [**14] this matter can proceed of its own accord. Then the underlying action will not be affected by the taking of an appeal from any order entered in that separate action.

We next examine whether [**15] the trial judge here erred in entering the contempt order. 10 Our examination must focus on the sufficiency of the evidence in support of the judge's citation of contempt. This evidence must demonstrate beyond a reasonable doubt that Husband's conduct was sufficient to sustain the citation of contempt. Vito, 551 A.2d at 577 (citations

10 Husband has argued that he was not afforded the essential procedural safeguards which are attendant to a criminal contempt proceeding. These procedural safeguards include: the right to bail, the right to be notified of accusations against him or her, a reasonable time to prepare a defense, the assistance of counsel, and the right, upon demand, to a speedy and public trial before a jury. See 42 Pa.C.S.A. 4136; Ingebrethsen, 661 A.2d at 405. Moreover, guilt must be proven beyond a reasonable doubt. Vito v. Vito, 380 Pa. Super. 258, 551 A.2d 573, 577 (Pa. Super. 1988)(citations omitted). The trial court below failed to hold a hearing, but rather permitted counsel for each party to argue his or her position, and accepted into evidence several exhibits by agreement. Clearly, a colloquy of counsel was not sufficient to satisfy the strict procedural due process requirements to which Husband was entitled prior to a conviction for indirect criminal contempt. However, the record of the October 23, 1996, hearing is devoid of any objection by Husband's counsel to the nature of the proceeding, including the failure of the court to hold an evidentiary hearing. Thus, we must conclude that Husband waived his right on appeal to challenge the indirect criminal contempt conviction for lack of procedural due process. Accord Smith v. Smith, 431 Pa. Super. 588, 637 A.2d 622 (Pa. Super. 1993), alloc. denied, 539 Pa. 680, 652 A.2d 1325 (1994)(conviction of civil contempt based on colloquy of parties violated appellant's procedural due process rights; however, appellant's failure to object to these proceedings resulted in a waiver of his due process argument). See also, Travitzky v. Travitzky, 369 Pa. Super. 65, 534 A.2d 1081, 1085 (1987); Fenstamaker v. Fenstamaker, 337 Pa. Super. 410, 487 A.2d 11, 15 (Pa. Super. 1985).

omitted). HN8[ ] Four elements must be present to support a finding of criminal contempt for failure to comply with a court order: (1) the order must be definite, clear, specific and leave no doubt or uncertainty in the mind of the person to whom it was addressed of the conduct prohibited; (2) the contemnor must have had notice of the specific order or decree, (3) the act constituting the violation must have been volitional, and (4) the contemnor must have acted with wrongful intent. See, e.g., Fenstamaker v. Fenstamaker, 337 Pa. Super. 410, 487 A.2d 11, 14 (Pa. Super. 1985)(citations omitted). Moreover, proof of non-compliance alone is insufficient to support the conviction. Instead, it must be proven, inter alia, that the alleged contemnor's failure to comply with the order was willful or at least reckless. Smith v. Mason, 328 Pa. Super. 314, 476 A.2d 1347, [**16] 1349 (Pa. Super. 1984)(citations omitted). With these standards in mind, we review the evidence presented in this case.

[**17] The trial court held Husband in contempt for his failure "to make a good faith effort to comply" with the court's prior order of August 9, 1996. Husband argues that there was insufficient evidence presented at the October 23, 1996 hearing upon which to base this finding. We agree.

The August 9, 1996 order provided as follows:

AND NOW, this 9th day of August, 1996, upon consideration of the within pleading, and after hearing thereon, it is hereby Ordered and Decreed that Petitioner/Wife, Sandra B. Scher Diamond is granted leave to:

(a) Take the deposition of Husband within (30) thirty days of the date of this Order;

* * * *

(d) Respondent is Ordered to produce his 1995 and 1996 statements of receipts and disbursements, including his 1995 1040 and any other Federal or State filings for 1995 and 1996 to date within fourteen (14) days of the date of this Order;

[*1197] (e) Respondent and/or his agents are Ordered to provide the Distribution Schedule from Respondent's mother's inheritance, as well as annual statements from investments thereof from 1980 to the present. Respondent is granted leave to Subpoena said documents from the financial institutions that provided [**18] said services with regard to investing and/or controlling Respondent's mother's inheritance

715 A.2d 1190, *1195; 1998 Pa. Super. LEXIS 1659, **13

Page 8 of 9

from 1980 to the present;

(f) Petitioner shall have the right to conduct a Records Deposition for the banks, financial institutions, accountant and investment providers to produce all documents necessary to show the marital estate and its present status;

* * * *

(h) Husband is Ordered to provide any and all retirement documents, including but not limited to, Statements for IRA's, Keoghs, SEP-IRA's, and Pension and/or Profit Sharing Plans from 1990 to the present within fifteen (15) days from the date of this Order. 11

Order, August 9, 1996, Diamond v. Diamond, Court of Common Pleas of Philadelphia County, November Term 1995, No. 008463.

With regard to subparagraphs (a) and (f), Wife was given leave to take Husband's deposition and to conduct records depositions "for the banks, financial institutions, [**19] accountant and investment providers to produce all documents necessary to show the marital estate and its present status." At the contempt hearing, Husband's attorney indicated that Husband had made himself available for a deposition by Wife's attorney within the thirty day period, but that Wife's attorney had failed to schedule the deposition. Wife acknowledged this, but said that she lacked the financial resources with which to proceed. N.T. 10/23/96, pp. 20-21. It is significant that Husband's payment of Wife's counsel fees and expenses was not required by the August 9, 1996, order; therefore, Wife's inability to proceed with discovery did not result from any violation of an affirmative obligation imposed by the court. Similarly, with regard to the records depositions of financial institutions, it was Wife's affirmative duty under the August 9, 1996, order to schedule these depositions, and there was no evidence that Husband interfered with or prevented this scheduling in any way. To the contrary, instead of scheduling these depositions, Wife elected to file a separate request for counsel fees in order to pursue them. While this claim was certainly a proper subject of a petition [**20] for interim expenses, 12 Wife's asserted impecuniosity was not a basis for

11 This order was entered on a form proposed by Wife and attached to her petition. The paragraphs which have been omitted here were crossed out by the court on the original order.

holding Husband in contempt.

Subparagraphs (d), (e) and (h) of the August 9, 1996, order did impose on Husband an affirmative obligation to produce certain financial documentation to Wife. With regard to the requirement that Husband provide his 1995 and 1996 "statements of receipts and disbursements", including his 1995 1040 and any other 1995 or 1996 federal or state tax filings, Husband provided a copy of his 1995 tax form, an executed Form 4506 allowing Wife to obtain certain information directly from the IRS, 13 copies of his handwritten expense ledger book from January, 1995 through July, 1996, and copies of certain account statements for 1995 and 1996. Wife's counsel argued that the expense ledger copies were illegible; however, she [**21] never advised Husband's counsel that she could not [*1198] read the reports prior to filing the contempt petition. Wife's counsel also complained that she was not given an opportunity to review Husband's original cancelled checks; however, Husband's counsel stated that he had offered to make Husband's checks available for copying at Wife's expense. While we do not condone Husband's failure to provide all of his monthly account statements for the period in question (if they were in fact available to him), we cannot say on the basis of this evidence that he demonstrated the wrongful intent required for a criminal contempt citation. 14 This is particularly true since the order in question, submitted by Wife's counsel,

12 23 Pa.C.S.A. 3702(a) provides as follows: "In proper cases, upon petition, the court may allow a spouse reasonable alimony pendente lite, spousal support and reasonable counsel fees and expenses. Reasonable counsel fees and expenses may be allowed pendente lite … ".

13 Wife requested the Form 4506 because she had received two different versions of Husband's 1995 tax return, one attached to his answers to interrogatories and one transmitted by counsel at a later date. Husband's counsel explained at the August 9, 1996, hearing that the later draft was the document actually filed with the IRS, while the earlier draft had been prepared by Husband's accountant in anticipation of a previously scheduled alimony pendente lite hearing. N.T. 8/9/96, pp.19-21.

14 We also fail to see how the legibility of Husband's expense ledgers is a basis for contempt if in fact these were copies of his original ledgers. Certainly if the ledgers were illegible, Wife would be entitled to additional discovery but, absent an order to transcribe the ledgers (which the trial court directed Husband to do prospectively in its October 23, 1996, order), Husband's provision of copies of the original records cannot be deemed contemptuous.

715 A.2d 1190, *1197; 1998 Pa. Super. LEXIS 1659, **18

Page 9 of 9

provided no clear guidance as to the type and manner of documents to be produced.

[**22]

Next, with regard to Husband's inheritance from his mother, Wife sought documentation of the increase in value of this non-marital asset from the date it was received (1980) to the present. Husband's counsel stated that he had provided all of the documentation in Husband's possession, which included copies of the stock certificates and the schedule of distribution from his mother's estate. 15 It is true that Husband did not provide any brokerage statements for the securities; however, the securities were not maintained in a brokerage account, but rather held by Husband in kind. While Wife's counsel argued that these securities were maintained at one time in a Prudential account, she presented no evidence [**23] that Husband willfully failed to provide statements for this account. In fact, at the previous hearing, Wife's counsel had requested and was granted leave to conduct records depositions of the financial institutions which provided services for Husband's inheritance because Husband had no further documentation. N.T. 8/9/96, pp.23-27. Moreover, while the trial court took issue with the fact that Husband had not provided to Wife a list of the values of these securities on the date of the inheritance as compared to the current date, the August 9, 1996, order did not require Husband to produce this information. Thus, we can find no evidence to support a willful failure to comply with this portion of the court's August 9, 1996, order.

[**24] With respect to Husband's retirement account statements, the order required that he produce "any and all" statements for the period 1990 to present. Husband produced his account statements for several recent months and authorized Prudential to produce a printout for all of his retirement accounts from 1990 to present. While that printout appears to have been incomplete, again Wife presented no evidence that Husband failed

15 At the August 9, 1996 hearing, Husband's counsel stated that Husband received an additional $ 20,000 in cash from his mother's estate in 1980 which was put in a Corestates account and that Husband did not retain any statements for this account other than the most recent statements, indicating that the present value of this account was about $ 20,000. The August 9, 1996, order gave Wife the ability to conduct records depositions for, inter alia, this account and, again, her failure to do so does not connote any contemptuous conduct on Husband's part.

to provide documentation which was in his possession or prevented her in any way from obtaining documentation directly from the financial institutions, as she was authorized to do under the August 9, 1996, order. We therefore find no evidence based on this conduct to support a contempt citation.

For all of the foregoing reasons, we must conclude that the court erred in finding Husband in indirect criminal contempt of its order of August 9, 1996, order. Therefore, that portion of the court's order is reversed, and the fine imposed as a sanction for the contempt is vacated. 16

[**25] Finally, Husband's remaining three claims, i.e., that the trial court erred in awarding counsel fees pursuant to 42 Pa.C.S.A. 2503, that the trial court erred in its imposition of discovery sanctions against [*1199] Husband, and that the trial court erred in its award of interim counsel fees to Wife, all concern matters which are clearly interlocutory and, therefore, not immediately appealable. Fried, supra. Consequently, Husband's appeal as to these issues is dismissed without prejudice to his ability to raise them at the conclusion of the underlying litigation.

CONCLUSION:

That portion of the trial court's October 23, 1996, order holding Husband in contempt and imposing an unconditional fine of $ 500 payable to the Prothonotary constituted a finding of indirect criminal contempt, which satisfies the requirements of Pa.R.A.P. 313, and is therefore immediately appealable. However, the evidence was insufficient to sustain a finding of indirect criminal contempt and, therefore, the contempt citation is reversed and the fine is vacated. Finally, Husband's claims with respect to the award of interim counsel fees are interlocutory and are dismissed without prejudice.

Accordingly, the [**26] citation of contempt is vacated, the motion to quash is dismissed, and the case is remanded for further proceedings consistent with this Opinion. Jurisdiction relinquished.

End of Document

16 Husband may have narrowly escaped a minefield. As Montaigne wrote, "God defend me from myself." Essays III, xiii.

715 A.2d 1190, *1198; 1998 Pa. Super. LEXIS 1659, **21

Eury v. Eury (In re Eury)

United States Bankruptcy Court for the Western District of Pennsylvania

January 29, 2016, Decided; January 29, 2016, Filed

Bankruptcy No. 14-21008-CMB, Chapter 13, Adversary No. 15-2022-CMB, Related to Doc. No. 45, 46.

Reporter544 B.R. 563 *; 2016 Bankr. LEXIS 280 **

In re: TODD STEPHEN EURY, Debtor.LORRIE EURY, Plaintiff, v. TODD STEPHEN EURY, NICOLE MAYER, PHARMACY GPO, INC., PHARMACY TECHNOLOGY RESOURCE, INC., PHARMACY TECHNOLOGY RESOURCE, LLC, LEO GRACE INVESTMENTS, LLC, PHARMACY PODCAST, TRANSLUSCENT PHARMACY BENEFITS, LLC., PRESCRIPTION GENERATOR, INC., WELL MED RX, and JOHN DOE COMPANIES, Defendants.

Core Termssummary judgment, Counts, obligations, dischargeable, mortgages, genuine issue of material fact, breach of contract claim, summary judgment motion, motion to dismiss, non-dischargeability, alimony, marital, parties, dividends, breached

Case Summary

Overview

HOLDINGS: [1]-Debtor failed to show that there were no genuine issues of material fact, Fed. R. Civ. P. 56, as to the dischargeability of plaintiff ex-wife's breach of contract claims, and that said alleged dischargeability entitled him to summary judgment; [2]-With respect to the ex-wife's Motion, although the court found that debtor did, in fact, breach the Marital Settlement Agreement (MSA), it found that genuine issues of material fact existed as to the extent of the breach and the calculation of resulting damages. Likewise, the court also found that genuine issues of material fact existed as to whether the obligations of the MSA breached by debtor were in the nature of alimony, maintenance, or support as to warrant a determination of non-dischargeability under 11 U.S.C.S. § 523(a)(5); [3]-Accordingly, neither debtor nor the ex-wife were entitled to summary judgment.

Outcome

Both debtor's Motion for Summary Judgment and the creditor's Motion for Summary Judgment were denied.

LexisNexis® Headnotes

Bankruptcy Law > Procedural Matters > Adversary Proceedings > Judgments

Civil Procedure > ... > Summary Judgment > Entitlement as Matter of Law > Appropriateness

Civil Procedure > ... > Summary Judgment > Burdens of Proof > Movant Persuasion & Proof

HN1[ ] The standard for evaluating motions for summary judgment set forth in Fed. R. Civ. P. 56, made applicable to adversary proceedings by Fed. R. Bankr. P. 7056, provides that the court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party has the initial burden of identifying evidence which demonstrates the absence of material fact. Said burden may be satisfied by citing to materials in the record, including depositions, documents, affidavits, stipulations, admissions, and interrogatory answers. Fed. R. Civ. P. 56(c). When deciding a motion for summary judgment, the court shall draw all inferences from the underlying facts in the light most favorable to the non-moving party.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN2[ ] 11 U.S.C.S. § 523(a)(5) of the Bankruptcy Code excepts from discharge debts which are "domestic support obligations." 11 U.S.C.S. § 523(a)(5). Four elements must be satisfied to establish a domestic support obligation claim under § 523(a)(5): 1) the debt

Page 2 of 5

must be "owed to or recoverable by" a governmental unit or a person with a specific relationship to the debtor such as a spouse, former spouse, or child of the debtor; 2) the underlying obligation must be in the nature of alimony, maintenance, or support of such person; 3) the obligation must arise from an agreement, court order, or as otherwise defined; and 4) the debt must not be assigned to a nongovernmental entity unless voluntarily done. 11 U.S.C.S. § 101(14A).

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

Evidence > Burdens of Proof > Allocation

HN3[ ] In the context of 11 U.S.C.S. § 523(a)(5), whether an obligation is in the nature of alimony, maintenance, or support is determined by the intent of the parties at the time of the agreement. Said intent is determined by examining three factors: (1) the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary, (2) the parties' financial circumstances as of the time of the agreement, and (3) the function served by the obligation. The party objecting to discharge bears the burden of proving that the obligation is in the nature of alimony, maintenance, or support.

Counsel: [**1] For Todd S. Eury, Debtor (14-21008-CMB): Dai Rosenblum, Butler, PA.

Trustee (14-21008-CMB): Ronda J. Winnecour, Pittsburgh, PA.

For Lorrie Eury, Plaintiff (15-02022-CMB): Salene R.M. Kraemer, MAZURKRAEMER BUSINESS LAW, Pittsburgh, PA.

For Todd Stephen Eury, Defendant (15-02022-CMB): Dai Rosenblum, Butler, PA.

For Nicole Mayer, Leo Grace Investments, LLC, Defendants (15-02022-CMB): John R. Cook, Cook & Tate, Pittsburgh, PA.

Pharmacy GPO Inc., Defendant (15-02022-CMB), Pro se.

Pharmacy Technology Resources, Inc., Defendant (15-02022-CMB), Pro se.

Translucent Pharmacy Benefits, LLC, Defendant (15-02022-CMB), Pro se.

Pharmacy Technology Resource, LLC, Defendant (15-02022-CMB), Pro se.

Pharmacy Podcast, Defendant (15-02022-CMB), Pro se.

Prescription Generator, Inc., Defendant (15-02022-CMB), Pro se.

Well Med RX, Defendant (15-02022-CMB), Pro se.

John Doe Company Defendants, Defendant (15-02022-CMB), Pro se.

Judges: Carlota M. Böhm, United States Bankruptcy Judge.

Opinion by: Carlota M. Böhm

Opinion

[*564] MEMORANDUM OPINION

The matters before the Court are the cross-motions for summary judgment filed by Debtor-Defendant, Todd Stephen Eury ("Debtor") and Plaintiff, Lorrie Eury.1 The parties have submitted their respective [*565] briefs and oral argument [**2] has been held on the motions. The matters are now ripe for decision.

Factual and Procedural History

Debtor and Plaintiff are former spouses who, in the course of their divorce proceedings, executed a Marital Settlement Agreement ("MSA") on July 26, 2011. Pursuant to the terms of the MSA, Debtor agreed to transfer ownership of the marital residence to Plaintiff by quit-claim deed but continue to make the payments on the three outstanding mortgages against the property until said mortgages were paid in full. Also under the MSA, Debtor was obligated to pay to Plaintiff fifty percent of all dividends received by Debtor from Pharmacy Technology Resource, Inc. ("PTR") and Pharmacy GPO, Inc. ("GPO"); companies in which

1 This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§157 and 1334. This is a core matter pursuant to 28 U.S.C. §157(b)(2)(A) and (I), and the Court will enter final judgment.

544 B.R. 563, *563; 2016 Bankr. LEXIS 280, **280

Page 3 of 5

Debtor held ownership interests. It is uncontested that Debtor has failed to make all of the required mortgage payments. Consequently, the marital residence was foreclosed upon and scheduled for a sheriff's sale. It is also uncontested that Debtor transferred his interests in PTR and GPO and, as of the time of the transfers, no dividends [**3] or portions thereof had been paid to Plaintiff.

Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on March 18, 2014. Debtor subsequently converted his case to one under Chapter 13 on September 24, 2014. Plaintiff commenced the within adversary proceeding by filing her eleven-count Complaint on January 29, 2015, amended February 12, 2015 (herein "Complaint"), alleging non-dischargeability of a debt under 11 U.S.C. §§523(a)(5), (a)(15), and (a)(2)(A)(Counts 1, 2, and 3, respectively); breach of contract (Counts 4 and 5); fraudulent transfer (Counts 6 and 7); piercing of the corporate veil (Count 8); alter ego (Count 9); accounting (Count 10); and attorney's fees (Count 11). Shortly thereafter, Debtor filed a motion to dismiss Counts 2, 4, 5, 6, 7, and 11. During the course of litigation on the motion to dismiss, Plaintiff withdrew Count 2 of the Complaint. On May 11, 2015, this Court entered an order granting Debtor's motion to dismiss as to Counts 6 and 7, and denying the motion on all other counts.2

On October 19, 2015, Debtor filed Defendant's Motion for Summary Judgment ("Debtor's [**4] Motion") seeking summary judgment as to Counts 4 and 5 of the Complaint. That same day, Plaintiff filed Plaintiff Lorrie Eury's Motion for Summary Judgment ("Plaintiff's Motion") requesting summary judgment on Counts 1, 4, and 5. The parties filed their respective responses, briefs, and exhibits to the motions. Oral argument was held on both Plaintiff's Motion and Debtor's Motion on January 14, 2016.

Applicable Standard & Analysis

This Court has previously observed that:

HN1[ ] [t]he standard for evaluating motions for summary judgment set forth in Fed.R.Civ.P. 56, made applicable to the within adversary proceeding by Fed.R.Bankr.P. 7056, provides that "the court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material

2 Debtor's motion to dismiss was denied as moot as to Count 2 of the Complaint due to Plaintiff's withdrawal of said count.

fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the initial burden of identifying evidence which demonstrates the absence of material fact. Rosen v. Bezner, 996 F.2d 1527, 1530 (3d Cir.1993). Said burden may be satisfied [*566] by citing to materials in the record, including depositions, documents, affidavits, stipulations, admissions, and interrogatory answers. See Fed.R.Civ.P. 56(c). When deciding a motion for summary judgment, the court shall draw all inferences from the underlying facts in the light most [**5] favorable to the non-moving party. Bezner, 996 F.2d at 1530.

Bricker v. Scalera (In re Scalera), No. 11-27241—CMB, 2013 Bankr. LEXIS 4736, 2013 WL 5963554 at *1 (Bankr.W.D.Pa. Nov.8, 2013).

A. Breach of Contract — Counts 4 and 5

Both Debtor and Plaintiff seek summary judgment as to Counts 4 and 5 of the Complaint. In Count 4, Plaintiff asserts that Debtor breached his obligation under the MSA to timely make all payments due and owing on the three outstanding mortgages on the marital residence until said mortgages were paid in full. Under Count 5, Plaintiff avers that Debtor breached his obligation to pay to Plaintiff fifty percent of all dividends paid to Debtor by GPO and PTR.

Debtor does not contest Plaintiff's allegations that Debtor breached his obligations under the MSA. Quite the opposite, Debtor admits that he did breach the MSA.3 Despite this admission, Debtor avers that he is entitled to summary judgment on Counts 4 and 5 since "simple breach of contract" claims are ultimately dischargeable under Chapter 13 of the Bankruptcy Code. Debtor advanced this same argument in his motion to dismiss. In the order resolving the motion to dismiss, this Court rejected Debtor's argument stating that, "Debtor failed to provide any legal authority [**6] to support this contention." Likewise, Debtor has failed to provide any arguments or authority herein to support his rationale beyond what was previously submitted to this Court pursuant to the motion dismiss. Accordingly, this

3 Debtor states in his Memorandum of Law in Opposition to Plaintiff Lorrie Eury's Motion for Summary Judgment that with respect to Counts 4 and 5,". . . the issue is not whether or not the Defendant Debtor is in breach of the marital settlement agreement. Of course he is, or he would not have converted to Chapter 13."

544 B.R. 563, *565; 2016 Bankr. LEXIS 280, **2

Page 4 of 5

Court finds that Debtor has similarly failed to prove his contention in his motion for summary judgment.

Moreover, even if Debtor could show that a party is entitled to summary judgment when a breach of contract claim asserted against them would ultimately be dischargeable, Debtor has failed to demonstrate that there are no genuine issues of material fact that the breach of contract claims set forth in Counts 4 and/or 5 would be dischargeable in bankruptcy.

Debtor avers that breach of contract claims are inherently dischargeable in bankruptcy. However, Debtor also concedes that Plaintiff has a colorable claim for non-dischargeability pursuant to Count [**7] 1 of her Complaint. Under Count 1, Plaintiff seeks to except from discharge pursuant to 11 U.S.C. §523(a)(5) Debtor's obligations established by the MSA, specifically Debtor's obligations to make the mortgage payments on the marital residence and to pay to Plaintiff fifty percent of dividends received from PTR and GPO. These obligations are the same obligations which form the bases of Plaintiff's breach of contract claims in Counts 4 and 5. By arguing that all breach of contract claims are inherently dischargeable, Debtor is effectively arguing that although Plaintiff has a colorable claim that the obligations are non-dischargeable, any relief obtained by Plaintiff pursuant to Debtor's breach thereof is dischargeable per se. Said logic would render any determination of non-dischargeability of the obligations under [*567] Count 1 meaningless. Accordingly, the Court rejects Debtor's argument.

With respect to Plaintiff's Motion, although Plaintiff has shown based on Debtor's admissions that Debtor is in breach of the MSA, the extent of the breach is unclear. While it is uncontested that Debtor has breached his obligation to pay the mortgages on the residence under Count 4, upon review of Debtor's admissions the [**8] Court finds that genuine issues of material fact exist as to whether Debtor admits he is also in breach as set forth in Count 5. Moreover, the Court also finds that there are genuine issues of material fact as to the calculation of damages under Counts 4 and 5. Thus, Plaintiff is not entitled to summary judgment on Counts 4 and 5 of her Complaint.

B. Non-dischargeability Under 11 U.S.C. §523(a)(5) — Count 1

In addition to her breach of contract claims, Plaintiff also seeks summary judgment as to Count 1 of her Complaint. Under Count 1, Plaintiff asserts a claim for

non-dischargeability of Debtor's obligations under the MSA to make the aforementioned mortgage and dividend payments.

HN2[ ] Section 523(a)(5) of the Bankruptcy Code excepts from discharge debts which are "domestic support obligations." See 11 U.S.C. §523(a)(5).

Four elements must be satisfied to establish a domestic support obligation claim under section 523(a)(5): 1) the debt must be "owed to or recoverable by" a governmental unit or a person with a specific relationship to the debtor such as a spouse, former spouse, or child of the debtor; 2) the underlying obligation must be in the nature of alimony, maintenance, or support of such person; 3) the obligation must arise from an agreement, court order, or as otherwise defined; [**9] and 4) the debt must not be assigned to a nongovernmental entity unless voluntarily done. 11 U.S.C. § 101(14A).

Price v. Price (In re Price), No. 15-07012-JAD, 545 B.R. 114, 2015 Bankr. LEXIS 3371, at *6 (Bankr. W.D. Pa. Oct. 5, 2015).

Although not labeled as support in the MSA, Plaintiff argues that Debtor's obligations under the MSA fall within the purview of §523(a)(5) since they "[were] intended by the parties to provide spousal support to Plaintiff, and such payment obligations are necessary to her continued support." Thus, Plaintiff contends that the obligations are in the nature of alimony, maintenance, or support. Debtor contests this assertion.

HN3[ ] Whether an obligation is in the nature of alimony, maintenance, or support is determined by the intent of the parties at the time of the agreement. In re Price, 545 B.R. 114, 2015 Bankr. LEXIS 3371 at *8. Said intent is determined by examining three factors: (1) the "language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary[,]" (2) the parties' financial circumstances as of the time of the agreement, and (3) the function served by the obligation. Id.at *8-10. "The party objecting to discharge bears the burden of proving that the obligation is in the nature of alimony, maintenance, or support." Id. at *6.

Upon review of the above standard, it is clear to [**10] this Court that given the subjective nature of the standard as well as the conflicting averments of the parties, any determination of whether Debtor's

544 B.R. 563, *566; 2016 Bankr. LEXIS 280, **6

Page 5 of 5

obligations under the MSA are in the nature of alimony, maintenance, or support will require the Court to weigh the evidence presented. Accordingly, the Court finds that genuine issues of material fact exist as [*568] to whether the obligations are in the nature of alimony, maintenance, or support, and summary judgment is not appropriate.

Conclusion

For the foregoing reasons, both Defendant's Motion for Summary Judgment and Plaintiff Lorrie Eury's Motion for Summary Judgment are denied. Debtor failed to show that there are no genuine issues of material fact (1) as to the dischargeability of Plaintiff's breach of contract claims, and (2) that said alleged dischargeability entitles Debtor to summary judgment at this stage of litigation. With respect to Plaintiff's Motion, although this Court finds that Debtor did, in fact, breach the MSA, the Court finds that genuine issues of material fact exist as to the extent of the breach and the calculation of resulting damages. Likewise, the Court also finds that genuine issues of material fact exist as [**11] to whether the obligations of the MSA breached by Debtor are in the nature of alimony, maintenance, or support as to warrant a determination of non-dischargeability under 11 U.S.C. §523(a)(5). Accordingly, neither Debtor nor Plaintiff are entitled to summary judgment as a matter of law. An appropriate Order will be entered consistent with this Memorandum Opinion.

Dated: January 29, 2016

/s/ Carlota M. Böhm

Carlota M. Böhm

United States Bankruptcy Judge

ORDER

AND NOW, this 29th day of January, 2016, upon consideration of the motions for summary judgment filed by Debtor and Plaintiff in the above-captioned adversary proceeding; the responses, briefs, and exhibits filed thereto; the Amended Complaint; the arguments presented by counsel at the hearing held January 14, 2016; Debtor's prior motion to dismiss; the Order of Court entered by this Court resolving said motion to dismiss; the pleadings filed on the docket of the within adversary proceeding; and for the reasons set forth in the foregoing Memorandum Opinion, it is hereby ORDERED, ADJUDGED, AND DECREED that

Defendant's Motion for Summary Judgment and Plaintiff Lorrie Eury's Motion for Summary Judgment are DENIED.

/s/ Carlota M. Böhm

Carlota M. Böhm

United States [**12] Bankruptcy Judge

End of Document

544 B.R. 563, *567; 2016 Bankr. LEXIS 280, **10

Farelli v. Farelli (In re Farelli)

United States Bankruptcy Court for the Western District of Pennsylvania

August 16, 2006, Decided

Bankruptcy No. 05-23263 BM, Chapter 7, Adversary No. 05-2905 BM

Reporter347 B.R. 501 *; 2006 Bankr. LEXIS 1761 **

IN RE: JOSEPH FARELLI, Debtor; KIRSTON FARELLI, Plaintiff v. JOSEPH FARELLI, Defendant

Subsequent History: Affirmed by In re Farelli, 2008 U.S. App. LEXIS 12245 (3d Cir. Pa., June 6, 2008)

Core Termsstate court, spouse, decree, route, marital, indicator, divorce, delivery, marital property, divorce decree, circumstances

Case Summary

Procedural PosturePlaintiff former spouse of a bankruptcy debtor brought an adversary proceeding against the debtor, seeking a declaration that a debt to the spouse arising from the parties' divorce decree was not dischargeable under 11 U.S.C.S. § 523(a)(5) since it was in the nature of support.

OverviewThe state court order in the divorce decree provided for an equitable distribution of marital property by granting the spouse 65 percent of the property, to be paid in cash by the debtor. The bankruptcy court held that, despite the state court's characterization of the debtor's marital obligation as a distribution of property, the state court intended for the award to provide the spouse with the means to support and maintain herself in the future. The state court noted the disparity in the financial circumstances of the spouse and the debtor, where the spouse was previously a stay-at-home mother who had little likelihood of obtaining full-time employment and the debtor operated a business with steady income. Further, the debtor was awarded the marital home which required the spouse to pay for new lodgings and pay her own food, clothing, and transportation, and thus the function of the award of substantial marital assets to the spouse was to provide the spouse with the wherewithal

to pay for these necessities of daily life.

OutcomeJudgment was entered in favor of the spouse, and the debt to the spouse was excepted from discharge.

LexisNexis® Headnotes

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN1[ ] See 11 U.S.C.S. § 523(a)(5).

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN2[ ] Except for types of debt that are enumerated in the various subparts of 11 U.S.C.S. § 523(a), a discharge in bankruptcy granted in accordance with 11 U.S.C.S. § 727 voids all pre-petition judgments against a debtor. These exceptions reflect a determination by Congress to permit certain compelling public interests to override the fresh start which bankruptcy provides the debtor. 11 U.S.C.S. § 523(a)(5) is intended to protect spouses, whether present or former, and dependent children when their support by a debtor in bankruptcy is at issue.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN3[ ] Where a former spouse of a bankruptcy debtor objects to the discharge of a debt for support owed to her by the debtor, the spouse has the burden of proving

Page 2 of 6

that it is excepted from discharge by 11 U.S.C.S. § 523(a)(5). She must do so by a preponderance of the evidence.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN4[ ] Federal rather than state law controls when determining whether an obligation is in the nature of maintenance of or support for a former spouse for purposes of 11 U.S.C.S. § 523(a)(5). An obligation may not so qualify under the relevant state law and yet so qualify for bankruptcy purposes. How an obligation is described or characterized in a state court decision or decree is not necessarily dispositive in determining its true nature for purposes of § 523(a)(5). A bankruptcy court must look beyond the label attached to the obligation when making this determination. The court's inquiry is limited in this regard to considering the facts at the time the obligation arose. Subsequent events, such as a change in the respective financial situations of one or both of the spouses, is not relevant. If, for instance, the spouse by whom the debt is owed subsequently were to cease being a billionaire and become a pauper instead, the court is limited to considering the facts as they were when debtor was a billionaire.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN5[ ] Whether an obligation is in the nature of maintenance or support within the meaning of 11 U.S.C.S. § 523(a)(5), as opposed to equitable distribution of marital property, depends on the intention extant at the time the obligation arose. If the debt is based on a court order or decree instead of an agreement between the spouses, a bankruptcy court must ascertain the intention of the court that issued the order or decree.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN6[ ] In determining a state court's intention in a marital obligation for purposes of 11 U.S.C.S. §

523(a)(5), a bankruptcy court first considers the language and substance of the relevant document in the context of surrounding circumstances. If necessary, extrinsic evidence may be taken into account. An obligation which was designated as a property settlement may be closely related to support, and a state court frequently will adjust a support award depending on the type and the amount of marital assets that are available for distribution to feuding spouses. Dividing up the property between the spouses frequently accomplishes the same objective as does awarding support to one of the spouses.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN7[ ] Because the language of a court decision and divorce decree, without more, may not provide an answer as to the true nature of an obligation, an indicator a bankruptcy court takes into account in determining whether the obligation is in the nature of support for purposes of 11 U.S.C.S. § 523(a)(5) is the financial situation of the respective parties at the time of the decision and court decree. Relevant considerations may include whether one of the spouses has custody of any minor children, is unemployed, or has a job that pays considerably less than the other spouse is paid in his or her job. Another indicator the court considers when determining the true nature of the obligation is the function of the obligation at the time it arose. An obligation that serves to provide a spouse with necessities of life such as food, shelter, clothing, and transportation is indicative of a debt intended to be in the nature of support.

Counsel: [**1] For Plaintiff: Robert R. Druzisky, Esq.

For Defendant: Jonathan G. Babyak, Esq.

For Greg A. Zeman, Debtor: John P. Donovan, Oakmont, PA.

For Jennie L. Zeman, Joint Debtor: John P. Donovan, Oakmont, PA.

For Robert L. Williams, Trustee, Pittsburgh, PA.

Judges: BERNARD MARKOVITZ, United States Bankruptcy Judge.

347 B.R. 501, *501; 2006 Bankr. LEXIS 1761, **1761

Page 3 of 6

Opinion by: BERNARD MARKOVITZ

Opinion

[*503] MEMORANDUM OPINION

Complaint Objecting To Discharge Of Debt

Plaintiff Kirston A. Farelli seeks a determination in this adversary action that a debt owed to her by debtor Joseph A. Farelli is excepted from discharge by § 523(a)(5) or § 523(a)(15) of the Bankruptcy Code.

Debtor denies that the debt lies within the scope of either provision and insists that it is dischargeable.

Judgment will be entered in favor of plaintiff and against debtor for reasons provided in this memorandum opinion. The debt at issue lies within the scope of § 523(a) (5).

- FACTS -

Debtor and plaintiff were married in July of 1995. Three children, who respectively are 12, 10 and 8 years old, were born during their marriage.

Two years prior to their marriage, debtor began operating a parcel delivery route for RPS. He continued doing [**2] so when FedEx subsequently took over RPS. Debtor began operating a second route for RPS/FedEx in 1997 and then a third route at some time during the year 2000. He eventually owned three delivery trucks and employed three drivers to cover the routes.

Shortly before their marriage, debtor purchased a house to serve as the family residence. Legal title to the property was in debtor's name alone. Plaintiff had no legal interest therein.

[*504] Plaintiff was primarily a homemaker. She cared for the children and maintained the household. Plaintiff had studied cosmetology in high school and worked as a beautician on a part-time basis early in the marriage.

Plaintiff commenced a divorce proceeding against debtor on February 4, 2000, three days after they separated, in the Court of Common Pleas of Beaver County, Pennsylvania. In addition to a divorce, plaintiff requested alimony, equitable distribution of marital property and counsel fees incurred during the course of the divorce proceeding.

After the separation but prior to October of 2003, plaintiff earned an EMT certificate and worked on a part-time basis first as a medic and then as a medical technician in a hospital.

An evidentiary hearing [**3] on plaintiff's economic claims was held by the state court in July and August of 2003.

The state court issued a decision and decree in the case on October 6, 2003. In its decision, the court determined that the marital estate had a total value of $ 144,277.00. This included several vehicles, appreciation in the value of the marital residence, a bank account and two savings accounts, cash from the sale of one of the parcel delivery routes, and two retirement accounts in debtor's name.

The state court awarded sixty-five percent of the marital estate to plaintiff and the remaining thirty-five percent to debtor. Debtor was directed to pay $ 70,200 in cash to plaintiff within sixty days of the date of the decree as well $ 23,580 from his two retirement accounts. In addition, the state court awarded plaintiff counsel fees she had incurred in the divorce proceeding in the amount of $ 9,899. The award to debtor totaled $ 103,679.

As for debtor, the state court awarded him the marital residence, three vehicles, the remaining balance in all of the bank accounts, and the parcel delivery route to the extent that it constituted a "business".

In explaining its decision, the state court noted [**4] that the intention of Pennsylvania's legislature in enacting the Divorce Code was "to effectuate economic justice". According to the court, it took in to account the following factors in particular in arriving at its decision: the parties' respective sources of income and their vocational skills; the opportunity for each to acquire capital assets and income in the future; and the economic circumstances of each party. The court also considered the willingness of debtor's parents, who were of "obviously substantial means", to assist him.

Debtor appealed the portion of the decision and decree pertaining to the distribution of marital assets ordered by the state court, but did not appeal the portion granting a divorce. The Superior Court of Pennsylvania affirmed in January of 2005.

Ignoring the decree issued on October 6, 2003, by the state court, debtor did not make any of the payments to plaintiff he was ordered to make. Debtor testified during

347 B.R. 501, *501; 2006 Bankr. LEXIS 1761, **1

Page 4 of 6

the trial of the present case that the payments were "too much".

At some unknown time in 2002 or 2003, RPS/FedEx terminated debtor's right to operate two of the three delivery routes. Debtor eventually sold the third route to another person [**5] and is now employed as a nurse.

Debtor filed a voluntary chapter 7 petition on March 13, 2005. The schedules accompanying the petition listed assets with a total declared value of $ 16,273.63 and liabilities totaling $ 115,733.56. The marital residence awarded to debtor in the divorce proceeding was not listed as an [*505] estate asset. Debtor had sold it to another party in June of 2004.

Plaintiff is listed in the schedules as having a claim in the amount of $ 80,099.50 arising out of a "divorce settlement". The statement of financial affairs indicates that plaintiff had obtained a judgment against him in that amount in the Court of Common Pleas of Beaver County.

Plaintiff commenced this adversary action on August 5, 2005. In the complaint, she seeks a determination that the above debt owed to her by debtor is excluded from discharge by § 523(a)(5) or § 523(a)(15) of the Bankruptcy Code. The matter has been tried and is now ready for decision.

- ANALYSIS -

Section 523(a)(5) of the Bankruptcy Code provides in part as follows:

(a) HN1[ ] A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt -- . . . .

(5) to a . . . former [**6] spouse . . . for alimony to, maintenance for, or support of such spouse . . ., in connection with a . . . divorce decree. . . .

11 U.S.C. § 523(a)(5).

HN2[ ] Except for types of debt that are enumerated in the various subparts of § 523(a), a discharge in bankruptcy granted in accordance with § 727 of the Bankruptcy Code voids all pre-petition judgments against the debtor. These exceptions reflect a determination by Congress to permit certain compelling public interests to override the "fresh start" which bankruptcy provides a debtor. City of Philadelphia v. Gi Nam (In re Gi Nam), 273 F.3d 281, 289 (3d Cir. 2001).

Congress intended when it enacted § 523(a)(5) to protect spouses, whether present or former, and dependent children when their support by a debtor in bankruptcy is at issue. Brown v. Mills (In re Mills), 313 B.R. 395, 399 (Bankr. W.D. Pa. 2004).

HN3[ ] Because she objects to the discharge of the debt owed to her by debtor, plaintiff has the burden of proving that it is excepted from discharge by § 523(a)(5). Gianakas v. Gianakas (In re Gianakas), 917 F.2d 759, 764 (3d Cir. 1990). She must do so by [**7] a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-88, 111 S.Ct. 654, 659-61, 112 L.Ed.2d 755 (1991).

HN4[ ] Federal rather than state law controls when determining whether an obligation is in the nature of maintenance of or support for a former spouse for purposes of § 523(a) (5). In re Gianakas, 917 F.2d at 762. An obligation may not so qualify under the relevant state law and yet so qualify for bankruptcy purposes. In re Mills, 313 B.R. at 399.

How an obligation is described or characterized in a state court decision or decree is not necessarily dispositive in determining its "true nature" for purposes of § 523(a)(5). We must "look beyond the label" attached to the obligation when making this determination. Gianakas, 917 F.2d at 762.

Our inquiry is limited in this regard to considering the facts at the time the obligation arose. Id. Subsequent events, such as a change in the respective financial situations of one or both of the spouses, is not relevant. In re Mills, 313 B.R. at 399. If, for instance, the spouse by whom the debt is owed subsequently were to cease being a billionaire [**8] and become a pauper instead, we are limited to considering the facts as they were when debtor was a billionaire.

HN5[ ] Whether an obligation is in the nature of maintenance or support within the [*506] meaning of § 523(a)(5) as opposed to equitable distribution of marital property depends on the intention extant at the time the obligation arose. If, as in the present case, the debt is based on a court order or decree instead of an agreement between the spouses, we must ascertain the intention of the court that issued the order or decree. Brown v. Brown (In re Brown), 288 B.R. 707, 712 (Bankr. W.D. Pa. 2003).

Three "indicators" should be considered when determining the state court's intention in this respect and

347 B.R. 501, *504; 2006 Bankr. LEXIS 1761, **4

Page 5 of 6

thus the "true nature" of the obligation. In re Gianakas, 917 F.2d at 762.

HN6[ ] We first should consider the language and substance of the relevant document in the context of surrounding circumstances. If necessary, extrinsic evidence may be taken into account. An obligation which was designated as a property settlement may be closely related to support, and a state court frequently will adjust a support award depending on the type and the amount of marital [**9] assets that are available for distribution to feuding spouses. Dividing up the property between the spouses frequently accomplishes the same objective as does awarding support to one of the spouses. In re Gianakas, 917 F.2d at 762-63.

HN7[ ] Because the language of a court decision and decree, without more, may not provide an answer as to the "true nature" of an obligation, a second "indicator" we should take into account is the financial situation of the respective parties at the time of the decision and court decree. Relevant considerations may include whether one of spouses has custody of any minor children, is unemployed, or has a job that pays considerably less than the other spouse is paid in his or her job. In re Gianakas, 917 F.2d at 763.

The third "indicator" we should consider when determining the "true nature" of the obligation is the function of the obligation at the time it arose. An obligation that serves to provide a spouse with necessities of life such as food, shelter, clothing and transportation "is indicative of a debt intended to be in the nature of support". Id.

Applying these "indicators" to the evidence presented at trial [**10] in this case, we conclude that the obligation imposed on debtor as a result of the decision and decree of October 6, 2003, was intended to provide maintenance of and support for plaintiff and therefore lies within the scope of § 523(a)(5).

To begin with, the language and substance of the decision and decree issued by the state court indicates that the award to plaintiff was meant to maintain and provide support for plaintiff.

After determining which assets were and which were not marital property, the state court stated that the total value of the assets available for equitable distribution was $ 144,277.00. Despite its characterization of the award to plaintiff as "equitable distribution:, the rationale provided by the state court indicates that the court

intended for the award to provide plaintiff with the means to support and maintain herself in the future. The court was not simply dividing marital property without regard for the economic circumstances of plaintiff and debtor.

Noting that the intention of the legislature in enacting the Divorce Code was to "effectuate economic justice", the state court identified the factors which "we have most borne in mind" in arriving [**11] at the distribution of marital that it did. These factors were the parties' respective sources of income, their vocational skills, the opportunity of each spouse to acquire capital assets and income in the future, [*507] and the economic circumstances of each party.

We understand this to mean that in arriving at the specific awards that it did, the state court considered the economic circumstances of debtor and plaintiff. Taking into account what it considered to be a disparity in their respective financial prospects, the state court determined that plaintiff should receive sixty-five percent of the marital assets while debtor should receive only thirty-five percent. In our estimation, this disparity in the distribution of marital property was meant to compensate for the disparity in their financial prospects.

The inference that the award to plaintiff was in the nature of maintenance of or support for plaintiff is reinforced when we apply the second "indicator" identified in In re Gianakas to the facts of this case.

Prior to the separation in February of 2000, plaintiff was a stay-at-home mother who had the important responsibility of taking care of the children and maintaining the [**12] family household. She had little or no time to work outside of the home after the children were born and lacked significant vocational skills to find employment in the job market that paid well. After the separation but before the divorce decree, plaintiff received training as an emergency medical technician and found employment as a medic and then as a medical technician in a hospital. Both were only part-time jobs, however, and had little prospect of turning into full-time jobs.

Debtor, by contrast, operated three parcel delivery routes when he and plaintiff separated in February of 2000. Although RPS/FedEx had taken away two of the routes by the time the state court rendered its decision and issued its decree, debtor still operated one of the routes, which provided him with a steady income. While debtor's income may not have been especially great by

347 B.R. 501, *506; 2006 Bankr. LEXIS 1761, **8

Page 6 of 6

some standards when it issued the decision and divorce decree in October of 2003, it was considerably greater than was plaintiff's. 1

[**13] Consideration of the third In re Gianakas "indicator" further supports the conclusion that the obligation imposed on debtor by the state court was intended to provide plaintiff with the means to maintain and support herself.

The marital residence, in which plaintiff still lived when the state court issued the divorce decree, was awarded to debtor. This meant that plaintiff had to move out and find another place to live which she would have to pay for on her own. In addition to shelter, plaintiff would have to pay on her own for other necessities of life such as food, clothing and transportation.

We previously determined that plaintiff's income in October of 2003 was considerably less than was debtor's. Moreover, the prospect of her finding employment that would significantly increase her income over the long haul was bleak. The function of the award of sixty-five percent of the marital assets to plaintiff, we conclude, was to provide plaintiff with the wherewithal to pay for these necessities of daily life.

We conclude in light of the forgoing that the debt owed to plaintiff by debtor as a result of the divorce decree issued on October [*508] 6, 2003, lies within the scope of [**14] § 523(a)(5) of the Bankruptcy Code and therefore is not dischargeable.

As an alternative to § 523(a)(5), plaintiff also asserted that the debt in question was excepted from discharge by virtue of § 523(a)(15) of the Bankruptcy Code. We need not address this issue in light of our determination that the debt is excepted from discharge by virtue of § 523(a)(5).

An appropriate order will issue.

/s/ BERNARD MARKOVITZ

United States Bankruptcy Judge

1 It is not relevant to this case that debtor sold the third route to another person at some unknown time in 2003 and was left with no income of his own. Our inquiry into whether an obligation falls within the scope of § 523(a)(5) is limited to considering the facts at the time the obligation arose. Gianakas, 917 F. 2d at 762. Subsequent changes in debtor's financial condition, whether propitious or not, play no role in the outcome of this case.

Dated: August 16, 2006

ORDER OF COURT

AND NOW, this 16th day of August, 2006, as explained in the foregoing memorandum opinion, it hereby is ORDERED, ADJUDGED and DECREED that the debt owed by debtor Joseph A. Farelli to plaintiff Kirston A. Farelli be and hereby is EXCEPTED FROM DISCHARGE.

It is SO ORDERED.

/s/ BERNARD MARKOVITZ

United States Bankruptcy Judge

End of Document

347 B.R. 501, *507; 2006 Bankr. LEXIS 1761, **12

Gunther v. Glabb (In re Glabb)

United States Bankruptcy Court for the Western District of Pennsylvania

March 5, 2001, Decided

Bankruptcy No. 00-28589-BM, Chapter 7, Motion No. 00-5903M

Reporter261 B.R. 170 *; 2001 Bankr. LEXIS 698 **

IN RE: DAVID THEODORE GLABB, Debtor; PAMILA GLABB GUNTHER, Plaintiff v. DAVID THEODORE GLABB, Defendant

Disposition: [**1] Debtor's obligation to pay the sum of $ 2,500.00 to the attorney of Pamela Gunther, debtor's former wife, IN THE NATURE OF SUPPORT and EXCEPTED FROM DISCHARGE 11 U.S.C. § 523(a)(5). Debtor's obligation to pay said sum EXCEPTED FROM THE AUTOMATIC STAYED virtue of 11 U.S.C. 362(b)(2)(B).

Core Termslegal fees, automatic stay, obligation to pay, state court, bankrupt estate, contempt proceeding, consent order, support obligation, held in contempt, proceedings, purposes

Case Summary

Procedural PostureCreditor, debtor's ex-wife, filed a motion seeking a determination that she would not violate the automatic stay by prosecuting a divorce court contempt motion for debtor not paying a portion of the legal fees she incurred in their divorce. She asserted the obligation was in the nature of support for her and their children and was excepted from discharge under 11 U.S.C.S. § 523(a)(5).Debtor asserted it was dischargeable.

OverviewUnder the parties' divorce court consent order, debtor agreed to pay a portion of ex-wife's fees to her attorney. When debtor failed to pay, she brought a contempt motion in the divorce court, but the hearing was not held due to debtor filing bankruptcy. Debtor did not deny his underlying support obligation was excepted from discharge. The court found that uncontroverted testimony established that a part of the legal fees was for legal services connected with litigating support for

ex-wife and the parties' children. As such, the obligation was also excepted from discharge. It would not violate the automatic stay for ex-wife to pursue her contempt motion. She did not seek to collect the fees from the bankruptcy estate. No property of the bankruptcy estate was available for distribution to creditors. Ex-wife sought to satisfy her claim by attaching salary that debtor had earned after filing the bankruptcy. Those earnings were not property of the estate.

OutcomeThe court found debtor's obligation to pay ex-wife's attorney was in the nature of support and was excepted from discharge. The obligation was also excepted from the automatic stay.

LexisNexis® Headnotes

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > General Overview

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN1[ ] A debtor's obligation to pay legal fees incurred by a former spouse in litigating a debtor's support obligation is excepted from discharge by 11 U.S.C.S. § 523(a)(5).

Bankruptcy Law > ... > Scope of Stay > Exceptions to Stay > Alimony, Child Support & Maintenance

Bankruptcy Law > ... > Automatic Stay > Violations of Stay > Damages

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > General Overview

Bankruptcy Law > Discharge &

Page 2 of 6

Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

Family Law > Marital Termination & Spousal Support > Spousal Support > General Overview

HN2[ ] The fact that a debtor's obligation to pay legal fees is owed directly to an ex-spouse's counsel instead of tot he ex-spouse is not significant under 11 U.S.C.S. § 523(a)(5). It does not preclude a determination that the debtor's obligation is in the nature of support of a former spouse and/or debtor's children and therefore is excepted from discharge by § 523(a)(5).

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

HN3[ ] The automatic stay provision of the Bankruptcy Code is very broad in its scope. Exceptions to it must be strictly construed to further the purposes of the automatic stay. One of these purposes is to protect a debtor from having to convince a non-bankruptcy court that a matter before it involving a debtor in bankruptcy should not go forward.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > Claims Against Debtors

Bankruptcy Law > ... > Claims Against Debtors > Judgments & Rulings > Enforcements

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > General Overview

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > Automatic Stays

HN4[ ] The automatic stay prohibits, among other things, the commencement or continuation of a judicial action or proceeding against the debtor to recover a pre-petition claim against the debtor. 11 U.S.C.S. § 362(a)(1). It also prohibits an action or proceeding to enforce a pre-petition judgment against the debtor or against property of the debtor. 11 U.S.C.S. § 362(a)(2).

Bankruptcy Law > Administrative Powers > Automatic

Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > Claims Against Estate Property

HN5[ ] Certain actions and proceedings are excepted from the automatic stay, and are not affected by it. It does not apply to the commencement or continuation of an action or proceeding to collect support from property that is not property of the bankruptcy estate. 11 U.S.C.S. § 362(b)(2)(B).

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > General Overview

Bankruptcy Law > ... > Scope of Stay > Exceptions to Stay > Alimony, Child Support & Maintenance

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > General Overview

Family Law > Marital Termination & Spousal Support > Spousal Support > General Overview

Family Law > Marital Termination & Spousal Support > Spousal Support > Procedures

HN6[ ] 11 U.S.C.S. § 362(b)(2)(B) does not apply to every action or proceeding involving support of a former spouse or child of the debtor. By its express terms, § 362(b)(2)(B) applies to actions or proceedings to collect a pre-petition support obligation from property that is property of the bankruptcy estate. It does not, for instance, apply to an action or proceeding to modify, as opposed to collect, a pre-petition support obligation. Actions or proceedings seeking legal fees or other obligations that are not in the nature of alimony, support, or maintenance also remain subject to the automatic stay, unless the bankruptcy court grants relief from it.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Violations of Stay > Contempt Actions

261 B.R. 170, *170; 2001 Bankr. LEXIS 698, **1

Page 3 of 6

HN7[ ] A bankruptcy court should examine the totality of the circumstances of a case to determine whether a specific contempt proceeding is excepted from the automatic stay.

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

HN8[ ] Salary that is earned subsequent to the filing of the bankruptcy petition is not part of the bankruptcy estate in a Chapter 7 proceeding.

Counsel: Constance Y. McKeever, Esq., for Plaintiff.

William Cunningham, Esq., for Debtor/Defendant.

Office of United States Trustee, Pittsburgh, PA.

Judges: BERNARD MARKOVITZ, U.S. Bankruptcy Judge.

Opinion by: BERNARD MARKOVITZ

Opinion

[*171] Motion To Determine Effect Of Stay On State Contempt Proceeding

MEMORANDUM OPINION

Pamela Gunther, debtor's former wife, seeks a determination that she will not violate the automatic stay by prosecuting a motion pending in state court to have debtor held in contempt of court for not paying a portion of the legal fees she incurred in [*172] their bitter marital dispute. According to Gunther, debtor's obligation is in the nature of support for her and their children and is excepted from discharge. The pending contempt proceeding is not subject to the automatic stay, Gunther asserts, because by prosecuting the motion she effectively [**2] seeks to collect support from property that is not part of debtor's bankruptcy estate.

Debtor resolutely insists that the contempt proceeding Is not excluded from the scope of the automatic stay and insists that Gunther would violate it by pursuing the pending contempt proceeding.

We conclude, for reasons set forth below, that debtor's obligation to pay the legal fees is in the nature of support for purposes of § 523(a)(5) of the Bankruptcy

Code and that Gunther would not violate the automatic stay by further pursuing her contempt motion in state court.

-- FACTS --

Debtor and Gunther were married in 1988. They have three minor children as a result of their marriage.

Theirs, unfortunately, was a stormy marriage. They separated at least three times before becoming divorced. On each of these occasions debtor was ordered by a state court to provide support for Gunther and their children. The record does not indicate when they were divorced.

Gunther was represented by legal counsel throughout the court proceedings brought about by their marital discord. The legal fees Gunther incurred for all of the legal services provided by her counsel totaled some $ 9,700.00. Approximately [**3] $ 3,500.00 of this amount was incurred for legal services provided in connection with Gunther's request for support for herself and their children.

On February 23, 2000, debtor and Gunther entered into a consent order in connection with their marital dispute. Among other things, debtor agreed to pay the sum of $ 2,500.00 to Gunther's attorney in the above proceedings by no later than September 30, 2000. The trial judge hearing the matter approved the consent order that same day.

When debtor did not pay the agreed-upon legal fees by the prescribed deadline, Gunther brought a motion in state court on October 13, 2000. She requested that the consent order be enforced and that debtor be held in contempt of court for failing to comply with the consent order. A hearing on her motion was scheduled for November 29, 2000.

Before the motion could be heard, debtor filed a voluntary chapter 7 petition on November 1, 2000. A chapter 7 trustee was appointed shortly thereafter.

Our review of the bankruptcy schedules indicates that debtor seeks to discharge his obligation to pay the above legal fees Gunther owed to her counsel, who is listed as having an undisputed general unsecured claim in the [**4] amount of $ 3,000.00. He does not, however, list any outstanding obligation for support owed to Gunther and/or their children. Gunther evidently does not contend that such support obligations are dischargeable, perhaps because he recognizes that

261 B.R. 170, *170; 2001 Bankr. LEXIS 698, **1

Page 4 of 6

they are excepted from discharge by § 523(a)(5) of the Bankruptcy Code.

Gunther brought the present motion in this court on November 15, 2000. She seeks a determination that debtor's obligation with respect to the above legal fees is in the nature of support and is excepted from discharge and that prosecuting her contempt motion in state court would not violate the automatic stay.

[*173] After conducting the § 341 meeting of creditors, the chapter 7 trustee reported that this was a no-asset case and that no estate property was available for distribution to creditors over and above what debtor had exempted.

An evidentiary hearing on Gunther's motion and debtor's opposition thereto was conducted on January 11, 2001. Both sides were given an opportunity at that time to present evidence on the issues raised by the motion.

-- DISCUSSION --

I.) Is Debtor's Obligation To Pay Legal Fees In The Nature Of Support And Excepted From Discharge?

[**5] Apart from insisting that he is not able to pay the above counsel fees owed by Gunther to her attorney, debtor has not articulated any cognizable basis for opposing the relief sought by Gunther. Debtor does not, for instance, deny that his underlying support obligation to Gunther and/or their children is excepted from discharge by § 523(a)(5) of the Bankruptcy Code.

Gunther, we have noted, owed approximately $ 9,700.00 to her counsel for representing her in state court, where she and debtor aired their marital grievances. Uncontroverted testimony established that, of this amount, approximately $ 3,500.00 was for legal services Gunther's attorney provided in litigating Gunther's various requests in state court for support for herself and their children.

Viewing the record as a whole, we conclude that the obligation debtor voluntarily incurred when he agreed in the above consent order to pay the sum of $ 2,500.00 to Gunther's attorney was specifically for legal services the attorney provided in connection with Gunther's various requests for support for herself and their children. As such, this obligation also is excepted from discharge. HN1[ ] A debtor's obligation to pay legal fees incurred [**6] by a former spouse in litigating a debtor's support obligation is also excepted from discharge by § 523(a)(5). In re Taylor, 252 B.R. 346. 353-53 (Bankr.

E.D. Va. 1999); In re Crawford, 236 B.R. 673, 678 (Bankr. E.D. Pa. 1999); Pauley v. Spong (In re Spong), 661 F.2d 6, 9-11 (2d Cir. 1981). 1

[**7] HN2[ ]

The fact that debtor's obligation to pay these legal fees is owed directly to Gunther's counsel instead of to Gunther is not significant in this regard. It does not preclude a determination that debtor's obligation is in the nature of support of a former spouse and/or debtor's children and therefore is excepted from discharge by § 523(a)(5). Rosenman v. Jarrell (In re Jarrell), 251 B.R. 448, 451 (Bankr. S.D. N.Y. 2000); Ackerman v. Ackerman (In re Ackerman), 247 B.R. 336, 339 (Bankr. M.D. Fla. 2000).

II.) Would A Contempt Hearing Violate The Automatic Stay?

It would not, we conclude, violate the automatic stay for Gunther to pursue her motion in state court to have debtor held in contempt of court for not abiding by the [*174] agreement to pay a portion of her legal fees or to enforce his agreement to do so.

HN3[ ] The automatic stay provision of the Bankruptcy Code is very broad in its scope. Exceptions to it must be strictly construed to further the purposes of the automatic stay. In re Baldwin Builders, 232 B.R. 406, 412 (9th Cir. BAP 1999). One of these purposes is to protect a debtor from having to convince a non-bankruptcy court [**8] that a matter before it involving a debtor in bankruptcy should not go forward. Weisberg v. Franklin, Weinrib, Ruddell & Kassallo (In re Weisberg), 218 B.R. 740, 752 (Bankr. E.D. Pa. 1998).

HN4[ ] The automatic stay prohibits, among other things, the commencement or continuation of a judicial action or proceeding against the debtor to recover a pre-

1 We are mindful of the analysis set forth in Gianakas v. Gianakas (In re Gianakas), 917 F.2d 759 (3d Cir. 1990), for determining whether an obligation qualifies as support and therefore is excepted from discharge by § 523(a)(5). We are not convinced, that the analysis set forth in Gianakas must be applied when determining whether a debtor's ancillary obligation to pay legal fees incurred by a former spouse who litigated the issue of support also falls under § 523(a)(5). Even if Gianakas does apply, however, the result of the present matter would be the same. We would conclude that debtor's obligation to pay these legal fees also was in the nature of support for purposes of § 523(a)(5).

261 B.R. 170, *172; 2001 Bankr. LEXIS 698, **4

Page 5 of 6

petition claim against the debtor. 11 U.S.C. § 362(a)(1). It also prohibits an action or proceeding to enforce a pre-petition judgment against the debtor or against property of the debtor. 11 U.S.C. § 362(a)(2).

HN5[ ] Certain actions and proceedings are excepted from the automatic stay, however, and are not affected by it. It does not, for instance, apply to the commencement or continuation of an action or proceeding to collect support from property that is not property of the bankruptcy estate. 11 U.S.C. § 362(b)(2)(B).

HN6[ ] This latter provision does not apply to every action or proceeding involving support of a former spouse or child of the debtor. Carver v. Carver, 954 F.2d 1573, 1576-77 (11th Cir. 1992). By its express terms, § 362(b)(2)(B) applies [**9] to actions or proceedings to collect a pre-petition support obligation from property that is property of the bankruptcy estate. It does not, for instance, apply to an action or proceeding to modify, as opposed to collect, a pre-petition support obligation. Stringer v. Huet (In re Stringer), 847 F.2d 549, 552 (9th Cir. 1988). Actions or proceedings seeking legal fees or other obligations that are not in the nature of alimony, support or maintenance also remain subject to the automatic stay, unless the bankruptcy court grants relief from it. In re Campbell, 185 B.R. 628, 630 (Bankr. S.D. Fla. 1995).

HN7[ ] We should examine the totality of the circumstances of a case to determine whether a specific contempt proceeding is excepted from the automatic stay. Rook v. Rook, 102 B.R. 490, 494 (Bankr. E.D. Va. 1989), aff'd, 929 F.2d 694 (4th Cir. 1991).

Our examination of the totality of the circumstances presented in this case leads us to conclude that the pending contempt proceeding against debtor in state court lies within the scope of § 362(b)(2)(B). Although she seeks a determination that debtor is in contempt of court for [**10] not abiding by the consent order of February 23, 2000, Gunther also seeks to enforce. Gunther seeks, in other words, to collect on debtor's obligation to pay $ 2,500.00 of the legal fees she owes to her attorney. We previously determined that the obligation is in the nature of support for purposes of § 523(a)(5).

Moreover, Gunther does not seek to collect payment from debtor's bankruptcy estate. No property of the bankruptcy estate is available for distribution to creditors. The chapter 7 trustee, we previously noted,

has reported that this is a no-asset case. Those assets that debtor has exempted have passed out of his bankruptcy estate. Matter of Yonikus, 996 F.2d 866, 870 (7th Cir. 1993). She instead seeks to satisfy her claim by attaching salary that debtor has earned subsequent to the filing of his chapter 7 petition. HN8[ ] Salary that is earned subsequent to the filing of the bankruptcy petition is not part of the bankruptcy estate in a chapter 7 proceeding. [*175] M.H. Clark v. First City Bank, 891 F.2d 111, 115 (5th Cir. 1989); Matter of Hellums, 772 F.2d 379, 381 (7th Cir. 1985).

In light of the foregoing, we conclude that debtor's [**11] obligation to pay $ 2,500.00 of the legal fees incurred by his former wife is in the nature of support and, consequently, is excluded form discharge by § 523(a)(5) of the Bankruptcy Code. Moreover, she will not violate the automatic stay by proceeding in state court with her motion to have debtor held in contempt of court or to enforce his obligation to pay the legal fees.

An appropriate order shall issue.

/S/

BERNARD MARKOVITZ

U.S. Bankruptcy Judge

Dated: March 5, 2001

ORDER OF COURT

AND NOW, this 5th day of March, 2001, in accordance with the accompanying memorandum opinion, it hereby is ORDERED, ADJUDGED, and DECREED that debtor's obligation to pay the sum of $ 2,500.00 to the attorney of Pamela Gunther, debtor's former wife, is IN THE NATURE OF SUPPORT and is EXCEPTED FROM DISCHARGE by 11 U.S.C. § 523(a)(5). Prosecution by Gunther of her motion, now pending in state court, to have debtor held in contempt of court or to enforce debtor's obligation to pay said sum is EXCEPTED FROM THE AUTOMATIC STAY by virtue of 11 U.S.C. 362(b)(2)(B).

It is SO ORDERED.

[**12] /S/

BERNARD MARKOVITZ

U.S. Bankruptcy Judge

261 B.R. 170, *174; 2001 Bankr. LEXIS 698, **8

Page 6 of 6

End of Document

261 B.R. 170, *175; 2001 Bankr. LEXIS 698, **12

In re Lincoln

United States Bankruptcy Court for the Eastern District of Pennsylvania

July 2, 2001, Decided

Chapter 13, Bankruptcy No. 00-34790KJC

Reporter264 B.R. 370 *; 2001 Bankr. LEXIS 803 **

In re: MICHAEL LINCOLN, Debtor.

Disposition: [**1] Motion for Relief From the Stay filed by Courtney Tucker DENIED; and Debtor's "Objection To Proof Of Claim No. 4 Filed By Courtney Tucker" SUSTAINED and Proof of Claim No. 4 allowed as an unsecured claim in the amount of $ 9,543.00.

Core Termscontempt, automatic stay, state court, personal property, contempt proceeding, civil contempt, Contemnor, dignity, courts, state court proceeding, punish, uphold, contempt order, bankruptcy court, equitable remedy, collection, parties, orders, cases, label

Case Summary

Procedural PostureCreditor filed a motion for relief from the automatic stay under 11 U.S.C.S. § 362(d)(1), seeking to continue to proceed against debtor in a state court contempt proceeding. Debtor filed an objection to creditor's proof of claim to the extent is was filed as a secured claim.

OverviewThe state court order held the debtor in civil contempt of a prior order and ordered the debtor either to return creditor's personal property or pay her a monetary sum. First, the bankruptcy court held that the order did not impose a lien on any property. Creditor's claim was unsecured. Her request to return to state court to pursue a contempt action was more akin to an attempt to collect a debt (or harass the debtor), than to uphold the dignity of the court. The order provided her with a claim against the debtor under 11 U.S.C.S. § 101(5). But granting relief from the stay to return to state court would allow her to further attempt to collect her claim. Even assuming she was entitled to an equitable remedy of requiring a return of her property, monetary damages for the alleged conversion was an appropriate alternative.

The order provided the debtor with the opportunity to purge himself of the contempt by paying money to creditor instead of returning the property. The order was not an order of the kind that was designed to uphold the dignity of the court by punishing the debtor for his behavior.

OutcomeThe motion for relief from the stay was denied. Debtor's objection to creditor's proof of claim was sustained, and the claim was allowed as an unsecured claim.

LexisNexis® Headnotes

Bankruptcy Law > Claims > General Overview

Bankruptcy Law > ... > Types of Claims > Secured Claims & Liens > General Overview

Civil Procedure > Remedies > Provisional Remedies > Sequestration

HN1[ ] 11 U.S.C.S. § 101(36) defines judicial lien as a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. 11 U.S.C.S. § 101(37) defines lien as a charge against or interest in property to secure payment of a debt or performance of an obligation.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

HN2[ ] Whether to terminate, modify, condition, or annul the bankruptcy stay under 11 U.S.C.S. § 362(d) is within the discretion of the bankruptcy court.

Page 2 of 7

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > Relief for Cause

HN3[ ] There is no rigid test for determining when an unsecured creditor has established cause to warrant relief from the automatic stay. Instead the bankruptcy court's exercise of discretion in resolving motions for relief for cause must appropriately consider the policies underlying the Bankruptcy Code as well as the competing interests of the creditor, debtor, and other parties in interest. Each request for relief for cause under 11 U.S.C.S. § 362(d)(1) must be considered on its own facts.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Administrative Powers > Automatic Stay > Judicial Review

Bankruptcy Law > ... > Automatic Stay > Scope of Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > General Overview

Labor & Employment Law > ... > Conditions & Terms > Trade Secrets & Unfair Competition > Noncompetition & Nondisclosure Agreements

HN4[ ] Where a party seeks relief from the Bankruptcy Code's automatic stay to continue a proceeding in another forum, courts consider factors such as: (1) whether the matter in dispute would be resolved more economically, conveniently, and quickly in a nonbankruptcy forum; (2) prejudice to the bankruptcy estate; and (3) interference with the bankruptcy proceeding.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Scope of Stay > Exceptions to Stay > Criminal Proceedings

Bankruptcy Law > ... > Automatic Stay > Violations of Stay > Contempt Actions

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > Automatic Stays

Civil Procedure > Sanctions > Contempt > General Overview

Civil Procedure > Sanctions > Contempt > Civil Contempt

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > General Overview

HN5[ ] The Bankruptcy Code's automatic stay has generally been applied to civil contempt proceedings.

Civil Procedure > Remedies > Injunctions > Contempt

Civil Procedure > Sanctions > General Overview

Civil Procedure > Sanctions > Contempt > General Overview

Civil Procedure > Sanctions > Contempt > Civil Contempt

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > Elements

Criminal Law & Procedure > ... > Obstruction of Administration of Justice > Contempt > Penalties

Criminal Law & Procedure > Sentencing > Fines

Criminal Law & Procedure > Sentencing > Imposition of Sentence > Factors

HN6[ ] If the dominant purpose of a contempt order is to prospectively coerce the contemnor to comply with an order of the court, the adjudication is civil. If, however, the dominant purpose is to punish the contemnor for disobedience of the court's order or some other contemptuous act, the adjudication of contempt is criminal. The dominant purpose of coercion or punishment is expressed in the sanction imposed. A civil adjudication of contempt coerces with a conditional or indeterminate sentence of which the contemnor may relieve himself by obeying the court's order, while a criminal adjudication of contempt punishes with a certain term of imprisonment or a fine which the contemnor is powerless to escape by compliance.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > Relief for Cause

264 B.R. 370, *370; 2001 Bankr. LEXIS 803, **1

Page 3 of 7

Civil Procedure > ... > Stays of Judgments > Appellate Stays > General Overview

Civil Procedure > ... > Stays of Judgments > Appellate Stays > Money Judgments

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > General Overview

Civil Procedure > ... > Entry of Judgments > Stays of Judgments > Automatic Stays

Civil Procedure > Sanctions > Contempt > General Overview

HN7[ ] If the underlying purpose of continuing a contempt action in state court proceeding is to uphold the dignity of the court and continue a contempt action whose dominant purpose is to punish the contemnor for disobedience of the court's order or some other contemptuous act, then cause may exist for relief from the stay under 11 U.S.C.S. § 362(d)(1). On the other hand, if the underlying purpose in continuing the contempt action is calculated to enforce a money judgment, pursue a collection motive, or to harass a defendant, then relief from the stay is not appropriate.

Bankruptcy Law > Claims > Types of Claims > Definitions

HN8[ ] 11 U.S.C.S. § 101(5) defines claim.

Bankruptcy Law > Claims > Types of Claims > Definitions

HN9[ ] See 11 U.S.C.S. § 101(5).

Bankruptcy Law > Claims > Types of Claims > Definitions

Civil Procedure > Remedies > Damages > Monetary Damages

Torts > Intentional Torts > Conversion > Remedies

HN10[ ] A party has a claim under 11 U.S.C.S. § 101(5)(B) when the payment of monetary damages is an alternative to the equitable remedy.

Civil Procedure > Remedies > Damages > Monetary Damages

Torts > ... > Types of Damages > Compensatory

Damages > General Overview

Torts > Intentional Torts > Conversion > General Overview

HN11[ ] Pennsylvania courts have awarded monetary damages in wrongful conversion cases.

Counsel: Eugene Joseph Malady, Esquire, for Debtor.

Scott Waterman, Esquire, for Creditor.

Edward Sparkman, Trustee.

Judges: BY: KEVIN J. CAREY, UNITED STATES BANKRUPTCY JUDGE.

Opinion by: KEVIN J. CAREY

Opinion

[*370] MEMORANDUM OPINION

BY: KEVIN J. CAREY, UNITED STATES BANKRUPTCY JUDGE

BANKGROUND

Before this Court is the "Motion For Relief From Automatic Stay" filed on March 5, 2001 (the "Stay Motion"), by Courtney Tucker (the "Movant"). A hearing on the Stay Motion was held on March 27, 2001, at which Movant introduced evidence 1 and the parties argued their respective positions.

I find the following facts are relevant to this matter:

[*371] 1. Debtor and Movant lived together at the debtor's residence [**2] in Crum Lynne, Pennsylvania and were engaged to be married.

2. In February 2000, the engagement ended and, although the parties dispute the circumstances surrounding the break-up, they agree that Movant left the house without any of her personal property (consisting of clothes, jewelry, furniture, etc. 2) and, while she was gone, the debtor changed the locks and would not allow Movant to enter the residence to retrieve her personal property.

1 At the hearing, Movant's Exhibits M-1 through M-8 were admitted into evidence.

2 A list of Movant's missing personal property was attached to Exhibit M-5, which is a certified copy of an Order of the Court of Common Pleas, Delaware County, dated August 10, 2000.

264 B.R. 370, *370; 2001 Bankr. LEXIS 803, **1

Page 4 of 7

3. Movant filed an action in the Court of Common Pleas, Delaware County (CV-00-1527) seeking a Protection From Abuse Order (the "State Court Proceeding").

4. At a hearing on February 23, 2000, the debtor claimed he no longer was in possession of Movant's personal property. 3 The Honorable Maureen F. Fitzpatrick entered a Protection From Abuse Order which also granted Movant's request to [**3] go to debtor's residence on February 26, 2000 with a police escort to obtain her personal belongings. 4

5. On February 26, 2000, Movant went to debtor's residence with police to search for her property. Except for a few pieces of furniture, Movant did not find or recover her property from the debtor's residence.

6. On May 19, 2000, Movant filed a Petition for Civil Contempt in the State Court Proceeding, alleging that the debtor contacted Movant via e-mail in violation of the February 23, 2000 Order and indicated that he was still in possession of Movant's personal property. 5 The debtor denied the allegations.

[**4] 7. On July 13, 2000, the Honorable Ann Osborne held a hearing on the Petition for Civil Contempt in the State Court Proceeding.

8. On August 10, 2000, Judge Osborne entered an Order 6 containing the following language:

1. Respondent, Michael Lincoln, is found to be in Civil Contempt of the Order of this Court dated February 23, 2000, permitting Petitioner [Movant] to obtain her personal belongings from his residence.2. Respondent, hereinafter Contemnor, must return to Petitioner all of her personal possessions as listed on Exhibit P-1, a copy of which is attached hereto, or pay to Petition [sic] the sum of Nine Thousand Five Hundred Forty Three Dollars ($ 9,543.00) for those personal possessions within 15 days of the date of this Order. 7

3 The debtor claimed that he bagged and boxed Movant's personal property (except for some furniture), placed it on his porch, and when he awoke the next day it was gone. See Exhibit M-1, Transcript of February 23, 2000 hearing in the Court of Common Pleas, Delaware County, at pp. 19-21.

4 Exhibit M-2, Order of Judge Maureen Fitzpatrick dated February 23, 2000.

5 Exhibit M-3, Petition for Civil Contempt.

6 Exhibit M-5.

[*372] 3. If Contemnor fails to comply with the above Order, Petitioner through counsel shall notify the Court by letter with a copy to Contemnor and counsel for Contemnor that such Order has not been complied with.

4. Upon receipt of such letter, the Court will establish a hearing date for the imposition of sanctions, which may include, but not be limited to a fine, incarceration, community service and any other sanction [**5] permitted by law which will bring the Contemnor into compliance with this Order.

9. On September 1, 2000, Judge Osborne entered an Order denying the debtor's petition to reconsider the court order dated August 10, 2000. 8 [**6]

10. On September 19, 2000, Movant's counsel sent a letter to Judge Osborne pursuant to paragraph 3 of the August 10, 2000 Order, advising that debtor had failed to comply with the August 10, 2000 Order. 9

11. On November 30, 2000, the debtor filed a voluntary petition under chapter 13 of the U.S. Bankruptcy Code.

12. On March 5, 2001, Movant filed the Stay Motion, seeking relief from the stay to "hold debtor accountable for failing to comply with a previous Contempt Order in the months prior to the Bankruptcy filing." 10

13. On March 16, 2001, the debtor filed an answer to the Stay Motion. For the reasons set [**7] forth in this

7 On April 20, 2001, Movant also filed a proof of claim in this case in the amount of $ 9,543.00, asserting that her claim was secured by a "judicial lien" created by the August 10, 2000 Order. The debtor has objected, disputing the claim's secured status, but not the amount. I conclude that Movant's claim is not secured. HN1[ ] Section 101(36) of the Bankruptcy Code defines "judicial lien" as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." Section 101(37) of the Bankruptcy Code defines "lien" as a "charge against or interest in property to secure payment of a debt or performance of an obligation." The language of the August 10, 2000 Order imposes no lien on any property. I will allow the claim in the amount filed, as unsecured.

8 Exhibit M-6.

9 Exhibit M-7.

10 Stay Motion, p. 4.

264 B.R. 370, *371; 2001 Bankr. LEXIS 803, **2

Page 5 of 7

Memorandum Opinion, the Stay Motion is denied. 11

DISCUSSION

The caselaw regarding the interplay between the automatic stay of § 362(a) and state court contempt proceedings is quite varied and usually depends upon the facts of the particular case. Most often, when considering the effect of the automatic stay of 11 U.S.C. § 362(a) upon state court contempt proceedings, courts are deciding whether the stay applies at all. The parties in the present case do not dispute that the automatic stay applies to the State Court Proceeding. I am asked to decide whether Movant is entitled to relief from the stay to continue the State Court Proceeding.

HN2[ ] Whether to terminate, modify, condition, or annul the bankruptcy stay under § 362(d) is within the discretion of the bankruptcy court. See Matter of Holtkamp, 669 F.2d 505 (7th Cir. 1982); [**8] In re Shariyf, 68 B.R. 604 (E.D.Pa. 1986); In re Colonial Center, Inc., 156 B.R. 452, 459 (Bankr.E.D.Pa. 1993). Whether an unsecured creditor should be granted relief from the stay to continue a state court proceeding was considered by the court in In re Hohol, 141 B.R. 293 (M.D.Pa. 1992), which wrote:

HN3[ ] There is no rigid test for determining when an unsecured creditor…has established cause to warrant relief from the automatic stay. Instead the cases recognize that the bankruptcy court's exercise of discretion in resolving motions for relief for "cause" must appropriately consider the policies underlying the Bankruptcy Code as well as the [*373] competing interests of the creditor, debtor, and other parties in interest. Each request for relief for "cause" under § 362(d)(1) must be considered on its own facts.

Hohol, 141 B.R. at 297 (citations omitted). In Hohol, the debtor filed bankruptcy after the state court issued an injunction to prevent the debtor from continuing to violate an "Employment Agreement" and an "Agreement Not To Compete" between the debtor and his prior employer. The prior employer sought [**9] relief from the stay to enforce the injunction in state court. To determine whether "cause" existed for relief from stay in the matter before it, the Hohol court reviewed similar

11 This Memorandum Opinion constitutes the findings of fact and conclusions of law required by Fed. R. Bankr. P. 7052.

cases in which a HN4[ ] party sought relief to continue a proceeding in another forum and considered factors such as: (1) whether the matter in dispute would be resolved more economically, conveniently, and quickly in a nonbankruptcy forum; (2) prejudice to the bankruptcy estate; and (3) interference with the bankruptcy proceeding. Hohol, 141 B.R. at 297-98.

It is helpful to review other cases analyzing the effect of the automatic stay on state court contempt proceedings for guidance in determining whether relief from the stay in the present matter would be consistent with the policies underlying the Bankruptcy Code and the competing interests of the parties. This is particularly so when a contempt order itself may not label the character of the contempt. Many courts agree that criminal contempt matters are not subject to the automatic stay pursuant to 11 U.S.C. § 362(b)(1). See, e.g., In re Allison, 182 B.R. 881, 884 (Bankr.N.D.Ala. 1995). Courts in this [**10] district have found that HN5[ ] "the automatic stay has generally been applied to civil contempt proceedings." In re Leonard, 231 B.R. 884, 889 (E.D.Pa. 1999) citing In re Mickman, 1993 Bankr. LEXIS 585, 1993 WL 128147 (Bankr. E.D.Pa. 1993); In re Cherry, 78 B.R. 65, 69 (Bankr. E.D.Pa. 1987). The difference between criminal contempt and civil contempt has been described as follows:

The distinction between criminal and civil contempt is … a distinction between two permissible responses to contumacious behavior. These judicial responses are classified according to the dominant purpose of the court. HN6[ ] If the dominant purpose is to prospectively coerce the contemnor to comply with an order of the court, the adjudication is civil. If, however, the dominant purpose is to punish the contemnor for disobedience of the court's order or some other contemptuous act, the adjudication of contempt is criminal.

[The] dominant purpose of coercion or punishment is expressed in the sanction imposed. A civil adjudication of contempt coerces with a conditional or indeterminate sentence of which the contemnor may relieve himself by obeying the court's order, while a criminal [**11] adjudication of contempt punishes with a certain term of imprisonment or a fine which the contemnor is powerless to escape by compliance.

Garr v. Peters, 2001 PA Super 110, 773 A.2d 183, 2001 WL 345840 (Pa.Super. 2001) quoting Diamond v. Diamond, 715 A.2d 1190, 1194 (Pa.Super. 1998).

264 B.R. 370, *372; 2001 Bankr. LEXIS 803, **7

Page 6 of 7

When deciding whether the automatic stay applies to a state court contempt proceeding, some bankruptcy courts will not rely upon labels of "civil" or "criminal" contempt. 12 [**13] It may be appropriate [*374] for the bankruptcy court to look beyond the label and analyze the true nature of the contempt. Several courts have distinguished between contempt proceedings intended to effectuate collection of a judgment and those intended to uphold the dignity of the court, finding that the automatic stay does not apply to contempt proceedings whose main purpose is to punish a contemnor and uphold the dignity of the court. In re Smith-St. John Manufacturing Co., 1989 U.S. Dist. LEXIS 1168, *5, 1989 WL 7922, *2 (D.Kan. 1989) ("Section 362(a)(1) does not apply to contempt proceedings aimed at punishing a bankrupt for flouting court orders."); US Sprint Communications Co. v. Buscher, 89 B.R. 154 (D.Kan. 1988) (the [**12] automatic stay does not prevent a state court from sentencing the debtor on a civil contempt citation after the debtor violated direct orders of the court); In re Dunham, 175 B.R. 615, 617 (Bankr.E.D.Va. 1994) (the automatic stay did not prevent a state court from entering a contempt order to punish the debtor for perjuring himself); In re Rook, 102 B.R. 490, 494-95 (Bankr. E.D. Va. 1989) (the automatic stay did not apply to a second contempt order which was issued solely to uphold the dignity of the circuit court's prior orders). 13

12 In re Rook, 102 B.R. 490, 494 (Bankr.E.D.Va. 1989)("We adopt the analysis of the courts which examine all aspects surrounding the issuance of a contempt order, due to the fact that the application of labels alone to the proceedings in question may result in a finding that does not comport with the intent of the Code."). See also, In re Guariglia, 382 F. Supp. 758, 761 (E.D.N.Y. 1974)("If the contempt is not a contempt for which courts ordinarily punish an offender on their own motion but is in fact a method of collecting a debt upon the application of a creditor, then the so-called contempt is suspect and may in reality be nothing more than a label to assist the creditor.").

13 In support of their decisions that the automatic stay does not apply to certain contempt proceedings, courts have generally relied upon the following analysis in US Sprint:

It is within this court's inherent power to take whatever steps necessary to ensure those persons within its power comply with its orders. The court cannot conceive that Congress intended to strip the court of this power, and instead permit a party to blatantly violate direct orders of the court and then seek shelter from a bankruptcy judge. If this were so, the court's orders could be rendered almost meaningless. The court must retain the ability to

[**14] A similar analysis is useful in deciding whether this Movant is entitled to relief from the automatic stay to continue with the State Court Proceeding. HN7[ ] If the underlying purpose of continuing the contempt action in the State Court Proceeding is to "uphold the dignity of the court" and continue a contempt action that is similar to the description of criminal contempt quoted in Diamond v. Diamond, supra., then "cause" may exist for relief from the stay under § 362(d)(1). On the other hand, if the underlying purpose in continuing the contempt action is "calculated to enforce a money judgment, pursue a 'collection motive,' or to harass a defendant," 14 then relief from the stay is not appropriate.

[**15] [*375] In its August 10, 2000 Order, the State Court wrote that the debtor was in civil contempt of the February 23, 2000 order and ordered the debtor either to (a) return Movant's personal property; or (b) pay Movant the sum of $ 9,543.00. The Movant seeks relief from the stay to "hold debtor accountable for failing to comply with a previous Contempt Order in the months prior to the Bankruptcy filing."

Movant's request to return to state court to pursue a contempt action against the debtor is more akin to an

compel compliance with its orders; a party seeking relief from his creditors is not free to run rampant in flagrant disregard of the powers of the court. A civil contempt judgment is one effective method of coercing compliance and of "upholding the dignity of the court."

US Sprint, 89 B.R. at 156; and upon the following analysis in Guariglia:

There are a number of authorities which hold that if the contempt proceeding is a step to collect a judgment, then it should be stayed, the test being whether the fine was imposed by the state court to uphold its dignity or whether in effect it was a circumvented method of collecting a judgment against the debtor otherwise dischargeable in bankruptcy. If the proceeding in reality is one to punish the debtor for contumacious conduct against the dignity of either the state or federal court, the bankruptcy court should not raise its hand to stay the proceeding.

Guariglia, 382 F. Supp. at 761.

14 In Rook, the court found that "where the contempt citation is designed to uphold an order of a court and not calculated to enforce a money judgment, pursue a 'collection motive,' or to harass a defendant, … courts have determined that enforcement of that order would not be in violation of the automatic stay." Rook, 102 B.R. at 493 (emphasis in original).

264 B.R. 370, *373; 2001 Bankr. LEXIS 803, **11

Page 7 of 7

attempt to collect a debt (or harass the debtor), than to uphold the dignity of the court. The August 10, 2000 Order provides the Movant with a "claim" against the debtor pursuant to Bankruptcy Code § 101(5). 15 Granting the Movant's request for relief to return to state court would allow the Movant to further attempt to collect her claim. This may also prejudice other creditors of the bankruptcy estate.

[**16] Even assuming Movant was entitled to an equitable remedy of requiring the debtor to return her personal property, 16 [**17] monetary damages for the debtor's alleged wrongful conversion of her personal property is an appropriate alternative to that equitable remedy. 17 The Third Circuit Court of Appeals has found that HN10[ ] a party has a "claim" under § 101(5)(B) "when the payment of monetary damages is an alternative to the equitable remedy." In re Ben Franklin Hotel Associates, 186 F.3d 301, 305 (3d Cir. 1999)(citations omitted).

The present case is not similar to cases like Hohol or US Sprint, in which the moving party sought to enforce a state court injunction and enjoin a debtor from

15 HN8[ ] Section 101(5) defines "claim" as follows:

HN9[ ]

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.

16 Movant argues that the State Court specifically found that the debtor was in possession of Movant's personal property; however, the August 10, 2000 Order itself does not include such a finding. In her argument, Movant admitted that the purpose of the Stay Motion was really to require the debtor to return her personal property. (Tr. at p. 14). Movant continuously overlooks the fact that the August 10, 2000 Order provides the debtor with the opportunity to purge himself of the contempt by paying $ 9,543.00 to Movant instead of returning Movant's personal property.

17 HN11[ ] Pennsylvania courts have awarded monetary damages in wrongful conversion cases. See Pikunse v. Kopchinski, 429 Pa. Super. 46, 631 A.2d 1049 (1993).

continuing a course of action that was shown to be harmful to the moving party on an ongoing basis. The urgency in returning Movant's personal belongings (including all of her clothing, eyeglasses, passport, etc.) that existed at the time the original order was entered on February 23, 2000 has dissipated in the intervening 15 months, even though, understandably, Movant still seeks return of the items. However, the August 10, 2000 Order is not an order of the kind that was designed to uphold the dignity of the court by punishing the debtor for his behavior. Instead, the August 10, 2000 Order provides the debtor with the means to purge his contempt: by the payment of money. In Leonard, 231 B.R. at 889-90, the District Court found that the bankruptcy [**18] court properly denied relief from the stay to pursue a contempt proceeding based upon [*376] a debtor's failure to pay a sum of money. Similarly, in this case, Movant has not shown "cause" for granting relief from the automatic stay to pursue a contempt proceeding for the debtor's failure to pay $ 9,543.00.

Accordingly, the Stay Motion will be denied. An appropriate order follows.

BY THE COURT:

KEVIN J. CAREY

UNITED STATES BANKRUPTCY JUDGE

Dated: July 2, 2001

ORDER

AND NOW, this 2nd day of July, 2001, for the reasons given in the accompanying Memorandum Opinion, it is hereby ORDERED that:

1. The Motion for Relief From the Stay filed by Courtney Tucker is DENIED; and

2. The debtor's "Objection To Proof Of Claim No. 4 Filed By Courtney Tucker" is SUSTAINED and Proof of Claim No. 4 shall be allowed as an unsecured claim in the amount of $ 9,543.00.

BY THE COURT:

KEVIN J. CAREY

UNITED STATES BANKRUPTCY JUDGE

End of Document

264 B.R. 370, *375; 2001 Bankr. LEXIS 803, **15

Kennedy v. Kennedy (In re Kennedy)

United States Bankruptcy Court for the Western District of Pennsylvania

September 15, 2010, Decided

Case No. 09-12289-TPA, Chapter 13, Adv. No. 10-1020

Reporter442 B.R. 399 *; 2010 Bankr. LEXIS 3117 **

IN RE: DONALD W. KENNEDY, Debtor;MARY LYNN KENNEDY, Plaintiff vs. DONALD W. KENNEDY, Defendant.

Subsequent History: As Amended October 6, 2010.

Core TermsParties, Decree, alimony, obligations, domestic, divorce, support obligation, discharges, rental, burden of proof, equitable distribution, stipulated facts, former spouse

Case Summary

Procedural PosturePlaintiff, the former wife of defendant Chapter 13 debtor, filed an adversary proceeding against the debtor, seeking to have the court declare certain obligations that the debtor owed her non-dischargeable under 11 U.S.C.S. § 523(a)(15).

OverviewThe amount owed by the husband to the wife and at issue in the instant case consisted of three items: (1) counsel fees, (2) costs and expenses, and (3) a rental credit. The court held that the wife failed to meet her burden of proof as to the counsel fees because there was insufficient evidence as to the basis for the award of counsel fees. The court also held that the costs and expenses were not incurred as part of an effort to secure alimony, maintenance, or support for the wife because they were incurred in order to value marital property in connection with the parties' equitable property division. The court held that the rental credit was to reimburse the wife for the husband's use of certain marital property and, as such, was not in the nature of alimony, maintenance, or support.

OutcomeThe court dismissed the wife's complaint with prejudice.

LexisNexis® Headnotes

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN1[ ] 11 U.S.C.S. § 523(a)(15) applies to debts owed to a former spouse and not of the kind described in § 523(a)(5) that is incurred by the debtor in the course of a divorce or in connection with a divorce decree. 11 U.S.C.S. § 523(a)(15). Section 523(a)(5) excepts from discharge debts resulting in a "domestic support obligation," a term defined by 11 U.S.C.S. § 101(14A). In other words, § 523(a)(15) expands upon the § 523(a)(5) exception by also eliminating "divorce-related" obligations from discharge even if they do not qualify as "domestic support" obligations.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN2[ ] See 11 U.S.C.S. § 101(14A).

Bankruptcy Law > ... > Bankruptcy > Discharge & Dischargeability > Individuals With Regular Income

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN3[ ] While the 11 U.S.C.S. § 523(a)(15) exception to discharge generally applies to discharges in cases under Chapters 7 and 11, as to Chapter 13 cases, it applies only to hardship discharges under 11 U.S.C.S. § 1328(b). With respect to a "normal" discharge granted upon completion of a Chapter 13 plan, debts described

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in 11 U.S.C.S. § 523(a)(15) are not excepted from discharge although debts under § 523(a)(5) are discharged. 11 U.S.C.S. § 1328(a)(2).

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > General Overview

Evidence > Burdens of Proof > Preponderance of Evidence

HN4[ ] The party who is in effect objecting to discharge bears the burden of proof by a preponderance of the evidence. Fed. R. Bankr. P. 4005. Furthermore, in light of the overriding purpose of the Bankruptcy Code, exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors.

Counsel: [**1] For Mary Lynn Kennedy, Plaintiff: Michael S. Jan Janin, LEAD ATTORNEY, Quinn Buseck Leemhuis Toohey & Kroto Inc, Erie, PA.

For Donald W. Kennedy, Defendant: Gary V. Skiba, LEAD ATTORNEY, Erie, PA.

Judges: Thomas P. Agresti, Chief Judge.

Opinion by: Thomas P. Agresti

Opinion

[*400] MEMORANDUM OPINION AND ORDER

Plaintiff, Mary Lynn Kennedy ("Wife"), is the ex-wife of Debtor/Defendant, Donald W. Kennedy ("Husband"). Wife initiated this adversary proceeding on February 8, 2010 by filing a Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. §523(a)(15) ("Complaint"). The Complaint pertains to certain unpaid obligations which Husband owes Wife pursuant to a "Final Decree" that was entered on September 2, 2008, concluding the Parties' divorce action previously pending in the Crawford County Court of Common Pleas.

The Complaint asks that the Court declare the obligations to be non-dischargeable under HN1[ ] 11 U.S.C. §523(a)(15) 1 which applies to debts owed to a

1 Unless otherwise noted, all statutory references herein are to Title 11 of the U.S. Code, i.e., the Bankruptcy Code. The

former spouse

[*401] "... and not of the kind described in [Section 523(a)(5)] that is incurred by the debtor in the course of a divorce...or in connection with...a divorce decree."

11 U.S.C. §523(a)(15). Section 523(a)(5) excepts from discharge debts resulting in a "domestic [**2] support obligation," a term defined by 11 U.S.C. §101(14A). 2 In other words, Section 523(a)(15) expands upon the Section 523(a)(5) exception by also eliminating "divorce-related" obligations from discharge even if they do not qualify as "domestic support" obligations.

Court's jurisdiction to hear this matter pursuant to 28 U.S.C. §1334 was not in dispute. This case is a core matter pursuant to 28 U.S.C. §157(b)(2)(A) and (I).

2 The Bankruptcy Code defines the term HN2[ ] "domestic support obligation" as:

... a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—

(A) owed to or recoverable by—

(I) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child [**3] of the debtor or such child's parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—

(I) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt. 11 U.S.C. §101(14A)

442 B.R. 399, *399; 2010 Bankr. LEXIS 3117, **3117

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When Husband filed his Answer he correctly pointed out a subtle, yet critical, distinction involving the discharge of debt arising from divorce related matters in a Chapter 13 bankruptcy proceeding. HN3[ ] While the Section 523(a)(15) exception to discharge generally applies to discharges in cases under Chapters 7 and 11, as to Chapter 13 cases, it applies only to hardship discharges under Section 1328(b). See In re Blackburn, 412 B.R. 710 (Bankr. W.D.Pa. 2009) [**4] (discussing the applicability of Section 523(a)(15) to discharges under Chapters 7, 11 and 12, but not Chapter 13). With respect to a "normal" discharge granted upon completion of a Chapter 13 plan, debts described in Section 523(a)(15) are not excepted from discharge although debts under Section 523(a)(5) are excepted from discharge. See Section 1328(a)(2).

At the Pretrial Conference held in this matter on April 21, 2010, the Parties advised the Court that they believed the matter could be decided on stipulated facts. Based on that representation, the Court issued an order directing the Parties to file such a stipulation as well as accompanying briefs and allowing each a further opportunity to request an evidentiary hearing by May 21st if for some reason they changed their view as to the need for such a hearing. 3 On May 20, 2010, a Combined Pretrial Statement was filed with 28 paragraphs of stipulated facts and 6 exhibits. [*402] Included in the factual stipulations was a stipulation to the effect that one of the obligations in question, that is, $94,466.20 of the balance due under the Final Decree, was an "equitable distribution award." Neither Party requested an evidentiary hearing by the May 21st [**5] deadline.

On June 16, 2010, Husband filed a brief in support of his position essentially reiterating the distinction set forth in his Answer as to the extent of the various, available discharges but adding that the basis for differing treatment of Section 523(a)(15) debts in Chapter 7 and Chapter 13 cases was supported by the "longstanding legislative intent" to provide broader relief to debtors in the latter instance. Wife filed her brief on June 30, 2010,

3 This Order also reminded the Parties that the Court is not obligated to scour the entire record to find a factual dispute, to seek out facts not identified by the Parties, or to anticipate legal theories not advanced by the Parties. See Order of April 26, 2010, Document No. 8 (citing Dawley v. Erie Indemnity Co., 100 Fed. Appx. 877, 880-81 (3d Cir. 2004)). The Parties were therefore cautioned to include in their submissions all facts and legal arguments they wanted the Court to consider.

and for the first time argued that Husband's obligation pursuant to the Final Decree should be "properly characterized as a domestic support obligation under 523(a)(5) versus a mere division of property under 523(a)(15)." Plaintiff's Brief in Support [**6] of Combined Pretrial Statement, Document No. 16, at 8.

In response, on July 7, 2010, Husband filed a motion for leave to file a supplemental brief pointing out that the Complaint itself was strictly limited to Section 523(a)(15) and that the factual stipulation of the Parties clearly stated that $94,466.20 of the amount at issue represented an equitable distribution award. On July 12, 2010, the Court granted Husband's request to file a supplemental brief, followed by an opportunity for Wife to file a reply brief. The Order granting that motion specifically directed the Parties to address in their briefs the "conclusive" effect of their stipulation concerning the nature of the $94,466.20 obligation.

Despite that Order, neither of the Parties addressed the conclusiveness issue in their supplemental briefs. This caused the Court to issue a further Order on August 5, 2010, which stated in part:

Relying on the representations of the Parties that since no material factual disputes existed and there was no need for an evidentiary hearing, the Court advised them that it would decide the matter on stipulated facts which they were to submit. The Parties have submitted a factual stipulation that [**7] $94,466.20 of the amount owed by Husband to Wife under the Final Decree represents an "equitable distribution" award. Based on that stipulation it is clear that the amount in question is not a "domestic support obligation" within the meaning of Section 523(a)(5) and is therefore potentially dischargeable under Section 523(a)(15) should Husband successfully complete his plan. The Court stands prepared to rule to that effect, pending one final opportunity for the Parties to argue why the stipulation is not binding, as set forth below.

Neither Party took any action by the August 13, 2010 deadline set by the Court and neither Party requested oral argument by August 27, 2010, an option also provided by the Court. Accordingly the matter is now ripe for decision on the stipulated facts.

DISCUSSION

Based on the stipulations of the Parties the entire amount at issue in this case may be summarized as

442 B.R. 399, *401; 2010 Bankr. LEXIS 3117, **3

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follows:

Go to table1

As previously indicated, by agreement of the Parties, the $94,466.20 is an equitable distribution award and therefore properly classified as a debt falling under Section 523(a)(15). Thus, this debt is not [**8] [*403] subject to an exception from discharge in a discharge allowed in Chapter 13 pursuant to Section 1328(a) following completion of the plan. That leaves three items of Husband's obligation remaining for decision.

In arriving at its decision on the remaining, disputed items in this matter, the Court operates under the well-recognized principle that Wife, as HN4[ ] the party who is in effect objecting to discharge, bears the burden of proof by a preponderance of the evidence. See Fed.R.Bnkr.P. 4005; In re Cohn, 54 F.3d 1108, 1114 (3d Cir. 1995). Furthermore, in light of the overriding purpose of the Bankruptcy Code, exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors. Cohn, 54 F.3d at 1113.

In the present case, Wife therefore has the burden of proving that the three items remaining in issue are properly characterized as "domestic support obligations." As previously noted, this is a defined term under Section 101(14A) of the Bankruptcy Code. See n. 2, supra. A review of that definition shows that four, separate elements must be established for a debt to be considered a domestic support obligation. Three of the four required elements are clearly [**9] met by the obligations here, leaving one remaining element at issue, viz., that the debt is

(B) in the nature of alimony, maintenance, or support...of such... former spouse...without regard to whether such debt is expressly so designated.

Section 101(14A)(B). The Court turns to an examination of the remaining three areas of Husband's obligation using this standard.

Counsel fees

The only evidence, of record, as to the basis of this obligation is that found in Paragraph 7 of the Final Decree, which provides:

7. Husband is ordered to pay additional counsel fees of $5,000.00 to plaintiff/Wife's attorney within sixty (60) days of the entry of a Final Decree in Divorce. This payment is to be made by check,

payable to Wife's attorney said check to be delivered by husband to his attorney who will then, in turn, convey the check directly to Wife's attorney.

See Combined Pretrial Statement at Exhibit B. Some courts have found that an attorney fee award in a divorce proceeding can itself be in the nature of alimony, maintenance, or support if those fees were incurred to secure alimony, maintenance, or support. See, e.g., In re Glabb, 261 B.R. 170, 173 (Bankr. W.D.Pa. 2001). However, there is nothing [**10] of evidence in the record which could support such a finding in the present case. The Final Decree itself does not give any indication that the fees in question were incurred to secure alimony, maintenance or support (as opposed, say, to being incurred in connection with the property distribution litigation.)

Some courts have also considered whether there was a significant disparity in the financial conditions of the parties when making a determination whether an attorney fee award should be considered in the nature of alimony, maintenance, or support. See, e.g., In re Kornguth, 111 B.R. 525, 528 (Bankr. W.D. Pa. 1990). Again, however, there is nothing in the Final Decree or elsewhere in the record in this case to indicate a significant financial disparity existed between Husband and Wife. 4

[*404] Given the paucity of evidence presented as to the basis for the award of counsel fees it would be pure speculation for the Court to reach a conclusion as to why the fees were awarded. Under these circumstances the Court finds it has no choice but to conclude that Wife has failed to meet her burden of proof. See In re Pollock, 90 B.R. 747, 758 (Bankr. E.D. Pa. 1988) (court lacked necessary evidence to conclude that attorney fee award should be considered in the nature of alimony, maintenance or support and therefore could not find an exception to discharge).

Costs and expenses

4 Wife did argue that the 55/45 equitable distribution split in her favor in the Final Decree is prima facie evidence of a finding of financial disparity by the state court. However, given the relatively slight deviation from a straight 50/50 split, and the many other factors not related to the Parties' financial condition that the state court was permitted to consider under 23 Pa. C.S.A §3502(a) [**11] in making the award, the Court finds this differential to have little probative value on the issue of financial disparity and otherwise meeting the Wife's burden of proof.

442 B.R. 399, *402; 2010 Bankr. LEXIS 3117, **7

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The evidence as to this obligation is limited to information found in Paragraph 8 of the Final Decree which indicates that this sum represents payment for "the appraisal fee of McGill Power for the services of Robert Power, Jr., CPA, CVA, for the valuation of Kennedy Trucking, Inc./Kennedy Landscaping." Although the Parties have submitted nothing further as to the basis for this obligation, it appears clear from the language of the Final Decree [**12] itself that the appraisal in question was done to value marital property in connection with the equitable property division. See Paragraph 2 of the Final Decree, which sets a value on "Kennedy Trucking/Landscaping." The evidence therefore does not support a finding that these costs and expenses were incurred as part of an effort to secure alimony, maintenance or support for Wife. The Court therefore finds that Wife has failed to meet her burden of proof as to this obligation.

Rental credit

The evidence for this obligation comes from Paragraph 8 of the Final Decree which provides that "Husband shall pay to Wife the total sum of $15,509.34, 5 comprised of the fair rental credit to which Wife is entitled ..." The Final Decree provides no further insight as to what this "fair rental credit" may be for and the Parties have provided no explanation. The most logical explanation the Court is able to apply, as a result of reasonable inference from the stipulated facts, is that Husband had use of certain marital property during the divorce proceeding for which the state court required him to reimburse Wife at a fair rental rate. In the absence of any other proffered explanation the Court must [**13] therefore conclude that this obligation is based on the use of property and is not in the nature of alimony, maintenance or support. Thus, Wife has failed to meet her burden of proof as to this obligation as well.

AND NOW, this 15th day of September, 2010, for the reasons stated above, and consistent with the Court's prior Orders in this matter, the Court finding that none of

5 In broader context, Paragraph 8 provides in relevant part that "Husband shall pay to wife the total sum of $15,509.34, comprised of the fair rental credit to which Wife is entitled and $10,467.88 as costs and expenses for the appraisal fee of McGill Power." This would seem to indicate that the fair rental credit itself is actually only $5,041.46, rather than the $15,509.34 as stipulated to by the Parties in the Combined Pretrial Statement. In any event, given the Court's disposition of this matter it is not necessary to address that issue any further here.

the obligations at issue qualify as a domestic support obligation that would be excepted pursuant to either 11 U.S.C. §523(a)(5) or (15) from a discharge granted under 11 U.S.C. §1328(a),

[*405] It is hereby ORDERED, ADJUDGED and DECREED that pursuant to Fed.R.Bankr.P. 7052 [**14] JUDGMENT is entered in favor of the Defendant, Donald W. Kennedy, and against the Plaintiff, Mary Lynn Kennedy, and the Plaintiff's Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. §523(a)(15) is DISMISSED with prejudice.

/s/ Thomas P. Agresti

Thomas P. Agresti, Chief Judge

United States Bankruptcy Court

442 B.R. 399, *404; 2010 Bankr. LEXIS 3117, **11

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Table1 (Return to related document text)$5,000.00 Counsel fees$10,467.88 Costs and expenses$15,509.34 Rental credit$125,443.42 Total

Table1 (Return to related document text)

End of Document

442 B.R. 399, *405; 2010 Bankr. LEXIS 3117, **14

Patterson v. Shumate

Supreme Court of the United States

April 20, 1992, Argued ; June 15, 1992, Decided

No. 91-913

Reporter504 U.S. 753 *; 112 S. Ct. 2242 **; 119 L. Ed. 2d 519 ***; 1992 U.S. LEXIS 3546 ****; 60 U.S.L.W. 4550; 92 Cal. Daily Op. Service 4996; 26 Collier Bankr. Cas. 2d (MB) 1119; 23 Bankr. Ct. Dec. 89; Bankr. L. Rep. (CCH) P74,621; 92 Daily Journal DAR 7949; 15 Employee Benefits Cas. (BNA) 1481; 6 Fla. L. Weekly Fed. S 416

JOHN R. PATTERSON, TRUSTEE, PETITIONER v. JOSEPH B. SHUMATE, JR.

Prior History: [****1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT.

Disposition: 943 F.2d 362, affirmed.

Core Termsnonbankruptcy, bankrupt estate, state law, pension plan, exemption, antialienation, enforceable, spendthrift trust, pension benefits, Pension, federal law, restrictions, plans, Retirement, alienated, contends, includes

Case Summary

Procedural PostureOn writ of certiorari to the United States Court of Appeals for the Fourth Circuit to decide whether an anti-alienation provision contained in an Employee Retirement Income Security Act of 1974 (ERISA) qualified pension plan constituted a restriction on transfer enforceable under "applicable nonbankruptcy law," and whether a debtor could exclude his interest in such a plan from the property of the bankruptcy estate.

OverviewThe court considered whether an antialienation provision contained in an ERISA-qualified pension plan constituted a restriction on transfer enforceable under "applicable nonbankruptcy law," and whether, accordingly, a debtor could exclude his interest in such a plan from the property of the bankruptcy estate. The Bankruptcy Code excluded from the bankruptcy estate property of the debtor that was subject to a restriction on transfer enforceable under "applicable nonbankruptcy

law." 11 U.S.C.S. § 541(c)(2). The court found that the text of § 541(c)(2) did not support petitioner's contention that "applicable nonbankruptcy law" was limited to state law. Plainly read, the court found that the provision encompassed any relevant nonbankruptcy law, including federal law such as ERISA. The court next determined that the antialienation provision contained in the ERISA-qualified Plan at issue satisfied the literal terms of § 541(c)(2). The anti-alienation provision required for ERISA qualification and contained in the Plan at issue constituted an enforceable transfer restriction for purposes of § 541(c)(2)'s exclusion of property from the bankruptcy estate.

OutcomeJudgment that ERISA-qualified plans, which by definition have a nonalienation provision, constituted "applicable non-bankruptcy law" and contained enforceable restrictions on the transfer of pension interests, was affirmed. A debtor's interest in an ERISA-qualified pension plan may be excluded from the property of the bankruptcy estate pursuant to the Bankruptcy Code because "applicable nonbankruptcy law" was not limited to state law.

LexisNexis® Headnotes

Business & Corporate Compliance > ... > Employee Retirement Income Security Act (ERISA) > Pensions & Benefits Law > ERISA

Pensions & Benefits Law > ERISA > General Overview

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Basic Plan Requirements > Alienation & Assignment of Benefits

HN1[ ] See 29 U.S.C.S. § 1056(d)(1).

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Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

HN2[ ] 11 U.S.C.S. § 541(c)(2) provides the following exclusion from the otherwise broad definition of "property of the estate" contained in § 541(a)(1) of the Bankruptcy Code: A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under Title 11. The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law. Nothing in § 541 suggests that the phrase "applicable nonbankruptcy law" refers exclusively to state law. The text contains no limitation on "applicable nonbankruptcy law" relating to the source of the law.

Business & Corporate Compliance > ... > Employee Retirement Income Security Act (ERISA) > Pensions & Benefits Law > ERISA

Pensions & Benefits Law > ERISA > General Overview

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Basic Plan Requirements > Alienation & Assignment of Benefits

Tax Law > ... > Tax Accounting > Retirement Plans > Qualified Retirement Plans

HN3[ ] See § 206(d)(1) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.S. § 1056(d)(1).

Tax Law > ... > Tax Accounting > Retirement Plans > General Overview

Tax Law > ... > Retirement Plans > Qualified Retirement Plans > Contributions to Plans

Tax Law > ... > Tax Accounting > Retirement Plans > Qualified Retirement Plans

HN4[ ] See 26 U.S.C.S. § 401(a)(13).

Estate, Gift & Trust Law > ... > Private Trusts Characteristics > Trustees > General Overview

Governments > Fiduciaries

Pensions & Benefits Law > ERISA > General Overview

Pensions & Benefits Law > ERISA > Civil Litigation > General Overview

Pensions & Benefits Law > ... > Remedies > Equitable Relief > Injunctions

Pensions & Benefits Law > ERISA > Fiduciaries > General Overview

Pensions & Benefits Law > ... > Fiduciaries > Fiduciary Responsibilities > General Overview

Pensions & Benefits Law > ... > Fiduciary Responsibilities > Plan Administration > Adherence to Plan

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Basic Plan Requirements > Alienation & Assignment of Benefits

HN5[ ] Plan trustees or fiduciaries are required under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.S. § 1104(a)(1)(D) to discharge their duties in accordance with the documents and instruments governing the plan. A plan participant, beneficiary, or fiduciary, or the Secretary of Labor may file a civil action to enjoin any act or practice which violates ERISA or the terms of the plan. 29 U.S.C.S. §§ 1132(a)(3) and (5).

Lawyers' Edition Display

Decision

Interest in ERISA-qualified pension plan held subject to transfer restriction under "applicable nonbankruptcy law," and thus excludable from property of bankruptcy estate under 11 USCS 541(c)(2).

Summary

Under 541(c)(2) of the Bankruptcy Code (11 USCS 541(c)(2)), a debtor's beneficial interest in property that is subject to a transfer restriction enforceable under "applicable nonbankruptcy law" is excluded from the bankruptcy estate. In order to qualify for coverage under the Employee Retirement Income Security Act of 1974 (ERISA) (29 USCS 1001 et seq.), an employee pension plan is required, under 206(d)(1) of ERISA (29 USCS 1056(d)(1)), to provide that benefits provided under the plan may not be assigned or alienated. In terminating and liquidating a furniture corporation's pension plan that contained the antialienation provision required for ERISA qualification, the trustee with respect to the corporation's bankruptcy provided full distribution of

504 U.S. 753, *753; 112 S. Ct. 2242, **2242; 119 L. Ed. 2d 519, ***519; 1992 U.S. LEXIS 3546, ****1

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employee interests in the plan to every employee except the corporate president, who had filed a petition for personal bankruptcy. The trustee with respect to the president's bankruptcy filed against the trustee for the corporation an adversary proceeding in the Bankruptcy Court for the Western District of Virginia to recover the president's interest in the plan for the benefit of the president's bankruptcy estate, and the president sought to have the United States District Court for the Western District of Virginia, which already had jurisdiction over a related proceeding, compel the trustee for the corporation to pay the president's interest in the plan directly to the president. After the bankruptcy proceeding was consolidated with the District Court action, the District Court (1) ruled that the president's interest should not be excluded from the president's bankruptcy estate under 541(c)(2), because (a) 541(c) (2)'s reference to "nonbankruptcy law" embraced only state law, and (b) the president's interest did not qualify under Virginia law as a spendthrift trust; and (2) ordered the trustee for the corporation to pay the president's interest to the president's bankruptcy estate (83 BR 404, 9 EBC 1819). The United States Court of Appeals for the Fourth Circuit reversed and expressed the view that under 541(c)(2), the president's interest in the ERISA-qualified pension plan should be excluded from the president's bankruptcy estate (943 F2d 362, 21 BCD 1617, 14 EBC 2340).

On certiorari, the United States Supreme Court affirmed. In an opinion by Blackmun, J., expressing the unanimous view of the court, it was held that for purposes of 541(c)(2), the president's interest in the pension plan was subject to a transfer restriction under applicable nonbankruptcy law, and thus could be excluded by the debtor from the property of the bankruptcy estate, because (1) plainly read, 541(c)(2) encompassed any relevant nonbankruptcy law, including federal law such as ERISA, where (a) nothing in 541(c)(2) suggested that the phrase "applicable nonbankruptcy law" referred exclusively to state law, (b) other sections of the Bankruptcy Code (11 USCS 101 et seq.) expressly restricted the scope of applicable law to "state law," and (c) interpreting "applicable nonbankruptcy law" in 541(c)(2) as including federal law accorded with prevailing interpretations of that phrase as it appeared elsewhere in the Code; (2) the antialienation provision in the plan in question constituted an enforceable transfer restriction for purposes of 541(c)(2); and (3) it had not been shown that Congress intended to limit the 541(c)(2) exclusion to transfer restrictions that were enforceable under only

state spendthrift trust laws.

Scalia, J., concurred, expressing the view that in interpreting statutes, (1) attention to text and application of an agreed-upon methodology are appropriate, and (2) consistent usage of particular phrases within various provisions of the same statute is to be presumed.

Headnotes

BANKRUPTCY §214 > interest in ERISA-qualified pension plan -- exclusion from estate -- spendthrift trust -- > Headnote:LEdHN[1A][ ] [1A]LEdHN[1B][ ] [1B]LEdHN[1C][ ] [1C]LEdHN[1D][ ] [1D]LEdHN[1E][ ] [1E]LEdHN[1F][ ] [1F]LEdHN[1G][ ] [1G]LEdHN[1H][ ] [1H]LEdHN[1I][ ] [1I]

Under 541(c)(2) of the Bankruptcy Code (11 USCS 541(c)(2)), which excludes from a bankruptcy estate the debtor's beneficial interest in property that is subject to a transfer restriction enforceable under "applicable nonbankruptcy law," a debtor's interest in the pension plan of the debtor's employer--which plan (1) complies with the requirement, under 206(d)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (29 USCS 1056(d)(1)), that in order to qualify for ERISA coverage, a plan must provide that plan benefits may not be assigned or alienated, and (2) has been terminated and liquidated--is subject to a transfer restriction under applicable nonbankruptcy law, and thus may be excluded by the debtor from the property of the bankruptcy estate, because (1) plainly read, 541(c)(2) encompasses any relevant nonbankruptcy law, including federal law such as ERISA, where (a) nothing in 541(c)(2) suggests that the phrase "applicable nonbankruptcy law" refers exclusively to state law, (b) Congress' decision to use the phrase "applicable nonbankruptcy law" in 541(c)(2) strongly suggests that Congress did not intend to restrict the scope of 541(c)(2) to state law, given that other sections of the Code (11 USCS 101 et seq.) expressly restrict the scope of applicable law to "state law," and (c) interpreting "applicable nonbankruptcy law" in 541(c)(2) as including federal law accords with prevailing interpretations of that phrase as it appears elsewhere in the Code; (2) the antialienation provision in the plan in question satisfies the literal terms of 541(c)(2), since (a) 1056(d)(1), in requiring that plans contain an antialienation provision, clearly imposes a restriction on the transfer of a debtor's beneficial interest in a pension plan, (b) the plan in question complies with the

504 U.S. 753, *753; 112 S. Ct. 2242, **2242; 119 L. Ed. 2d 519, ***519; 1992 U.S. LEXIS 3546, ****1

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requirements of 1056(d)(1), and (c) the plan's transfer restrictions are enforceable for purposes of 541(c)(2), where 29 USCS 1104(a)(1)(D) requires plan trustees or fiduciaries to discharge their duties in accordance with the documents governing a plan, and 29 USCS 1132(a)(3) and 1132(a)(5) authorize civil actions to enjoin acts that violate ERISA or the terms of a plan; and (3) it has not been shown that Congress intended to limit the 541(c)(2) exclusion to transfer restrictions that are enforceable under only state spendthrift trust laws.

STATUTES §164.4 > plain language -- > Headnote:LEdHN[2A][ ] [2A]LEdHN[2B][ ] [2B]LEdHN[2C][ ] [2C]

The plain language of the Bankruptcy Code (11 USCS 101 et seq.) and the Employee Retirement Income Security Act of 1974 (ERISA) (29 USCS 1001 et seq.) is the determinant with respect to whether under 541(c)(2) of the Code (11 USCS 541(c)(2)), which excludes from a bankruptcy estate the debtor's beneficial interest in property that is subject to a transfer restriction enforceable under "applicable nonbankruptcy law," an antialienation provision in a pension plan--which plan complies with the requirement, under 206(d)(1) of ERISA (29 USCS 1056(d)(1)), that in order to qualify for ERISA coverage, the plan must provide that plan benefits may not be assigned or alienated--constitutes a transfer restriction enforceable under "applicable nonbankruptcy law"; 541(c)(2) must be enforced according to its terms.

BANKRUPTCY §214 > exclusion from estate -- restriction on transfer -- > Headnote:LEdHN[3][ ] [3]

For purposes of 541(c)(2) of the Bankruptcy Code (11 USCS 541(c)(2)), which excludes from a bankruptcy estate the debtor's beneficial interest in a trust that is subject to a transfer restriction enforceable under applicable nonbankruptcy law, 401(a)(13) of the Internal Revenue Code (26 USCS 401(a)(13))--which provides that in general, a trust forming part of an employer's stock bonus, pension, or profit-sharing plan, is not qualified under 401(a)(13) unless the plan provides that plan benefits may not be assigned or alienated--imposes a restriction on the transfer of a debtor's beneficial interest in a trust.

BANKRUPTCY §17 > EVIDENCE §167 > interest in pension plan -- exclusion from estate -- spendthrift trust -- burden of proof -- intent -- superfluous exemption -- > Headnote:LEdHN[4A][ ] [4A]LEdHN[4B][ ] [4B]LEdHN[4C][ ] [4C]

Given the clarity of the text of 541(c)(2) of the Bankruptcy Code (11 USCS 541(c)(2)), which excludes from a bankruptcy estate the debtor's beneficial interest in a trust that is subject to a transfer restriction enforceable under "applicable nonbankruptcy law," a party bears an exceptionally heavy burden of proving the allegation that Congress, rather than extending 541(c)(2) to cover a debtor's interest in a pension plan that is qualified for protection under the Employee Retirement Income Security Act of 1974 (ERISA) (29 USCS 1001 et seq.), intended to limit the 541(c)(2) exclusion to transfer restrictions that are enforceable under only state spendthrift trust laws; the party fails to meet this burden, where (1) contemporaneous legislative materials fail to demonstrate that 541(c)(2)'s exclusion should not extend to a debtor's interest in an ERISA-qualified pension plan, because (a) the clarity of the language of 541(c)(2) obviates the need for any inquiry concerning legislative history, and (b) even if certain legislative history is considered, the history does not provide a sufficient basis for concluding, in derogation of the clear language of 541(c)(2), that Congress intended to exclude from the scope of 541(c)(2) law other than state spendthrift trust law, (2) the exemption from a bankruptcy estate allowed under 522(d)(10)(E) of the Code (11 USCS 522(d)(10)(E)) for pension and similar plans is not rendered superfluous by the inclusion under 541(c)(2) of ERISA-qualified plans containing antialienation provisions, because 522(d)(10)(E), in addition to applying to such plans, applies to other categories of plans, and (3) holding that 541(c)(2) applies to ERISA-qualified plans containing antialienation provisions (a) insures that treatment of pension benefits will not vary based on a beneficiary's bankruptcy status, (b) gives full and appropriate effect to ERISA's goal of protecting pension benefits, and (c) furthers the ERISA policy of uniform national treatment of pension benefits.

STATUTES §143 > history -- use -- limits -- > Headnote:LEdHN[5A][ ] [5A]LEdHN[5B][ ] [5B]

Courts appropriately may refer to a statute's legislative

504 U.S. 753, *753; 112 S. Ct. 2242, **2242; 119 L. Ed. 2d 519, ***519; 1992 U.S. LEXIS 3546, ****1

Page 5 of 11

history to resolve statutory ambiguity; however, in construing 541(c)(2) of the Bankruptcy Code (11 USCS 541(c)(2))--which provides that a debtor's beneficial interest in property that is subject to a transfer restriction enforceable under "applicable nonbankruptcy law" is excluded from the bankruptcy estate--a court may not properly limit "applicable nonbankruptcy law" to state spendthrift trust law by ignoring the plain language of 541(c)(2) and relying on isolated excerpts from the legislative history.

Syllabus

Respondent Shumate was a participant in his employer's pension plan, which contained the antialienation provision required for tax qualification under the Employee Retirement Income Security Act of 1974 (ERISA). The District Court rejected his contention that his interest in the plan should be excluded from his bankruptcy estate under § 541(c)(2) of the Bankruptcy Code, which excludes property of the debtor that is subject to a restriction on transfer enforceable under "applicable nonbankruptcy law." The court held, inter alia, that the latter phrase embraces only state law, not federal law such as ERISA, and that Shumate's interest in the plan [****2] did not qualify for protection as a spendthrift trust under state law. The court ordered that Shumate's interest in the plan be paid over to petitioner, as trustee of Shumate's bankruptcy estate. The Court of Appeals reversed, ruling that the interest should be excluded from the bankruptcy estate under § 541(c)(2).

Held: The plain language of the Bankruptcy Code and ERISA establishes that an antialienation provision in a qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law" for purposes of § 541(c)(2). Pp. 757-766.

(a) Plainly read, § 541(c)(2) encompasses any relevant nonbankruptcy law, including federal law such as ERISA. The section contains no limitation on "applicable nonbankruptcy law" relating to the source of the law, and its text nowhere suggests that that phrase refers, as petitioner contends, exclusively to state law. Other sections in the Bankruptcy Code reveal that Congress knew how to restrict the scope of applicable law to "state law" and did so with some frequency. Its use of the broader phrase "applicable nonbankruptcy law" strongly suggests that it did not intend to restrict § 541(c)(2) [****3] in the manner petitioner contends. Pp. 757-759.

(b) The antialienation provision contained in this ERISA-

qualified plan satisfies the literal terms of § 541(c)(2). The sections of ERISA and the Internal Revenue Code requiring a plan to provide that benefits may not be assigned or alienated clearly impose a "restriction on the transfer" of a debtor's "beneficial interest" within § 541(c)(2)'s meaning, and the terms of the plan provision in question comply with those requirements. Moreover, the transfer restrictions are "enforceable," as required by § 541(c)(2), since ERISA gives participants the right to sue to enjoin acts that violate that statute or the plan's terms. Pp. 759-760.

(c) Given the clarity of the statutory text, petitioner bears an "exceptionally heavy" burden of persuasion that Congress intended to limit the § 541(c)(2) exclusion to restrictions on transfer that are enforceable only under state spendthrift trust law. Union Bank v. Wolas, 502 U.S. 151, 155-156, 116 L. Ed. 2d 514, 112 S. Ct. 527. He has not satisfied that burden, since his several challenges to the Court's interpretation of § 541(c)(2) -- that it is refuted by contemporaneous [****4] legislative materials, that it renders superfluous the § 522(d)(10)(E) debtor's exemption for pension payments, and that it frustrates the Bankruptcy Code's policy of ensuring a broad inclusion of assets in the bankruptcy estate -- are unpersuasive. Pp. 760-765.

Counsel: G. Steven Agee argued the cause and filed briefs for petitioner.

Kevin R. Huennekens argued the cause for respondent. With him on the brief were Robert A. Lefkowitz and Daniel A. Gecker.

Christopher J. Wright argued the cause for the United States [****5] as amicus curiae urging affirmance. With him on the brief were Solicitor General Starr, Acting Assistant Attorney General Bruton, Deputy Solicitor General Mahoney, Gary D. Gray, and Bridget M. Rowan. *

* David B. Tatge, pro se, filed a brief of amicus curiae urging reversal. With him on the brief was Dwight D. Meier.

Briefs of amici curiae urging affirmance were filed for the American Society of Pension Actuaries by David R. Levin; for the Chamber of Commerce of the United States of America by Stephen A. Bokat, Robin S. Conrad, and Mona C. Zeiberg; for the ERISA Industry Committee et al. by John M. Vine and Thomas M. Christina; for Hallmark Cards, Inc., by M. Theresa Hupp, David C. Trowbridge, and James B. Overman; for Lincoln National Corporation by Brian J. Martin; for Wal-Mart Stores, Inc., et al. by Phillip R. Garrison; and for Ronald J. Wyles et al. by David H. Adams.

504 U.S. 753, *753; 112 S. Ct. 2242, **2242; 119 L. Ed. 2d 519, ***519; 1992 U.S. LEXIS 3546, ****1

Page 6 of 11

Judges: BLACKMUN, J., delivered the opinion for a unanimous Court. SCALIA, J., filed a concurring opinion, post, [****6] p. 766.

Opinion by: BLACKMUN

Opinion

[*755] [***525] [**2245] JUSTICE BLACKMUN delivered the opinion of the Court.

LEdHN[ ] The Bankruptcy Code excludes from the bankruptcy estate property of the debtor that is subject to a restriction on transfer enforceable under "applicable nonbankruptcy law." 11 U. S. C. § 541(c)(2). We must decide in this case whether an antialienation provision contained in an ERISA-qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law," and whether, accordingly, a debtor may exclude his interest in such a plan from the property of the bankruptcy estate.

I

Respondent Joseph B. Shumate, Jr., was employed for over 30 years by Coleman Furniture Corporation, where he ultimately attained the position of president and chairman of the board of directors. Shumate and approximately 400 other employees were participants in the Coleman Furniture Corporation Pension Plan (Plan). The Plan satisfied all applicable requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and qualified for favorable [****7] tax treatment under the Internal Revenue Code. In particular, Article 16.1 of the Plan contained the antialienation provision required for qualification under § 206(d)(1) of ERISA, 29 U. S. C. § 1056(d)(1) (HN1[ ] "Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated"). App. 342. Shumate's interest in the Plan was valued at $ 250,000. Id., at 93-94.

In 1982, Coleman Furniture filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The case was converted to a Chapter 7 proceeding, and a trustee, Roy V. Creasy, was appointed. Shumate himself encountered financial difficulties and filed a petition for bankruptcy in 1984. His case, too, was converted to a Chapter 7 proceeding, and petitioner

Briefs of amici curiae were filed for the American College of Trust and Estate Counsel by Alvin J. Golden and C. Wells Hall III; and for Eldon S. Reed by Cathy L. Reece and Gary H. Ashby.

John R. Patterson was appointed trustee.

Creasy terminated and liquidated the Plan, providing full distributions to all participants except Shumate. Patterson [*756] then filed an adversary proceeding against Creasy in the Bankruptcy Court for the Western District of Virginia to recover Shumate's interest in the [****8] Plan for the benefit of Shumate's bankruptcy estate. Shumate in turn asked the United States District Court for the Western District of Virginia, which already had jurisdiction over a related proceeding, to compel Creasy to pay Shumate's interest in the Plan directly to him. The bankruptcy proceeding subsequently was consolidated with the District Court action. App. to Pet. for Cert. 53a-54a.

The District Court rejected Shumate's [***526] contention that his interest in the Plan should be excluded from his bankruptcy estate. The court held that § 541(c)(2)'s reference to "nonbankruptcy law" embraced only state law, not federal law such as ERISA. Creasy v. Coleman Furniture Corp., 83 Bankr. 404, 406 (1988). Applying Virginia law, the court held that Shumate's interest in the Plan did not qualify for protection as a spendthrift trust. Id., at 406-409. The District Court also rejected Shumate's alternative argument that even if his interest in the Plan could not be excluded from the bankruptcy estate under § 541(c)(2), he was entitled to an exemption under 11 U. S. C. § 522(b)(2)(A), which allows a debtor to exempt [****9] from property of the estate "any property that is exempt under Federal law." 83 Bankr. at 409-410. The District Court ordered Creasy to pay Shumate's interest in the Plan over to his bankruptcy estate. App. to Pet. for Cert. 54a-55a.

The Court of Appeals for the Fourth Circuit reversed. 943 F.2d 362 (1991). The court relied on its earlier decision in In re Moore, 907 F.2d 1476 (1990), in which another [**2246] Fourth Circuit panel was described as holding, subsequent to the District Court's decision in the instant case, that "ERISA-qualified plans, which by definition have a nonalienation provision, constitute 'applicable nonbankruptcy law' and contain enforceable restrictions on the transfer of pension interests." 943 F.2d at 365. Thus, the Court of [*757] Appeals held that Shumate's interest in the Plan should be excluded from the bankruptcy estate under § 541(c)(2). Ibid. The court then declined to consider Shumate's alternative argument that his interest in the Plan qualified for exemption under § 522(b). Id., at 365-366.

We granted certiorari, 502 U.S. 1057 (1992), to [****10]

504 U.S. 753, *753; 112 S. Ct. 2242, **2242; 119 L. Ed. 2d 519, ***519; 1992 U.S. LEXIS 3546, ****5

Page 7 of 11

resolve the conflict among the Courts of Appeals as to whether an antialienation provision in an ERISA-qualified pension plan constitutes a restriction on transfer enforceable under "applicable nonbankruptcy law" for purposes of the § 541(c)(2) exclusion of property from the debtor's bankruptcy estate. 1

[****11] II

A

LEdHN[ ] LEdHN[ ] In our view, the plain language of the Bankruptcy Code and ERISA is our determinant. See Toibb v. Radloff,

LEdHN[ ] LEdHN[ ] 501 U.S. 157, 160, 115 L. Ed. 2d 145, 111 S. Ct. 2197 (1991). Section 541(c)(2) HN2[

] provides the following exclusion from the otherwise broad definition of "property of the estate" contained in § 541(a)(1) of the Code:

[***527] "A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title." (Emphasis added.)

[*758] The natural reading of the provision entitles a debtor to exclude from property of the estate any interest in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy [****12] law. Nothing in § 541 suggests that the phrase "applicable nonbankruptcy law" refers, as petitioner contends, exclusively to state law. The text contains no limitation on "applicable nonbankruptcy law" relating to the source of the law.

LEdHN[ ] Reading the term "applicable

1 Compare In re Harline, 950 F.2d 669 (CA10 1991) (ERISA antialienation provision constitutes "applicable nonbankruptcy law"), cert. pending, No. 91-1412; Velis v. Kardanis, 949 F.2d 78 (CA3 1991) (same); Shumate v. Patterson, 943 F.2d 362 (CA4 1991) (this case; same); In re Lucas, 924 F.2d 597 (CA6) (same), cert. denied sub nom. Forbes v. Holiday Corp. Savings and Retirement Plan, 500 U.S. 959, 114 L. Ed. 2d 726, 111 S. Ct. 2275 (1991); and In re Moore, 907 F.2d 1476 (CA4 1990) (same), with In re Dyke, 943 F.2d 1435 (CA5 1991) (ERISA antialienation provision does not constitute "applicable nonbankruptcy law"); In re Daniel, 771 F.2d 1352 (CA9 1985) (same), cert. denied, 475 U.S. 1016, 89 L. Ed. 2d 313, 106 S. Ct. 1199 (1986); In re Lichstrahl, 750 F.2d 1488 (CA11 1985) (same); In re Graham, 726 F.2d 1268 (CA8 1984) (same); and In re Goff, 706 F.2d 574 (CA5 1983) (same).

nonbankruptcy law" in § 541(c)(2) to include federal as well as state law comports with other references in the Bankruptcy Code to sources of law. The Code reveals, significantly, that Congress, when it desired to do so, knew how to restrict the scope of applicable law to "state law" and did so with some frequency. See, e. g., 11 U. S. C. § 109(c)(2) (entity may be a debtor under chapter 9 if authorized "by State law"); § 522(b)(1) (election of exemptions controlled by "the State law that is applicable to the debtor"); § 523(a)(5) (a debt for alimony, maintenance, or support determined "in accordance with State or territorial law" is not dischargeable); § 903(1) ("[A] State law prescribing a method of composition of indebtedness" of municipalities is not binding on nonconsenting creditors); see also [****13] §§ 362(b)(12) and 1145(a). Congress' decision to use the broader phrase "applicable nonbankruptcy law" in § 541(c)(2) strongly suggests that it did not [**2247] intend to restrict the provision in the manner that petitioner contends. 2

LEdHN[ ]

[****14]

2 The phrase "applicable nonbankruptcy law" appears elsewhere in the Code, and courts have construed those references to include federal law. See, e. g., 11 U. S. C. § 1125(d) (adequacy of disclosure statement not governed by any "otherwise applicable nonbankruptcy law"); In re Stanley Hotel, Inc., 13 Bankr. 926, 931 (Bkrtcy. Ct. Colo. 1981) (§ 1125(d) includes federal securities law); 11 U. S. C. § 108(a) (referring to statute of limitations fixed by "applicable nonbankruptcy law"); In re Ahead By a Length, Inc., 100 Bankr. 157, 162-163 (Bkrtcy. Ct. SDNY 1989) (§ 108(a) includes Racketeer Influenced and Corrupt Organizations Act); Motor Carrier Audit & Collection Co. v. Lighting Products, Inc., 113 Bankr. 424, 425-426 (ND Ill. 1989) (§ 108(a) includes Interstate Commerce Act); 11 U. S. C. § 108(b) (referring to time for filing pleadings, notices, etc., fixed by "applicable nonbankruptcy law"); Eagle-Picher Industries, Inc. v. United States, 290 U.S. App. D.C. 307, 321-322, 937 F.2d 625, 639-640 (1991) (§ 108(b) includes Federal Tort Claims Act). Although we express no view on the correctness of these decisions, we note that our construction of § 541(c)(2)'s reference to "applicable nonbankruptcy law" as including federal law accords with prevailing interpretations of that phrase as it appears elsewhere in the Code. See Morrison-Knudsen Constr. Co. v. Director, Office of Workers' Compensation Programs, 461 U.S. 624, 633, 76 L. Ed. 2d 194, 103 S. Ct. 2045 (1983) (recognizing principle "that a word is presumed to have the same meaning in all subsections of the same statute").

504 U.S. 753, *757; 112 S. Ct. 2242, **2246; 119 L. Ed. 2d 519, ***526; 1992 U.S. LEXIS 3546, ****10

Page 8 of 11

[*759] LEdHN[ ] LEdHN[ ] The text of § 541(c)(2) does not support petitioner's contention that "applicable nonbankruptcy law" is limited to state law. Plainly read, the provision encompasses any relevant nonbankruptcy law, including federal law such as ERISA. We must enforce the statute according to its terms. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 103 L. Ed. 2d 290, 109 S. Ct. 1026 (1989).

[***528] B

LEdHN[ ] LEdHN[3][ ] [3]Having concluded that "applicable nonbankruptcy law" is not limited to state law, we next determine whether the antialienation provision contained in the ERISA-qualified Plan at issue here satisfies the literal terms of § 541(c)(2).

Section 206(d)(1) of ERISA, which states that HN3[ ] "each pension plan shall provide that benefits provided under [****15] the plan may not be assigned or alienated," 29 U. S. C. § 1056(d)(1), clearly imposes a "restriction on the transfer" of a debtor's "beneficial interest" in the trust. The coordinate section of the Internal Revenue Code, 26 U. S. C. § 401(a)(13), states as a general rule that HN4[ ] "[a] trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated," and thus contains similar restrictions. See also 26 CFR § 1.401(a)-13(b)(1) (1991).

LEdHN[ ] Coleman Furniture's pension plan complied with these requirements. Article 16.1 of the Plan specifically stated: "No benefit, right or interest" of any participant "shall be subject [*760] to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, seizure, attachment or other legal, equitable or other process." App. 342.

Moreover, these transfer restrictions are "enforceable," as required by § 541(c)(2). [****16] HN5[ ] Plan trustees or fiduciaries are required under ERISA to discharge their duties "in accordance with the documents and instruments governing the plan." 29 U. S. C. § 1104(a)(1)(D). A plan participant, beneficiary, or fiduciary, or the Secretary of Labor may file a civil action to "enjoin any act or practice" which violates ERISA or the terms of the plan. §§ 1132(a)(3) and (5). Indeed, this Court itself vigorously has enforced ERISA's prohibition on the assignment or alienation of pension benefits, declining to recognize any implied exceptions to the broad statutory bar. See Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365, 107 L. Ed. 2d 782,

110 S. Ct. 680 (1990). 3

[****17] [**2248] The antialienation provision required for ERISA qualification and contained in the Plan at issue in this case thus constitutes an enforceable transfer restriction for purposes of § 541(c)(2)'s exclusion of property from the bankruptcy estate.

III

LEdHN[ ] LEdHN[ ] Petitioner raises several challenges to this conclusion. Given the clarity of the statutory text, however, he bears an "exceptionally heavy" burden of persuading us that Congress intended to limit the § 541(c)(2) exclusion to restrictions on transfer that are enforceable only under state spendthrift trust law. Union Bank v. Wolas, 502 U.S. 151, 155-156, 116 L. Ed. 2d 514, 112 S. Ct. 527 (1991).

[*761] [***529] A

LEdHN[ ] LEdHN[ ] Petitioner first contends that contemporaneous legislative materials demonstrate that § 541(c)(2)'s exclusion of property from the bankruptcy estate should not extend to [****18] a debtor's interest in an ERISA-qualified pension plan. Although courts "appropriately may refer to a statute's legislative history to resolve statutory ambiguity," Toibb v. Radloff, 501 U.S. at 162, the clarity of the statutory language at issue in this case obviates the need for any such inquiry. See ibid.; United States v. Ron Pair Enterprises, Inc., 489 U.S. at 241;Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 809, n. 3, 103 L. Ed. 2d 891, 109 S. Ct. 1500 (1989).4

LEdHN[ ]

3 The Internal Revenue Service at least on occasion has espoused the view that the transfer of a beneficiary's interest in a pension plan to a bankruptcy trustee would disqualify the plan from taking advantage of the preferential tax treatment available under ERISA. See McLean v. Central States, Southeast & Southwest Areas Pension Fund, 762 F.2d 1204, 1206 (CA4 1985); see also In re Moore, 907 F.2d at 1481.

4 Those Courts of Appeals that have limited "applicable nonbankruptcy law" to state spendthrift trust law by ignoring the plain language of § 541(c)(2) and relying on isolated excerpts from the legislative history thus have misconceived the appropriate analytical task. See, e. g., In re Daniel, 771 F.2d at 1359-1360; In re Lichstrahl, 750 F.2d at 1490; In re Graham, 726 F.2d at 1271-1272; In re Goff, 706 F.2d at 581-582.

504 U.S. 753, *759; 112 S. Ct. 2242, **2247; 119 L. Ed. 2d 519, ***527; 1992 U.S. LEXIS 3546, ****14

Page 9 of 11

[****19] LEdHN[ ] Even were we to consider the legislative materials to which petitioner refers, however, we could discern no "clearly expressed legislative intention" contrary to the result reached above. See Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 64 L. Ed. 2d 766, 100 S. Ct. 2051 (1980). In his brief, petitioner quotes from House and Senate Reports accompanying the Bankruptcy Reform Act of 1978 that purportedly reflect "unmistakable" congressional intent to limit § 541(c)(2)'s exclusion to pension plans that qualify under state law as spendthrift trusts. Brief for Petitioner 38. Those reports contain only the briefest of discussions addressing § 541(c)(2). The House Report states: "Paragraph (2) of subsection (c) . . . preserves restrictions on transfer of a spendthrift trust to the extent that the restriction is enforceable under applicable nonbankruptcy law." H. R. Rep. No. 95-595, p. 369 (1977); see also S. Rep. No. 95-989, p. 83 (1978) (§ 541(c)(2) "preserves restrictions on a transfer of a spendthrift trust"). A general introductory section to [*762] [****20] the House Report contains the additional statement that the new law "continues over the exclusion from property of the estate of the debtor's interest in a spendthrift trust to the extent the trust is protected from creditors under applicable State law." H. R. Rep. No. 95-595, p. 176. These meager excerpts reflect at best congressional intent to include state spendthrift trust law within the meaning of "applicable nonbankruptcy law." By no means do they provide a sufficient basis for concluding, in derogation of the statute's clear language, that Congress intended to exclude other state and federal law from the provision's scope.

B

Petitioner next contends that our construction of § 541(c)(2), pursuant to which a debtor may exclude his interest in an ERISA-qualified pension plan from the bankruptcy estate, renders § 522(d)(10)(E) of the [**2249] Bankruptcy Code superfluous. Brief for Petitioner 24-33. Under § 522(d)(10)(E), a debtor who elects the federal [***530] exemptions set forth in § 522(d) may exempt from the bankruptcy estate his right to receive "a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract . . ., to the extent [****21] reasonably necessary for the support of the debtor and any dependent of the debtor." If a debtor's interest in a pension plan could be excluded in full from the bankruptcy estate, the argument goes, then

there would have been no reason for Congress to create a limited exemption for such interests elsewhere in the statute.

Petitioner's surplusage argument fails, however, for the reason that § 522(d)(10)(E) exempts from the bankruptcy estate a much broader category of interests than § 541(c)(2) excludes. For example, pension plans established by governmental entities and churches need not comply with Subchapter I of ERISA, including the antialienation requirement of § 206(d)(1). See 29 U. S. C. §§ 1003(b)(1) and (2); 26 CFR § 1.401(a)-13(a) (1991). So, too, pension plans that [*763] qualify for preferential tax treatment under 26 U. S. C. § 408 (individual retirement accounts) are specifically excepted from ERISA's antialienation requirement. See 29 U. S. C. § 1051(6). Although a debtor's interest in these plans could not be excluded under § 541(c)(2) because the plans lack transfer restrictions [****22] enforceable under "applicable nonbankruptcy law," that interest 5 nevertheless could be exempted under § 522(d)(10)(E). 6 Once petitioner concedes that § 522(d)(10)(E)'s exemption applies to more than ERISA-qualified plans containing antialienation provisions, see Tr. of Oral Arg. 10-11; Brief for Petitioner 31, his argument that our reading of § 541(c)(2) renders the exemption provision superfluous must collapse.

[****23] C

5 We express no opinion on the separate question whether § 522(d)(10)(E) applies only to distributions from a pension plan that a debtor has an immediate and present right to receive, or to the entire undistributed corpus of a pension trust. See, e. g., In re Harline, 950 F.2d at 675; Velis v. Kardanis, 949 F.2d at 81-82. See also Arnopol, Including Retirement Benefits in a Debtor's Bankruptcy Estate: A Proposal for Harmonizing ERISA and the Bankruptcy Code, 56 Mo. L. Rev. 491, 535-536 (1991).

6 Even those courts that would have limited § 541(c)(2) to state law acknowledge the breadth of the § 522(d)(10)(E) exemption. See In re Goff, 706 F.2d at 587 (noting that § 522(d)(10)(E) "reaches a broad array of employment benefits, and exempts both qualified and unqualified pension plans") (footnote omitted); In re Graham, 726 F.2d at 1272 (observing that "the § 522(d)(10)(E) exemption would apply to non-ERISA plans as well as to qualified ERISA plans"). See also Arnopol, 56 Mo. L. Rev., at 525-526, 552-553; Seiden, Chapter 7 Cases: Do ERISA and the Bankruptcy Code Conflict as to Whether a Debtor's Interest in or Rights Under a Qualified Plan Can be Used to Pay Claims?, 61 Am. Bankr. L. J. 301, 318 (1987).

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Page 10 of 11

Finally, petitioner contends that our holding frustrates the Bankruptcy Code's policy of ensuring a broad inclusion of assets in the bankruptcy estate. See id., at 37; 11 U. S. C. § 541(a)(1) (estate composed of "all legal or equitable interests of the debtor in property as of the commencement of the case"). As an initial matter, we think that petitioner [*764] mistakes an admittedly broad definition of includable property for a "policy" underlying the Code as a whole. In any event, to the extent that policy considerations are even relevant where the language of the [***531] statute is so clear, we believe that our construction of § 541(c)(2) is preferable to the one petitioner urges upon us.

First, our decision today ensures that the treatment of pension benefits will not vary based on the beneficiary's bankruptcy status. See Butner v. United States, 440 U.S. 48, 55, 59 L. Ed. 2d 136, 99 S. Ct. 914 (1979) (observing that "uniform treatment of property interests" prevents "a party from receiving 'a windfall merely by reason of the happenstance of bankruptcy,'" quoting Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, [**2250] 81 S. Ct. 347, 350, 5 L. Ed. 2d 323 (1961)). [****24] We previously have declined to recognize any exceptions to ERISA's antialienation provision outside the bankruptcy context. See Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365, 107 L. Ed. 2d 782, 110 S. Ct. 680 (1990) (labor union may not impose constructive trust on pension benefits of union official who breached fiduciary duties and embezzled funds). Declining to recognize any exceptions to that provision within the bankruptcy context minimizes the possibility that creditors will engage in strategic manipulation of the bankruptcy laws in order to gain access to otherwise inaccessible funds. See Seiden, Chapter 7 Cases: Do ERISA and the Bankruptcy Code Conflict as to Whether a Debtor's Interest in or Rights Under a Qualified Plan Can be Used to Pay Claims?, 61 Am. Bankr. L. J. 301, 317 (1987) (noting inconsistency if "a creditor could not reach a debtor-participant's plan right or interest in a garnishment or other collection action outside of a bankruptcy case but indirectly could reach the plan right or interest by filing a petition . . . to place the debtor in bankruptcy involuntarily").

Our holding also gives full and [****25] appropriate effect to ERISA's goal of protecting pension benefits. See 29 U. S. C. §§ 1001(b) and (c). This Court has described that goal as one [*765] of ensuring that "if a worker has been promised a defined pension benefit upon retirement -- and if he has fulfilled whatever conditions are required to obtain a vested benefit -- he actually will

receive it." Nachman Corp. v. Pension Benefit Guaranty Corporation, 446 U.S. 359, 375, 64 L. Ed. 2d 354, 100 S. Ct. 1723 (1980). In furtherance of these principles, we recently declined in Guidry, notwithstanding strong equitable considerations to the contrary, to recognize an implied exception to ERISA's antialienation provision that would have allowed a labor union to impose a constructive trust on the pension benefits of a corrupt union official. We explained:

"Section 206(d) reflects a considered congressional policy choice, a decision to safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps usually are, blameless), even if that decision prevents others from securing relief for the wrongs done them. If exceptions to this policy are to be [****26] made, it is for Congress to undertake that task." 493 U.S. at 376.

These considerations apply with equal, if not greater, force in the present context.

Finally, our holding furthers another important policy underlying ERISA: uniform national treatment of pension benefits. See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9, 96 L. Ed. 2d 1, 107 S. Ct. 2211 (1987). [***532] Construing "applicable nonbankruptcy law" to include federal law ensures that the security of a debtor's pension benefits will be governed by ERISA, not left to the vagaries of state spendthrift trust law.

IV

In light of our conclusion that a debtor's interest in an ERISA-qualified pension plan may be excluded from the property of the bankruptcy estate pursuant to § 541(c)(2), we need not reach respondent's alternative argument that [*766] his interest in the Plan qualifies for exemption under § 522(b)(2)(A).

The judgment of the Court of Appeals is affirmed.

It is so ordered.

Concur by: SCALIA

Concur

JUSTICE SCALIA, concurring.

The Court's opinion today, which I join, prompts several observations.

When the phrase "applicable nonbankruptcy law" is considered [****27] in isolation, the phenomenon that

504 U.S. 753, *763; 112 S. Ct. 2242, **2249; 119 L. Ed. 2d 519, ***530; 1992 U.S. LEXIS 3546, ****23

Page 11 of 11

three Courts of Appeals could have thought it a synonym for "state law" is mystifying. When the phrase is considered together with the rest of the Bankruptcy Code (in which Congress chose to refer to state law as, logically enough, "state law"), the phenomenon calls into question whether our legal culture has so far departed from attention to text, or is so lacking in agreed-upon methodology for creating and interpreting [**2251] text, that it any longer makes sense to talk of "a government of laws, not of men."

Speaking of agreed-upon methodology: It is good that the Court's analysis today proceeds on the assumption that use of the phrases "state law" and "applicable nonbankruptcy law" in other provisions of the Bankruptcy Code is highly relevant to whether "applicable nonbankruptcy law" means "state law" in § 541(c)(2), since consistency of usage within the same statute is to be presumed. Ante, at 758, and n. 2. This application of a normal and obvious principle of statutory construction would not merit comment, except that we explicitly rejected it, in favor of a one-subsection-at-a-time approach, when interpreting another provision [****28] of this very statute earlier this Term. See Dewsnup v. Timm, 502 U.S. 410, 416-417, 116 L. Ed. 2d 903, 112 S. Ct. 773 (1992); id., at 420-423 (SCALIA, J., dissenting). "We express no opinion," our decision said, "as to whether the words [at issue] have different meaning in other provisions of the Bankruptcy Code." Id., at 417, n. 3. I trust [*767] that in our search for a neutral and rational interpretive methodology we have now come to rest, so that the symbol of our profession may remain the scales, not the seesaw.

References

9A Am Jur 2d, Bankruptcy 1181- 1183; 34 Am Jur 2d, Federal Taxation (1992) 3612; 60A Am Jur 2d, Pensions and Retirement Funds 456, 457

5 Federal Procedure, L Ed, Bankruptcy 9:864

4 Federal Procedural Forms, L Ed, Bankruptcy 9:654, 9:656

4 Am Jur Pl & Pr Forms (Rev), Bankruptcy, Forms 215, 218

11 USCS 541(c)(2)(d); 29 USCS 1056(d)(1)

Bankruptcy Desk Guide, L Ed, The Estate 13:96, 13:98

Bankruptcy Service, L Ed, The Estate 4:10, 4:24, 4:86

Employment Coordinator B-21,509, B-21,512--B-21,518

Federal [****29] Tax Coordinator 2d H-8201

Pension Coordinator 52,402, 52,406--52,413

L Ed Digest, Bankruptcy 214

L Ed Index ,Bankruptcy; Pensions and Retirement

Index to Annotations, Bankruptcy and Insolvency; Employee Retirement Income Security Act; Pension and Retirement

Annotation References:

Employee retirement pension benefits as exempt from garnishment, attachment, levy, execution, or similar proceedings. 93 ALR3d 711.

End of Document

504 U.S. 753, *766; 112 S. Ct. 2242, **2250; 119 L. Ed. 2d 519, ***532; 1992 U.S. LEXIS 3546, ****27

Polliard v. Polliard (In re Polliard)

United States Bankruptcy Court for the Western District of Pennsylvania

March 23, 1993, Decided

BANKRUPTCY NO. 92-23263WB, MOTION NOS. RR-1 AND RR-2

Reporter152 B.R. 51 *; 1993 Bankr. LEXIS 442 **; 28 Collier Bankr. Cas. 2d (MB) 1067

IN RE JAMES POLLIARD, SR., DEBTOR; PAMELA POLLIARD, Movant v. JAMES POLLIARD, Respondent

Core Termsequitable distribution, spouse, Pleas, divorce proceeding, divorce, bankrupt estate, rights, vested, marital property, sale of property, state court, automatic, co-owners

Case Summary

Procedural PostureMovant, debtor's estranged wife, presented motions to enjoin the trustee in Chapter 7 bankruptcy case from selling residence and to obtain relief from the automatic stay or, in the alternative, to permit her to continue with her divorce proceeding. The trustee opposed the motions.

OverviewDebtor filed for Chapter 7 bankruptcy. Movant, his estranged wife, claimed a vested interest in their residence upon filing of a divorce action. She filed a motion with the bankruptcy court to enjoin the trustee from selling the property, which she occupied. She also filed a motion for relief from the automatic stay or, alternatively, permission to continue the divorce proceeding. The trustee opposed the motions, asserting that because there had been no disposition of the property, it was an asset of the bankruptcy estate, and the bankruptcy court had jurisdiction. The court agreed. By virtue of the bankruptcy filing, debtor's interest in the property became an asset of the estate. 11 U.S.C.S.§ 541. The interest passed to the trustee to be administered for the benefit of the creditors. The court therefore declined to grant an injunction to prevent the trustee's sale of the property. But it granted relief from the automatic stay so movant could obtain a determination in the divorce proceeding on the amount of her claim, to be treated as am unsecured claim

against the estate. She was required to seek enforcement of any judgment through the claims process in the bankruptcy case.

OutcomeThe court granted relief, in part, to movant. The trustee was ordered to proceed with sale of the residence on the grounds that it was necessary to benefit the creditors. But movant was relieved of the automatic stay to permit her to establish the extent of her claim in the residence proceeds in the divorce proceeding.

LexisNexis® Headnotes

Bankruptcy Law > Procedural Matters > Jurisdiction > General Overview

Civil Procedure > ... > Jurisdiction > Jurisdictional Sources > General Overview

Civil Procedure > ... > Jurisdiction > Subject Matter Jurisdiction > General Overview

Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > General Overview

Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > Exclusive Jurisdiction

HN1[ ] The state domestic relations court first determines the ownership rights of the debtor and his estranged spouse in an equitable distribution proceeding, and then the bankruptcy court exercises exclusive jurisdiction over the property which is awarded to the debtor.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Family Law > Marital Termination & Spousal Support > Dissolution & Divorce > General Overview

Page 2 of 6

Family Law > ... > Dissolution & Divorce > Property Distribution > General Overview

Family Law > ... > Property Distribution > Characterization > Marital Property

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN2[ ] The non-debtor spouse's interests in the debtor's share of the marital property, which is the subject of equitable distribution proceedings in a divorce action commenced prior to the bankruptcy filing, are cut off by the bankruptcy filing where the domestic relations court has not, at the time of the bankruptcy, fixed the equitable distribution rights by judgment.

Bankruptcy Law > Claims > Types of Claims > Unsecured Nonpriority Claims

HN3[ ] The right of the estranged spouse to equitable distribution is not barred. He or she has a general unsecured claim in the bankruptcy for an amount representing any equitable distribution award of an interest in the debtor's property.

Bankruptcy Law > Claims > Types of Claims > Unsecured Nonpriority Claims

HN4[ ] Pennsylvania law does not, when one of the spouses becomes a bankrupt, insulate the marital property from claims of creditors whose interests are represented by the bankruptcy trustee.

Bankruptcy Law > Claims > Types of Claims > Unsecured Nonpriority Claims

HN5[ ] Claim of debtor's estranged wife for equitable distribution, once quantified, will become an entitlement against the debtor's bankruptcy estate, subject to the distribution and priorities of the bankruptcy code. Since the bankruptcy code gives her no right of distribution superior to that of any other unsecured creditor, she will be entitled to a pro rata distribution along with other unsecured creditors.

Bankruptcy Law > Claims > Types of Claims > Unsecured

Nonpriority Claims

HN6[ ] Transfers of property interests under equitable distribution are subject to existing liens. Under 11 U.S.C.S. § 544, the trustee has the rights of a judgment creditor who levies on the debtor's property as of the date the bankruptcy petition is filed. Therefore, the equitable distribution process cannot alter the bankruptcy estate's right in property in which the debtor had an interest on the petition date.

Bankruptcy Law > Administrative Powers > Automatic Stay > General Overview

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Bankruptcy Law > Claims > Types of Claims > Unsecured Nonpriority Claims

HN7[ ] Although 11 U.S.C.S. § 544 prevents the court of common pleas from awarding the debtor's share of the property in kind to debtor's estranged wife, she may be entitled to a general unsecured claim against the debtor's bankruptcy estate.

Bankruptcy Law > Administrative Powers > General Overview

HN8[ ] As some measure of protection for other creditors of the bankruptcy estate, courts may instruct the creditors, the trustee, or a representative to participate in the state court proceedings.

Bankruptcy Law > Procedural Matters > Jurisdiction > General Overview

Business & Corporate Compliance > ... > Contracts Law > Standards of Performance > Creditors & Debtors

HN9[ ] Courts prohibit consensual agreements between the debtor and the ex-spouse to prevent collusion to the detriment of the other creditors. In most every case, the bankruptcy court has retained jurisdiction over enforcement of the state court judgment and the distribution from the bankruptcy estate on account of such claim.

152 B.R. 51, *51; 1993 Bankr. LEXIS 442, **442

Page 3 of 6

Bankruptcy Law > ... > Administrative Powers > Automatic Stay > Judicial Review

Bankruptcy Law > ... > Automatic Stay > Relief From Stay > General Overview

Bankruptcy Law > Procedural Matters > Jurisdiction > General Overview

HN10[ ] Even though the bankruptcy court retains jurisdiction over distribution, it is questionable whether it can review or reject the allocation of the marital estate once the automatic stay has been lifted and the state court has fixed the ex-spouse's rights.

Bankruptcy Law > Administrative Powers > General Overview

Bankruptcy Law > ... > Administrative Powers > Estate Property Lease, Sale & Use > Co-owned Interests

HN11[ ] 11 U.S.C.S. § 363(h) allows the trustee to sell both the estate's interest and the interest of any co-owners in property if certain conditions are met.

Bankruptcy Law > Administrative Powers > General Overview

Bankruptcy Law > ... > Administrative Powers > Estate Property Lease, Sale & Use > Co-owned Interests

HN12[ ] See 11 U.S.C.S. § 363(h).

Counsel: [**1] CARLOTA M. BOHM, ESQ., PITTSBURGH, PA, TRUSTEE AND ATTORNEY PRO SE.

CARMEN A. MARTUCCI, ESQ., PITTSBURGH, PA, ATTORNEY FOR MOVANT.

Judges: BENTZ

Opinion by: WARREN W. BENTZ

Opinion

[*53] OPINION

Introduction

Presently before the Court are two motions filed by Pamela Polliard ("Mrs. Polliard"), the estranged wife of James Polliard ("Debtor"). Mrs. Polliard seeks to enjoin

Carlota M. Bohm, Esq. ("Trustee"), the trustee in this Chapter 7 bankruptcy case from selling real property located at 456 Crestview Drive (the "Property") which is owned by Mrs. Polliard and the Debtor and is currently occupied by Mrs. Polliard. Mrs. Polliard further seeks relief from the automatic stay or, in the alternative, requests that we abstain so that she may continue with the divorce proceeding which she initiated in the Court of Common Pleas of Allegheny County on November 18, 1988. The Trustee opposes the Motions.

Factual Background

The Debtor filed his voluntary Petition under Chapter 7 of the Bankruptcy Code on July 21, 1992. At the time of the bankruptcy filing, Mrs. Polliard's counsel advises that she had not obtained a divorce decree and that all issues in the divorce proceeding, including equitable distribution, [**2] remain unresolved.

At issue are the interests of Mrs. Polliard and the Trustee in the Property. The parties agree that the value of the Property is approximately $ 62,900 and that the Property is subject to a mortgage in the approximate amount of $ 6,000, leaving equity of $ 56,900.

Mrs. Polliard asserts that she obtained a vested interest in the entire Property upon the filing of the divorce action in 1988. She further asserts that she will be entitled to 100% of the Property under equitable distribution principles.

The Trustee asserts that there has been no disposition of the Property in the divorce proceeding; that the Debtor's interest in the Property is an asset of the bankruptcy estate; that the Debtor's interest in the Property should be sold for the benefit of the Debtor's creditors; and that this Court has absolute jurisdiction and should not abstain.

Issues

1. Whether Mrs. Polliard obtained a vested interest in the entire Property upon commencement of the divorce proceeding.

2. Whether Mrs. Polliard is entitled to relief from stay to have the amount of her equitable distribution claim fixed in the Court of Common Pleas.

3. Whether the Trustee may sell the [**3] jointly held Property for the benefit of the estate.

Discussion

152 B.R. 51, *51; 1993 Bankr. LEXIS 442, **442

Page 4 of 6

I. Vested Interest

The Debtor's bankruptcy schedules list some $ 94,000 in unsecured debt. The Debtor's interest in the Property is the only asset available for repayment to his creditors.

When the divorce proceeding was filed, the right to seek equitable distribution vested with Mrs. Polliard. She became "entitled to acquire" an interest in the Debtor's share of the Property. See, Perlow v. Perlow, 128 Bankr. 412, 415 (ED NC 1991); In re McCulley, 150 Bankr. 358, 1993 WL 35610 (Bankr. MD Pa. 1993); In re Wilson, 85 Bankr. 722 (Bankr. ED Pa. 1988). Mrs. Polliard did not, however, obtain a vested ownership interest in the entire Property upon commencement of the divorce proceeding. Rather, the Debtor continued to own his share of the Property, subject to Mrs. Polliard's claim of the right of equitable distribution. At the time the Debtor filed the within bankruptcy case, the Court of Common Pleas had made no determination which changed the Debtor's pre-divorce interest in the Property.

By virtue of the bankruptcy filing, the Debtor's [**4] interest in the Property became [*54] an asset of his bankruptcy estate. 11 U.S.C. § 541. That interest passes to the Trustee to be administered for the benefit of the Debtor's creditors.

The Sixth Circuit has adopted the position that HN1[ ] the state domestic relations court must first determine the ownership rights of the debtor and his estranged spouse in an equitable distribution proceeding and then the bankruptcy court exercises exclusive jurisdiction over the property which is awarded to the debtor. In re White, 851 F.2d 170 (6th Cir. 1988); In re Hohenberg, 143 Bankr. 480, 485 (Bankr. WD Tenn. 1992). Under this scenario, the nondebtor spouse takes the marital property awarded to him or her free of the claims of the debtor-spouse's creditors -- a result which we find untenable. The evil in this resolution is that the division of assets between spouses may take place in the absence of any consideration by any court of the impact upon creditors. In fact, spouses might intentionally give all of the property to the solvent spouse, leaving the insolvent spouse with nothing for his creditors.

[**5] We believe the better view, expressed by numerous other courts, is that HN2[ ] the non-debtor spouse's interests in the Debtor's share of the marital property, which are the subject of equitable distribution proceedings in a divorce action commenced prior to the bankruptcy filing, are cut off by the bankruptcy filing where the domestic relations court has not, at the time

of the bankruptcy, fixed the equitable distribution rights by judgment. See, Perlow v. Perlow, 128 Bankr. 412 (ED NC 1991); In re Greenwald, 134 Bankr. 729, 731 (Bankr. SD NY 1991); In re Hilsen, 100 Bankr. 708, 711 (Bankr. SD NY 1989), rev'd on other grounds, 119 Bankr. 435 (SD NY 1990).

HN3[ ] The right of the estranged spouse to equitable distribution is not barred. He or she has a general unsecured claim in the bankruptcy for an amount representing any equitable distribution award of an interest in the debtor's property. See, Perlow, 128 Bankr. at 415; In re Briglevich, 147 Bankr. 1015 (Bankr. ND Ga. 1992); In re Greenwald, 134 Bankr. at 731. [**6]

The Pennsylvania Superior Court has enunciated a bright line rule that the filing of a divorce wherein equitable distribution is requested automatically places all marital property in custodia legis, thus insulating it from claims of creditors. Weaver v. Weaver, 413 Pa. Super. 382, 605 A.2d 410 (1992); Fidelity Bank v. Carroll, 416 Pa. Super. 9, 610 A.2d 481 (1992).

In Fidelity Bank v. Carroll, however, the Court notes that the creditor had the right to force the husband into bankruptcy, where in "the divorce proceeding would have been stayed pending resolution of the claims of Mr. Carroll's various creditors." Thus, the bright line becomes blurred. We would have thought that bankruptcy law, enforcing state law where applicable, would give a trustee no more rights than a judgment or execution creditor -- yet apparently the Superior Court's analysis would deny a lien to a judgment creditor but would yield to the powers of a bankruptcy trustee. This is not altogether logical. We divine it to mean that the "custodia legis" proposition is somewhat weakened.

We also observe a weakening [**7] in the theory that the filing of a divorce requesting equitable distribution "vests" title in marital assets in the claiming spouse by Ibarra v. Prudential Property & Casualty Ins. Co., 402 Pa. Super. 27, 585 A.2d 1119 (1990). There, the wife was held not to be the "owner" of the husband's automobile, even though it was marital property, during the pendency of the divorce, for purposes of the Motor Vehicle Finance Responsibility Law.

Also, the "ownership rights" or "vested rights" in marital property by virtue of the Divorce Code becomes inapplicable when one of the spouses dies. Myers v. Myers, 397 Pa. Super. 450, 580 A.2d 384 (1990).

Thus, it would appear that HN4[ ] Pennsylvania law

152 B.R. 51, *53; 1993 Bankr. LEXIS 442, **3

Page 5 of 6

does not, when one of the spouses becomes a bankrupt, insulate the marital property from claims of creditors whose interests are represented by the bankruptcy trustee.

HN5[ ] Mrs. Polliard's claim for equitable distribution, once quantified, will become [*55] an entitlement against the Debtor's bankruptcy estate, subject to the distribution and priorities of the Bankruptcy Code. Since the Bankruptcy Code gives her no right [**8] of distribution superior to that of any other unsecured creditor, she will be entitled to a prorata distribution along with other unsecured creditors. In re Palmer, 78 Bankr. 402 (Bankr. ED NY 1987).

II. Relief from Stay

HN6[ ] Transfers of property interests under equitable distribution are subject to existing liens. 23 P.S. 3501(a)(7). Under Bankruptcy Code § 544, the Trustee has the rights of a judgment creditor who levies on the Debtor's property as of the date the bankruptcy Petition is filed. In re Becker, 136 Bankr. 113 (Bankr. D.NJ 1992); Perlow, 128 Bankr. at 415. Therefore, the equitable distribution process cannot alter the bankruptcy estate's right in property in which the debtor had an interest on the Petition date.

HN7[ ] Although § 544 prevents the Court of Common Pleas from awarding the Debtor's share of the Property in kind to Mrs. Polliard, Mrs. Polliard may be entitled to a general unsecured claim against the Debtor's bankruptcy estate. The value of her claim has not yet been determined. Many courts have found that the determination of the amount of the non-debtor spouse's [**9] equitable distribution claim involves an interpretation of state domestic relations law and have accordingly granted relief from stay to have the amount of the claim fixed in state court while retaining jurisdiction over the subsequent distribution from the bankruptcy estate to be made on such claim. See, In re French, 139 Bankr. 485 (D.SD 1992); In re Palmer, 78 Bankr. 402 (Bankr. ED NY 1987); In re Fisher, 67 Bankr. 666 (Bankr. D.Colo. 1986).

HN8[ ] As some measure of protection for other creditors of the bankruptcy estate, courts have suggested or instructed the creditors, the Trustee, or a representative to participate in the state court proceedings. In re Hohenberg, 143 Bankr. 480, 489-90 (Bankr. WD Tenn. 1992).

HN9[ ] Courts have also prohibited consensual agreements between the Debtor and the ex-spouse to

prevent collusion to the detriment of the other creditors. Hohenberg, 143 Bankr. at 488. In most every case, the Bankruptcy Court has retained jurisdiction over enforcement of the state court judgment and the distribution from the [**10] bankruptcy estate on account of such claim. In re Wilson, 85 Bankr. 722 (Bankr. ED Pa. 1988); In re Palmer, 78 Bankr. 402 (Bankr. ED NY 1987); In re Fisher, 67 Bankr. 666 (Bankr. D. Colo. 1986).

Such measures, however, provide only minimal protection to other creditors. There is a question as to whether the creditors have standing to participate in the state court proceeding. See, In re Wilson, 85 Bankr. 722, 729 (Bankr. ED Pa. 1988). Further, HN10[ ] even though the Bankruptcy Court retains jurisdiction over the distribution, it is questionable whether it can review or reject the allocation of the marital estate once the automatic stay has been lifted and the state court has fixed the ex-spouse's rights. See In re White, 851 F.2d 170 (6th Cir. 1988); In re Becker, 136 Bankr. 113, 120 (Bankr. D NJ 1992).

These concerns about protection for the interests of other creditors have recently caused an expression of reservation as to whether it is ever appropriate to abstain or grant relief from stay to permit [**11] the amount of the ex-spouse's claim to be fixed in state court. In re Youmans, 117 Bankr. 113, 121, n.8 (Bankr. D. NJ 1990).

Although we share those concerns, we believe it appropriate in this case to grant Mrs. Polliard relief from the automatic stay to pursue a determination of the amount of her claim in the Court of Common pleas. The divorce action has been pending in the Court of Common Pleas for over four years. The Common Pleas Court's familiarity with equitable distribution principals far exceeds that of this Court. We believe the Debtor's creditors are properly protected by the requirement that Mrs. Polliard seek enforcement of any judgment through the claims process in the bankruptcy case. See In re Robbins, 964 F.2d 342 (4th Cir. 1992).

[*56] We suggest that the Trustee enter an appearance in the divorce proceeding to ensure that the Court of Common Pleas is apprised of the concerns of other creditors. We will retain jurisdiction over the distribution to be made on account of such claim (which Mrs. Polliard shall file as a proof of claim in this case at the conclusion of the divorce proceeding). The right of [**12] the Trustee to object to such claim shall be preserved. Any review of the claim by this Court shall be subject to

152 B.R. 51, *54; 1993 Bankr. LEXIS 442, **7

Page 6 of 6

appropriate deference to the findings of the Common Pleas Court.

Sale of the Property

HN11[ ] 11 U.S.C. § 363(h) allows the Trustee to sell both the estate's interest and the interest of any co-owners in property if certain conditions are met, HN12[

] to-wit: (1) partition in kind of such property among the estate and co-owners is impracticable; (2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners; (3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners, and (4) [inapplicable]

11 U.S.C. § 363(h).

The Property in question is a single family residence. Thus, there can be no doubt that conditions (1) and (2) are met. However, condition (3) requires us to balance the detriment to Mrs. Polliard and the family residing in the residence with the benefit to the estate arising from a sale of [**13] the property.

We acknowledge that removing Mrs. Polliard from the family residence is a substantial hardship. However, there is substantial equity in the Property and from her share of that equity and from any distribution Mrs. Polliard is entitled to receive as an unsecured creditor of the Debtor's estate, Mrs. Polliard will readily be able to find substitute housing. Mrs. Polliard also has a right of first refusal. 11 U.S.C. § 363(i). She would also be entitled to one-half of the proceeds of sale, after payment of the existing mortgage and payment to joint creditors of the Debtor and Mrs. Polliard, less costs and expenses and without reduction for compensation of the trustee. 11 U.S.C. § 363(j).

In contrast, sale of this Property is the only way any funds will become available for distribution to the Debtor's creditors or to the joint creditors of the Debtor and Mrs. Polliard. Following the initial hearing on the matter, the Debtor was ordered to file an Affidavit which sets forth a listing of creditors holding claims against both the Debtor and his non-debtor spouse. Joint creditors hold claims in the [**14] amount of $ 7,933. An additional creditor asserts a joint claim in the amount of

$ 3,081.29; however, the Debtor believes the additional claim is owed by him alone and is not a joint obligation. To the extent there are joint creditors, they will be entitled to payment from the proceeds generated from the sale of the Property. See Sumy v. Schlossberg, 777 F.2d 921 (4th Cir. 1985); In re Turner, 81 Bankr. 387 (Bankr. W.D. Pa. 1988); and In re Cotterman, 67 Bankr. 788 (Bankr. W.D. Pa. 1986).

Accordingly, we believe it appropriate for the Trustee to proceed with sale of the Property. Mrs. Polliard's request for an injunction prohibiting such sale will be denied.

Warren W. Bentz, United States Bankruptcy Judge

ORDER

This 23 day of March, 1993, in accordance with the accompanying OPINION, it shall be, and hereby is, ORDERED as follows:

1. The Motion of Pamela Polliard to enjoin the sale of marital real estate is REFUSED.

2. Pamela Polliard is granted relief from the automatic stay to proceed in the Court of Common Pleas to have fixed the amount, if any, of her equitable distribution [**15] claim against the Debtor.

3. The time in which Pamela Polliard may file a proof of claim in the within case is extended until 30 days following conclusion [*57] of the equitable distribution proceeding.

Warren W. Bentz, United States Bankruptcy Judge

End of Document

152 B.R. 51, *56; 1993 Bankr. LEXIS 442, **12

Price v. Price (In re Price)

United States Bankruptcy Court for the Western District of Pennsylvania

October 5, 2015, Decided

Bankruptcy No. 15-70020-JAD, Chapter 13, Adversary No. 15-07012-JAD

Reporter545 B.R. 114 *; 2015 Bankr. LEXIS 3371 **

IN RE: JAMES W. PRICE, Debtor. KIMBERLY PRICE, Plaintiff, v. JAMES W. PRICE, Defendant.

Core Termsparties, consent order, mortgage, child support, alimony, minor child, modification, obligations, child support payment, court finds, domestic, mortgage payment, parties agree, nondischargeable, termination, terms, settlement agreement, support obligation, courts, child support obligation, set forth, divorce, spouse, property settlement, separate agreement, support award, indicators, custody, marital

Case Summary

OverviewHOLDINGS: [1]-Payments a Chapter 13 debtor agreed to make on mortgage debt that was owed on a house where his ex-wife and children resided were "domestic support obligations," as that term was defined in 11 U.S.C.S. § 101(14A), and were nondischargeable under 11 U.S.C.S. § 523(a)(5); [2]-Although the debtor agreed to pay child support in one paragraph of a consent order he entered with his ex-wife in 2011, and to make payments on a mortgage on the house in another paragraph of the consent order, the paragraphs were linked because the order allowed the debtor's ex-wife to seek an increase in the amount of child support the debtor was required to pay if his obligation to make payments on the mortgage was altered, and neither party disputed the fact that payment of child support was a domestic support obligation.

OutcomeThe court found that debts the debtor owed to his ex-wife under the consent order were nondischargeable under 11 U.S.C.S. § 523(a)(5).

LexisNexis® Headnotes

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

Evidence > Burdens of Proof > Allocation

HN1[ ] In determining whether specific obligations are excepted from discharge in bankruptcy, courts must balance two competing policies: the fresh start principle and the Congressional policy of giving first priority to the adequate financial maintenance of a debtor's children and ex-spouse. 11 U.S.C.S. § 523(a)(5) establishes this Congressional policy, providing that a discharge under 11 U.S.C.S. §§ 727, 1141, 1228(a), 1228(b), or 1328(b) does not discharge an individual debtor from any debt for a domestic support obligation. Given the tenacity of the alimony and support exception and its historical roots and underlying social policy, the rights of former spouses and of children should be liberally protected against discharge in bankruptcy. A party objecting to discharge bears the burden of proving that an obligation is in the nature of alimony, maintenance, or support.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN2[ ] Four elements must be satisfied to establish a domestic support obligation claim under 11 U.S.C.S. § 523(a)(5): (1) the debt must be owed to or recoverable by a governmental unit or a person with a specific relationship to the debtor such as a spouse, former spouse, or child of the debtor; (2) the underlying obligation must be in the nature of alimony, maintenance, or support of such person; (3) the obligation must arise from an agreement, court order, or as otherwise defined; and (4) the debt must not be assigned to a nongovernmental entity unless voluntarily done. 11 U.S.C.S. § 101(14A).

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Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN3[ ] Payment of support, maintenance, or alimony need not be paid directly to a spouse or ex-spouse of a debtor to qualify as nondischargeable debt under 11 U.S.C.S. § 523(a)(5). Mortgage fees, as well as other obligations, such as counsel fees and guardian ad litem fees, have been found to be "owable" to ex-spouses when pursuant to settlement agreements and for the purpose of § 523(a)(5).

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN4[ ] Whether an obligation is in the nature of alimony, maintenance, or support, as distinguished from a property settlement, depends on a finding as to the intent of the parties at the time of their settlement agreement. That intent can best be found by examining three principal indicators. First, courts shall examine the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary. Because it is unlikely that the effect of a subsequent bankruptcy was contemplated at the time an obligation arose, the parties and state courts may not have focused on whether a particular obligation was to serve as support or as a property settlement unrelated to support. Thus, bankruptcy courts often are faced with ascertaining the nature of an underlying obligation the legal consequences of which were never contemplated by the parties. Even an obligation designated by the parties as a property settlement may actually be considered as domestic support, because state courts often will adjust alimony awards depending on the nature and amount of marital assets available for distribution. Further, property division often achieves the same goal as alimony, i.e., support.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN5[ ] Because the language of an agreement parties enter in divorce proceedings alone may not conclusively evidence the parties' intent, courts should look to two

other factors: the parties' financial circumstances at the time of the settlement, and the function served by the obligation at the time of the divorce or settlement. In setting forth these three indicators in In re Gianakas, the United States Court of Appeals for the Third Circuit noted that factors enumerated by other courts are relevant in determining whether obligations are domestic in nature are "elements of these indicators." The factors most often cited in the case law, in addition to the label given to an obligation in an underlying instrument and the express terms of the obligation, include the termination terms of the obligations, any economic disparity between the parties, the length of the marriage, whether minor children are in the care of one spouse, whether the support award would have been adequate absent the liability in question, whether the debts are payable directly to the former spouse, the circumstances leading to the dissolution of the marriage, and the parties' financial resources.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

Family Law > ... > Spousal Support > Obligations > General Overview

HN6[ ] Any obligation that services to maintain daily necessities, such as housing, is indicative of a debt intended to be in the nature of support.

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN7[ ] The third factor required to establish a domestic support obligation claim under 11 U.S.C.S. § 523(a)(5) is met by proving such debt was established by a separation agreement or an order issued by a court of record.

Counsel: [**1] For James W Price, Debtor (15-70020-JAD): Terry L. Graffius, Leventry & Haschak, LLC, Johnstown, PA.

Trustee (15-70020-JAD): Ronda J. Winnecour, Pittsburgh, PA.

For Kimberly Price, Plaintiff (15-07012-JAD): Leonard P. Vigna, Kaminsky, Thomas, Wharton, Lovette, VIgna,

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Johnstown, PA.

For James W Price, Defendant (15-07012-JAD): Terry L. Graffius, Leventry & Haschak, LLC, Johnstown, PA.

Judges: JEFFERY A. DELLER, Chief United States Bankrutpcy Judge.

Opinion by: JEFFERY A. DELLER

Opinion

[*116] MEMORANDUM OPINION

The matter before the Court is a Complaint Objecting to Discharge of a Debt (the "Complaint") filed by Kimberly Price (the "Plaintiff") against James W. Price (the "Defendant"). The matter is a core proceeding over which the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(I) and (J). For the reasons set forth more fully below, the Court denies the discharge of the Defendant's debts owed to the Plaintiff.

I.

Plaintiff and Defendant were married on June 26, 1993. Their daughter was born on January 5, 1995, and their son was born on September 4, 2000. On January 28, 2002, the parties executed a Separation Agreement and Property Settlement (the "Settlement Agreement"). (See Doc. # 13, Exhibit A). Following the Defendant's filing [**2] of a Petition to Rescind the Separation Agreement, the parties thereafter entered into a Consent Order (the "Consent Order"), dated December 14, 2011 and filed December 15, 2011, which modified portions of the Settlement Agreement and was filed within their divorce proceeding in the County of Carteret, North Carolina, at 08 CVD 1757.

The Defendant filed a Chapter 13 bankruptcy petition on January 9, 2015, in Case Number 15-70020-JAD. The Plaintiff initiatied the instant adversary proceeding by filing the Complaint on April 21, 2015, averring that the payments owed to her pursuant to paragraphs 2 and 7 of the Consent Order are nondischargeable domestic support obligations under 11 U.S.C. § 523(a)(5). (Doc. # 1). The Defendant filed an Answer and New Matter on May 5, 2015, arguing that payments provided for in paragraph 7 of the Consent Order do not constitute nondischargeable support payments, but rather mortgage obligations encumbering the parties' marital residence owed to the mortgage lender and dischargeable under 11 U.S.C. § 1328. (Doc. # 5). The

Plaintiff filed a Reply on May 21, 2015. (Doc. # 8).

On September 10, 2015, the parties filed a Joint Stipulation of Facts (the "Joint Stipulation"). (Doc. # 15). Therein, [**3] the parties agree that the Consent Order is the current order with regard to child custody and child support. (Id. at ¶ 7). Paragraph 2 of the Consent Order provides the following:

Plaintiff shall pay to Defendant child support in the amount of $758.00 per month for the benefit of the minor children and that said amount shall be paid in lieu of any amount due under the current North Carolina Child Support Guidelines. The parties further agree that this amount is sufficient to provide for the general needs and welfare of the minor children. These child support payments shall be made on or before the first day of each month following execution of this agreement, and shall continue until the first day of the month following the minor child, AMP, graduating from high school. The Plaintiff's child support obligation shall not increase or decrease following the minor child, CBP, reaching the age of majority.

[*117] Furthermore, the sum herein agreed to be paid by Plaintiff for child support shall not be subject to change for a period of seven (7) years and the parties agree not to and shall not seek a modification of child support for this prescribed period, unless, and only if, the conditions set [**4] forth in paragraph 7(b) below have been met.

Paragraph 7 of the Consent Order provides:The parties further agree that the Separation Agreement executed by the parties on January 28, 2002 shall be modified as follows:(a) Plaintiff shall be responsible for paying $901.95 towards the monthly payment due under the Note secured by the Deed of Trust recorded in Book 832, Page 248, Carteret County Register of Deeds (hereinafter "the property") for a period of sixty (60) months. Said sixty (60) month period shall begin December 1, 2011. Thereafter, Plaintiff shall be responsible for paying $450.98 towards the monthly payment due under the above referenced Note for a period of twenty-four (24) months. Thereafter, Defendant shall be solely responsible for all sums due and owing and shall hold Plaintiff harmless regarding the same.(b) If Defendant sells the property, or the Plaintiff is otherwise relieved of his obligation to pay under the Note, prior to December 1, 2018, then the Plaintiff shall have no further obligation to make any subsequent payment under the Note and the

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Defendant shall be entitled to seek modification of future child support.

(c) Defendant shall cooperate and execute all [**5] necessary documents to allow Plaintiff to refinance the property.(d) Upon cessation of the Plaintiff's obligation to make monthly payments due under the Note, Defendant shall refinance the property so as to remove Plaintiff from the Note.

The parties agree that payments provided for in paragraph 7 are made on the mortgage encumbering the residence in which the Plaintiff and the parties' children currently reside (the "Residence"). (Id. at ¶ 10). The parties also agree that the Debtor attempted to modify the payments required under the Consent Order in 2014, but such motion was denied by Order dated July 17, 2014. (Id. at ¶ 11).

After filing Pre-Trial Statements (see Doc. ## 14, 15), the parties filed a stipulation on September 23, 2015 agreeing to have the case decided based on documents submitted, the Pre-Trial Memoranda, and the Joint Stipulation (see Doc. # 16). The matter is now ripe for decision.

II.

HN1[ ] In determining whether specific obligations are excepted from discharge in bankruptcy, courts must balance two competing policies: the fresh start principle and the Congressional policy of giving first priority to the adequate financial maintenance of a debtor's children and ex-spouse. [**6] Buccino v. Buccino, 397 Pa.Super. 241, 250-51, 580 A.2d 13, 18 (1990) (citing In re Schmiel, 94 B.R. 373, 377 (Bankr. E.D. Pa. 1988). 11 U.S.C. § 523(a)(5) establishes this Congressional policy, providing that a discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) does not discharge an individual debtor from any debt for a domestic support obligation. 11 U.S.C. § 523. "Given the tenacity of the alimony and support exception, its historical roots and underlying social policy, . . . the rights of former spouses and of children should [*118] be 'liberally protect[ed]' against discharge in bankruptcy." Buccino, 397 Pa.Super at 251 (citing Schmiel, 94 B.R. at 377). The party objecting to discharge bears the burden of proving that the obligation is in the nature of alimony, maintenance, or support. In re Gianakas, 112 B.R. 737, 741 (W.D. Pa. 1990) aff'd, 917 F.2d 759 (3d Cir. 1990).

HN2[ ] Four elements must be satisfied to establish a

domestic support obligation claim under section 523(a)(5): 1) the debt must be "owed to or recoverable by" a governmental unit or a person with a specific relationship to the debtor such as a spouse, former spouse, or child of the debtor; 2) the underlying obligation must be in the nature of alimony, maintenance, or support of such person; 3) the obligation must arise from an agreement, court order, or as otherwise defined; and 4) the debt must not be assigned to a nongovernmental entity unless voluntarily done. 11 U.S.C. § 101(14A).

Because the Defendant does not contest the nondischargeability of paragraph 2 of the Consent [**7] Order, the issue before the Court is whether the obligation contained in paragraph 7 of the Consent Order constitutes a nondischargeable domestic support obligation, as argued by the Plaintiff, or a dischargeable property settlement, as averred by the Defendant. Because the Plaintiff has satisfied all four elements required to establish that the debt due under paragraph 7 of the Consent Order is a domestic support obligation, the Court finds the obligations contained in both paragraphs 2 and 7 of the Consent Order are nondischargeable domestic support obligations.

A.

First, the obligations are owable to the Plaintiff. The Defendant argues that the debt referred to in paragarph 7 is a mortgage obligation and is therefore owed to the mortgage lender; however, HN3[ ] payment of the support, maintenance, or alimony need not be paid directly to the spouse or ex-spouse. In re Calhoun, 715 F.2d 1103, 1107 (6th Cir.1983). Mortage fees, as well as other obligations such as counsel fees and guardian ad litem fees, have been found to be "owable" to ex-spouses when pursuant to settlement agreements and for the purpose for 523(a)(5). See In re Spong, 661 F.2d 6, 10-11 (2d Cir.1981); In re Louttit, 473 B.R. 663 (Bankr. W.D. Pa. 2012); In re Johnson, 397 B.R. 289, 296 (Bankr. M.D.N.C. 2008). Under those terms of the Settlement Agreement which were not altered by the Consent Agreement, the Defendant's [**8] conveyance of his property interest in the Residence remained "subject to the note secured by the Deed of Trust . . . which the husband shall assume and agree to hold the [Plaintiff] free and harmless relative thereto." (Doc. # 14, Exhibit 1, ¶ 6D). Due to the language in the Separation Agreement by which the Defendant agreed to hold the Plaintiff harmless, if the Plaintiff were forced to pay the mortgage debt, then the Defendant would be liable to the Plaintiff. Thus, the debt is owed or recoverable by

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the Plaintiff. See Johnson, 397 B.R. at 296. Thus, the Court finds this first element satisfied.

B.

Second, the obligations in paragraphs 2 and 7 of the Consent Order are both in the nature of alimony, maintenance, or support. HN4[ ] "[W]hether an obligation is in the nature of alimony, maintenance or support, as distinguished from a property settlement, depends on a finding as to the intent of the parties at the time of the settlement agreement." In re Gianakas, 917 F.2d 759, 762 (3d Cir. 1990) (citing In re Yeates, 807 F.2d 874, 878 [*119] (10th Cir. 1986); Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir.1986); In re Miller, 34 B.R. 289, 292 (Bankr. E.D. Pa. 1983). That intent can best be found by examining three principal indicators. Gianakas, 917 F.2d at 762 (noting that "many other factors referred to by various courts are merely elements of these indicators").

First, courts shall examine the language and substance of the agreement in the context of [**9] surrounding circumstances, using extrinsic evidence if necessary. Gianakas, 917 F.2d at 762 (citing Yeates, 807 F.2d at 878). Because it is unlikely that the effect of a subsequent bankruptcy was contemplated at the time the obligation arose, "the parties and the state courts may not have focused on whether a particular obligation was to serve as support or as a property settlement unrelated to support." Gianakas, 917 F.2d at 762-63 (citing In re Wisniewski, 109 B.R. 926, 929 (Bankr. E.D. Wis. 1990); In re Alloway, 37 B.R. 420, 425 (Bankr. E.D. Pa. 1984)). Thus, "bankruptcy courts often are faced with ascertaining the nature of an underlying obligation the legal consequences of which were never contemplated by the parties." Buccino, 397 Pa.Super. at 251-52, 580 A.2d at 18-19. As the Pennsylvania Superior Court noted, even an obligation designated by the parties as a property settlement may actually be considered as domestic support, because state courts often will adjust alimony awards depending on the nature and amount of marital assets available for distribution. Id. Further, "property division often achieves the same goal as alimony, i.e., support." Gianakas, 917 F.2d at 763 (citing Buccino, 397 Pa.Super. at 252).

HN5[ ] Because the language of the agreement alone may not conclusively evidence the parties' intent, courts should then look to the remaining two factors: the parties' financial circumstances at the time of the settlement, and the function served by the obligation [**10] at the time of the divorce or settlement.

Gianakas, 917 F.2d at 763. In setting forth these three indicators, the Third Circuit noted that the factors enumerated by other courts as relevant in determining whether obligations are domestic in nature are "elements of these indicators." Id. at 762. The factors most often cited in the case law, in addition to the label given to the obligation in the underlying instrument and the express terms of the obligation, include the termination terms of the obligations, any economic disparity between the parties, the length of the marriage, whether minor children are in the care of one spouse, whether the support award would have been adequate absent the liability in question, whether the debts are payable directly to the former spouse, the circumstances leading to the dissolution of the marriage, and the parties' financial resources. Buccino, 397 Pa. Super. at 254; In re Alloway, 37 B.R. 420, 425 (Bankr. E.D. Pa. 1984).

The following factors in the instant case indicate the domestic support nature of the Consent Order obligations: 1) the language describing the obligations, including their duration and termination terms; 2) the primary physical placement of the minor children resting with the Plaintiff; 3) the mortgage obligation's function of providing a necessity [**11] to the minor children; and 4) the inadequacy of the child support award.

As the Defendant notes, the Consent Order includes two headings: "Child Custody and Child Support" and "Mortgage on [Residence]." Paragraph 2, outlining the child support terms, falls under the first heading, and paragraph 7, defining the mortgage obligation, falls under the second. Thus, the Defendant argues, the [*120] express language and format of the Consent Order supports a finding that the mortgage obligation was not intended as alimony, maintenance, or support. However, as highlighted by the Plaintiff, the explicit language of paragraphs 2 and 7 demonstrate that the two obligations do not stand alone, and any modification to one obligation necessitates a change to the other. Pursuant to paragraph 2, any modification to the child support obligation requires adherence to paragraph 7.b, stating ". . . the parties agree not to and shall not seek a modification of child support for [seven (7) years] unless, and only if, the conditions set forth in paragraph 7(b) below have been met." (Doc. # 1, Exhibit A, ¶ 7.b.). Paragraph 7.b. further connects the Defendant's obligation to pay a portion of the mortgage to the Plaintiff's [**12] entitlement "to seek modification of future child support" upon the sale of the property or other change to the obligation under the note. (Doc. # 1, Exhibit A, ¶ 7.b.). Thus, under the explicit language in

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the Consent Order, the parties intended that a change in the terms of the obligation contained in paragraph 7 would justify a change in the terms of the obligation contained in paragraph 2. Since a change in the mortgage payment would give rise to the Plaintiff's entitlement to seek a modification (presumably an increase) in the child support payments, the Court finds that the language of the agreement itself demonstrates the parties' intent for the mortgage payment obligation to be linked to the child support obligation, and their intent for both to be considered alimony, maintenance, or support.

The Defendant acknowledges that a change in the mortgage obligation would result in the Plaintiff's entitlement to a modification, but argues that the Plaintiff's recourse is therefore limited to filing for a modification to increase the support. (See Doc. # 15, pp. 5-6). This Court finds that, because of the inclusion of the modification terms in paragraph 7, it is reasonable to infer [**13] the parties' intention for the obligation thereunder to be in the nature of alimony, maintenance, or support, and thus the Plaintiff need not file for a modification to increase the child support pursuant to the Defendant's filing for bankruptcy.

Furthermore, the duration and termination terms of the obligation contained in paragraph 7 demonstrate that the parties intended for such obligation to be a form of alimony, maintenance, or support, as such language further connects the mortgage payments to the child support payments, as well as to the youngest child's reaching the age of majority. The child support payments provided for in paragraph 2 were agreed to "not be subject to a change for a period of seven (7) years," while paragraph 7 requires the Defendant to pay $901.95 a month towards the monthly mortgage "for a period of sixty (60) months," and "[t]hereafter, . . . $450.98 . . . for a period of twenty-four (24) months." (Doc. # 1, Exhibit A, ¶ 7.a.). After this period of sixty months plus twenty-four months, totaling eighty-four months or seven years, Plaintiff becomes solely responsible for the mortgage payments. Further, as noted in paragraph 2, the child support payments "shall not increase [**14] or descrease following the minor child . . . reaching the age of majority." (Id. at ¶ 2). The Consent Order was entered into in 2011, and the minor child was born in 2000. Thus, in seven years from the date of the Consent Order the year will be 2018, which also represents the year of the minor child reaching the age of majority, and also the year when the parties agreed to allow the child support payments to be modified, and for the Defendant's mortgage payment

resposibilies to cease.

[*121] The Defendant acknowledges that his obligation to pay the mortgage obligation ceases in 2018, but argues that this date "does not coincide [with] nor relate to the date in which his child support shall terminate." (Doc. # 15, p. 4). The Consent Order does not provide for termination of the child support payments, so the Defendant's statement is technically correct. However, the Defendant cannot dispute that the parties agreed upon prohibiting any modification of (which could arguably include the termination of) the the child support obligation until 2018, the same year in which the parties agreed to termination of the Defendant's mortgage obligation. Thus, the Court finds that the terms of the Consent [**15] Order explicitly link the child support obligation with the mortgage obligation, indicating the parties' intent to consider the mortgage obligation as further alimony, maintenance, or support. See, e.g., In re Gianakas, 112 B.R. 737 (W.D. Pa.) aff'd, 917 F.2d 759 (3d Cir. 1990) (debtor's obligation to make second mortgage payments constituted nondischargeable support obligation where mortgage payment obligation was not to terminate under the same conditions as specifically designated alimony provisions, but would end at about the same time as the child support payments).

The Court also finds the primary physical placement of the minor children with the Plaintiff, as well as the mortgage obligation's function of providing a necessity to the minor children in the form of their primary residence, suggestive of the mortgage obligation's being in the nature of alimony, maintenance, or support. Pursuant to the Consent Order, the parties share joint legal custody of the minor children, although the Plaintiff maintains "primary physical placement subject to [the Defendant's] receiving liberal visitation as the parties agree." (Doc. # 1, Exhibit A, ¶ 1). Further, the parties agree that the mortgage payments encumber the Residence, in which the Plaintiff and [**16] the children currently reside. HN6[ ] Any obligation that services to maintain daily necessities, such as housing, is indicative of a debt intended to be in the nature of support. Gianakas, 917 F.2d at 763, Yeates, 807 F.2d at 879; see also In re Hayden, 456 B.R. 378, 383 (Bankr. S.D. Ind. 2011) (debtor's obligation to make mortgage payments on former marital residence awarded to his ex-wife by state dissolution court was in nature of domestic support oligation owed to his ex-wife and the minor children of whom she had primary physical custody, where the mortgage payment was in addition to a separately identified child support payment, and

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where ex-wife could not afford marital residence without the debtor's assistance and where awarding the marital residence to the ex-wife sought to preserve children's routines and way of life).

The final factor the Court finds determinative of the nature of the mortgage obligation is whether the support award would be inadequate absent assumption of the debt. The Plaintiff attached to her Pre-Trial Statement an affidavit of her divorce counsel, Randal Hunter ("Mr. Hunter") addressing this factor. In his affidavit, Mr. Hunter, who served as the Plaintiff's counsel at the time the Consent Order was entered into, states that the payments provided for in paragraph [**17] 7 of the Consent Order "are clearly in the nature of child support." (Doc. # 14, Exhibit 2, ¶ 3). Averring that the "court order directed [the Defendant] to pay child support outside of the North Carolina Child Support Guidelines," Mr. Hunter notes that the "child support payment was also non-modifiable under paragraph 2" and that it "was made non-modifiable in light of the [Defendant's] obligation to make the house payment." (Id.) He further notes that "[p]aragraph 7 . . . also gives the [Plaintiff] [*122] the right to request a modification of child support in the event that the [Defendant] was relieved of his obligation to make the house payment. . . . This provision, alone, recognizes that the house payment was an element of child support." (Id.). Lastly, Mr. Hunter states, "I do not recall the specific amount of child support that might have been provided had we calculated guideline child support and based th[e] [C]onsent [O]rder thereon. I am certain, however, that the child support that [the Defendant] was required to pay in th[e] [C]onsent [O]rder was lower than it might have been because the house payment was an element of that support." (Id. at ¶ 4).

The Defendant also attached an affidavit to his Pre-Trial Statement of his divorce [**18] counsel, Kimberly L. Farias ("Mrs. Farias"). Mrs. Farias began representing the Defendant on December 17, 2007. (Doc. # 15, Exhibit 2, ¶ 1). She states that the obligation for the Defendant to make mortgage payments contained in the Settlement Agreement dated January 28, 2002 "was part of the property distribution and was not child support." (Id. at ¶ 3). Referring to the child support payments set forth in the Settlement Agreement, she states, "It is my understanding that said amount of child support was calculated based upon the parties' gross montly income and in accordance with the North Carolina Child Support Guidelines then in effect." (Id. at ¶ 3). Because Mrs. Farias did not begin representing the Defendant until almost six years after the Settlement

Agreement was entered into, the Court finds her comments relating to the parties' intent at the time of executing the Settlement Agreement unpersuasive.

Regarding the Consent Order, Mrs. Farias avers in her affidavit that it "was [her] understanding that the parties [sic] intent was to leave the child support amount unchanged as as previously set per the [Settlement] Agreement," and that the Defendant's "obligation to make any payments [**19] toward the mortgage ceases on December 1, 2018, which does not coincide nor relate to the date in which his child support obligation shall terminate." (Id. at ¶¶ 8, 9). The Court finds Mrs. Farias' statements regarding the Consent Order, such as the above, to be primarily factual statements regarding applicable law and the ultimate agreement which do not address the intent of the parties or persuasively speak to the fourth factor at issue here, i.e. whether the support award would be inadqueate absent assumption of the debt. As such, the Court finds that the documents and pleadings in front of the Court suggest that the support award would in fact be inadequate absent assumption of the debt provided for in paragraph 7.

Thus, the court finds that the parties intended the mortgage obligation as alimony, maintenance, or support, in satisfaction of the second factor required for the debt to be found nondischargeable under section 523(a)(5).

C.

HN7[ ] The third factor required to establish a domestic support obligation claim is met by proving such debt was established by a separation agreement or order of court of record. As set forth in Plaintiff's Complaint, the child support and mortgage obligations at issue result [**20] from provisions within the Consent Order, which was filed within the parties' divorce, child custody and support case, James William Price v. Kimberly Lewis Price, 08 CVD 1757, in the County of Carteret, State of North Carolina. The Plaintiff has clearly satisfied this factor.

D.

The Plaintiff has also satisfied the fourth factor, which requires that the debt is not [*123] assigned to a nongovernmental entity, unless that obligation is assigned voluntarily. The Consent Order was entered into in December 14, 2011, and the Defendant filed for bankruptcy on January 9, 2015. The obligations at issue

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here were established prior in time to the filing of the bankruptcy, and have not been assigned to any other entity.

III.

For the reasons set forth above, the Court finds that the debt owed by the Defendant to the Plaintiff pursuant to paragraphs 2 and 7 of the Consent Agreement shall be held nondischargeable pursuant to 11 U.S.C. § 523(a)(5). An appropriate order shall follow.

Date: October 5, 2015

/s/ Jeffery A. Deller

JEFFERY A. DELLER

Chief U.S. Bankrutpcy Judge

[EDITOR'S NOTE: The following court-provided text does not appear at this cite in B.R.]

[*none] ORDER OF COURT

AND NOW, this 5th day of October, 2015, for the reasons expressed in the Memorandum Opinion issued herewith, the Court hereby ORDERS, ADJUDGES, and DECREES [**21] that the debt owed by the defendant, James W. Price, to the plaintiff, Kimberly Price, and arising from the consent order dated dated December 14, 2011 and filed December 15, 2011 within the parties' divorce proceeding in the County of Carteret, North Carolina at 08 CVD 1757, is nondischargeable pursuant to 11 U.S.C. § 523(a)(5).

Date: October 5, 2015

/s/ Jeffery A. Deller

JEFFERY A. DELLER

Chief U.S. Bankrutpcy Judge

End of Document

545 B.R. 114, *123; 2015 Bankr. LEXIS 3371, **20

Schorr v. Schorr (In re Schorr)

United States Bankruptcy Court for the Western District of Pennsylvania

September 5, 2003, Decided

Bankruptcy No. 00-20119 BM, Chapter 7, Adversary No. 02-02666 BM

Reporter299 B.R. 97 *; 2003 Bankr. LEXIS 1087 **; 50 Collier Bankr. Cas. 2d (MB) 1530

IN RE: RONALD L. SCHORR, Debtor; RONALD L. SCHORR, Plaintiff v. DEBORAH L. SCHORR, Defendant

Disposition: [**1] Judgment entered in favor of plaintiff/debtor and against defendant. Debt for equitable distribution owed by debtor to defendant discharged in debtor's bankruptcy case. Defendant consequently prohibited from further pursuing equitable distribution of marital property in divorce proceeding between debtor and defendant.

Core Termsequitable distribution, spouse, marital property, divorce proceeding, bankruptcy case, discharged, non-debtor, adverse action, debtor spouse, pre-petition, right to payment, purposes, divorce, custodia legis, state court, parties, bankruptcy court, court order, giving rise, arises, remedies, decree, enforceable obligation, bankruptcy petition, bankruptcy filing, cause of action, divorce action, state law, automatically, proceedings

Case Summary

Procedural PosturePlaintiff debtor sought a determination that a request for equitable distribution of marital property which was made in their divorce proceeding by defendant, his estranged spouse, prior to the filing of the debtor's bankruptcy petition constituted a "claim" for bankruptcy purposes.

Overview

The debtor argued that the resultant "debt" was discharged when he received a bankruptcy discharge. The spouse denied that her request for equitable distribution qualified as a "claim" for bankruptcy purposes and insisted that no pre-petition "debt" resulted which was affected by the discharge the debtor

received. The court held that the spouse had "a right to payment" and therefore a "claim" when she requested equitable distribution of marital property prior to the filing of debtor's bankruptcy petition. The court concluded that the spouse had an unliquidated, disputed and unsecured "claim" - i.e., "a right to payment" - for equitable distribution prior to the commencement of debtor's chapter 7 bankruptcy case. The resultant pre-petition "debt" owed by debtor was discharged in accordance with 11 U.S.C.S. § 727(a) when the spouse did not in accordance with 11 U.S.C.S. § 523(a)(15) object to its discharge prior to the bar date for doing so. As a consequence, defendant was prohibited by 11 U.S.C.S. § 524(a)(2) from continuing her pursuit of equitable distribution in the parties' on-going divorce action in state court.

OutcomeThe court entered judgment in favor of the debtor, and ordered that the debt for equitable distribution owed by the debtor to the spouse was discharged, and the spouse was prohibited from further pursuing equitable distribution of marital property in the divorce proceeding.

LexisNexis® Headnotes

Bankruptcy Law > Case Administration > Commencement of Case > General Overview

HN1[ ] A "claim" arises for bankruptcy purposes when the cause of action underlying the "claim" arises under Pennsylvania law. A cause of action arises under Pennsylvania law when one can first maintain an action to a successful conclusion.

Bankruptcy Law > Case Administration > Commencement of Case > General Overview

Bankruptcy Law > Claims > Types of Claims > Definitions

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HN2[ ] "Claim" means -- (A) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 11 U.S.C.S. § 101(5)(A). According to this definition, "a right to payment" qualifies as a "claim" without regard to whether such right is reduced to judgment.

Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Erie Doctrine

HN3[ ] When applying substantive law, a federal court is not free to impose its own view of what state law should be. It instead must apply state law as interpreted by the state's highest court.

Civil Procedure > Preliminary Considerations > Federal & State Interrelationships > Erie Doctrine

Family Law > Marital Termination & Spousal Support > Dissolution & Divorce > General Overview

Family Law > ... > Dissolution & Divorce > Property Distribution > General Overview

Family Law > ... > Property Distribution > Characterization > Marital Property

HN4[ ] In the absence of a reported decision by the Supreme Court of Pennsylvania, a federal court applying state law must undertake a specific analysis in predicting how the Supreme Court of Pennsylvania would apply Pennsylvania law.

Bankruptcy Law > Discharge & Dischargeability > General Overview

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

HN5[ ] See 11 U.S.C.S. § 523(a)(15).

Bankruptcy Law > Case Administration > General Overview

Bankruptcy Law > Case Administration > Closing & Reopening Cases > General Overview

Bankruptcy Law > ... > Examiners, Officers &

Trustees > Duties & Functions > Liquidations

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Alimony, Child Support & Maintenance

Family Law > Marital Termination & Spousal Support > Dissolution & Divorce > General Overview

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN6[ ] Once the equitable distribution issue is resolved in the divorce proceeding, the non-debtor spouse could then request re-opening of debtor's bankruptcy case pursuant to 11 U.S.C.S. § 350(b). At that point it would be possible for the bankruptcy court to apply 11 U.S.C.S. § 523(a)(15)(A) and (B) to the facts and to finally determine whether or not the debt is discharged. Such a procedure would comport with the requirement that chapter 7 estates be closed as expeditiously as possible as is compatible with the best interest of parties. 11 U.S.C.S. § 704(1).

Bankruptcy Law > Discharge & Dischargeability > Exceptions to Discharge > Embezzlement & False Representations

Bankruptcy Law > Procedural Matters > Jurisdiction > General Overview

Civil Procedure > ... > Jurisdiction > Subject Matter Jurisdiction > General Overview

Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > General Overview

Civil Procedure > ... > Subject Matter Jurisdiction > Jurisdiction Over Actions > Exclusive Jurisdiction

HN7[ ] A bankruptcy court retains exclusive jurisdiction to determine whether a debt is dischargeable. While there is some controversy as to whether this is true for each and every one of the fifteen exceptions to the discharge of a debt found at 11 U.S.C.S. § 523(a), a bankruptcy court at the very least has exclusive jurisdiction to determine the dischargeability of a debt pursuant to 11 U.S.C.S. § 523(a)(2), (4) and (15).

Counsel: Mary Bower Sheats, Esq., for Plaintiff.

John K. Foster, Esq., for Defendant.

Judges: BERNARD MARKOVITZ, U.S. Bankruptcy Judge.

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Opinion by: BERNARD MARKOVITZ

Opinion

[*98] Complaint To Enforce Discharge Injunction And For Declaratory Relief

MEMORANDUM OPINION

Debtor seeks a determination that a request for equitable distribution of marital property which was made in their divorce proceeding by his estranged spouse, defendant Deborah Schorr, prior to the filing of debtor's bankruptcy petition constituted a "claim" for bankruptcy purposes. As a consequence, debtor avers, the resultant "debt" was discharged when he received a bankruptcy discharge. In addition, debtor seeks a determination that defendant consequently is enjoined from further pursuing her request for equitable distribution in their ongoing divorce proceeding.

Defendant [**2] denies that her request for equitable distribution qualified as a "claim" for bankruptcy purposes and insists that no pre-petition "debt" resulted which was affected by the discharge debtor received.

We conclude for reasons set forth below that defendant's pre-petition request for equitable distribution qualified as a "claim" for bankruptcy purposes and that the resultant "debt" for equitable distribution owed by debtor to defendant was discharged in debtor's bankruptcy case. Defendant consequently is prohibited from further pursuing her quest for equitable distribution in their ongoing divorce proceeding.

- FACTS -

Debtor and defendant in this adversary action are husband and wife, respectively. They have been estranged since at least September of 1999.

Debtor commenced a divorce proceeding against defendant in state court on September 14, 1999. Defendant requested equitable distribution of marital property in her answer and counterclaim to the complaint, which was filed on October 4, 1999.

Neither a divorce decree nor an order of equitable distribution was entered in the divorce proceeding prior to January 6, 2000.

Debtor filed a voluntary chapter 7 petition on January 6, 2000, thereby [**3] automatically staying adjudication by the state court of defendant's pending request for

equitable distribution. To date defendant's request for equitable distribution has not been adjudicated.

The schedules accompanying debtor's bankruptcy petition listed assets with a [*99] total declared value of $ 17,200.00 and liabilities totaling $ 37,975.20. Included among debtor's assets were two pensions characterized as having "no cash value" which debtor claimed as exempt in their entirety. No objection was raised to these claimed exemptions. The bankruptcy schedules list defendant as having a contingent, unliquidated and disputed general unsecured claim in an "uncertain" amount arising out of her request for equitable distribution of marital property.

The § 341 meeting of creditors was held on April 7, 2000, after which the chapter 7 trustee reported that debtor's bankruptcy was a no-asset case.

Although she was listed on the schedules and received notice of debtor's bankruptcy filing, defendant chose not to participate in debtor's bankruptcy case. She neither requested relief from the automatic stay to continue her pursuit of equitable distribution in the divorce proceeding pending in state [**4] court nor filed a proof of claim in debtor's bankruptcy case. Moreover, she did not object pursuant to 11 U.S.C. § 523(a)(15) to the discharge of any debt for equitable distribution owed to her by debtor.

On April 24, 2000, after the bar date had passed without any objection to debtor's general discharge or to the discharge of any particular pre-petition debt he owed, debtor received a discharge. The bankruptcy case was closed on May 26, 2000, after a final decreed had issued.

Equitable distribution proceedings, which were automatically stayed during debtor's bankruptcy, resumed in earnest in state court after the bankruptcy case was closed. In his opposition to defendant's request for equitable distribution, debtor asserted that defendant's request for equitable distribution constituted a "debt" that had been discharged in his bankruptcy case and that defendant therefore was prohibited by federal bankruptcy law from pursuing the matter in their divorce proceeding.

The learned judge in the divorce proceeding issued an order on September 18, 2002, directing debtor to reopen his bankruptcy case and to obtain a determination from this court concerning the effect, [**5] if any, his discharge had on defendant's request for equitable distribution.

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On October 22, 2002, after oral argument was heard on debtor's motion to reopen his case, we issued an order reopening the case.

On November 1, 2002, debtor commenced the above adversary action. Debtor asserts in the complaint that defendant's claim arising out of her request for equitable distribution constituted a "debt" that was discharged in his bankruptcy case and that she therefore is enjoined by the Bankruptcy Code from further pursuing in the divorce proceeding her request for equitable distribution.

Defendant denies in her answer to the complaint that her request for equitable distribution was discharged in debtor's bankruptcy case and asserts that the discharge injunction therefore does not apply. Her request for equitable distribution, she maintains, was not affected by debtor's discharge and therefore may now be adjudicated in the divorce proceeding.

Trial in this matter was scheduled for August 4, 2003, wherein each party was permitted to offer any and all evidence deemed appropriate.

The issue now before us in this case is whether, for bankruptcy purposes, defendant had a "claim" against [**6] debtor prior to the commencement of his bankruptcy case on January 6, 2000. If she did, the resultant "debt" owed by debtor arising out of her "claim" for equitable distribution was [*100] discharged. If she did not, there was no "debt" owed to her by debtor to be discharged when debtor received a general discharge.

The United States Court of Appeals for the Third Circuit has not decided whether a pre-petition request for equitable distribution that is unresolved when a debtor spouse against whom the request is made receives a bankruptcy discharge constitutes a "claim" for purposes of the Bankruptcy Code. There is a difference of opinion among the courts of this circuit that have addressed the issue.

At least one court fearing potential collusion has held that such a request constitutes a pre-petition claim and may be dischargeable. See Polliard v. Polliard (In re Polliard), 152 B.R. 51, 54 (Bankr. W.D. Pa. 1993)(spouse requesting equitable distribution prior to bankruptcy filing has a general unsecured "claim" for an amount representing any equitable distribution award of an interest in debtor's property).

The Polliard court undoubtedly was concerned about avoiding [**7] an abusive practice, which can, and frequently does, occur when a chapter 7 debtor is

embroiled in a protracted, and sometimes acrimonious, divorce proceeding. Such debtors may be in a position where they stand to "lose everything" either to their creditors in bankruptcy or to their spouse in the divorce proceeding. Moreover, if debtor's assets are distributed to creditors in accordance with the Bankruptcy Code, debtor still may not obtain a divorce. Faced with this dilemma, a chapter 7 debtor might agree to give most, if not all, of their assets to their spouse in order to finally obtain a divorce and leave other creditors with nothing.

Others have held that such a request for does not constitute a pre-petition "claim" and consequently that no "debt" for equitable distribution arises that is subject to discharge. E.g., Scholl v. Scholl (In re Scholl), 234 B.R. 636, 641-45 (Bankr. E.D. Pa. 1999)(request for equitable distribution did not give rise to a "claim" or to a "debt" owed by the debtor spouse in debtor's later-filed bankruptcy).

Debtor urges us to adopt In re Polliard and to find that debtor owed a "debt" to defendant that was discharged in his [**8] bankruptcy case. Defendant urges us to adopt In re Scholl and to find that her request for equitable distribution did not give rise to a debt owed to her by debtor that was discharged in debtor's bankruptcy case.

We will consider in detail the reasoning set forth in In re Scholl and shall use it as a vehicle for resolving the issue presented in this adversary action.

The non-debtor spouse in Scholl commenced a divorce proceeding against debtor spouse in December of 1993 and thereafter requested equitable distribution of marital property. Before the matter was resolved, debtor spouse filed a bankruptcy petition in October of 1997, thereby automatically staying equitable distribution proceedings in the divorce case. Non-debtor spouse was listed on the bankruptcy schedules as an unsecured pre-petition creditor with "possible debt arising from marriage, not including possible or actual support or alimony, in the amount of $ 135,000". No equitable distribution order had issued in the divorce proceeding and the parties had not come to an agreement concerning equitable distribution prior to the bankruptcy filing. Scholl, 234 B.R. at 637-38.

In contrast to the [**9] case at hand, non-debtor spouse requested and was granted relief from stay in March of 1999 to allow the equitable distribution proceedings to move forward in state court. Unfortunately, that court took no action on her request. Also, in contrast to the

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case at [*101] hand, non-debtor spouse then commenced a timely adversary action [before debtor received a bankruptcy discharge] seeking, among other things, a determination that she did not possess a "claim" for bankruptcy purposes and that debtor did not owe her a "debt" that was subject to discharge in his bankruptcy case. Thereafter non-debtor spouse brought a motion for summary judgment in the adversary action which was granted. Id., 234 B.R. at 637.

Scholl ultimately concluded that, in the absence of an agreement between the spouses or a court order of equitable distribution, non-debtor spouse did not have a "claim" for equitable distribution and that debtor owed her no "debt" for equitable distribution that was subject to discharge in his bankruptcy case. Without more, such a request gives rise only to a property right in marital property to be equitably distributed in the divorce proceeding. The analysis in [**10] Scholl in support of this determination went as follows.

Scholl first looked to the following passage from Cohen v. De La Cruz, 523 U.S. 213, 118 S.Ct. 1212, 1216, 140 L.Ed.2d 341 (1998):

A "debt" is defined in the Code as "liability on a claim", § 101(12), a "claim" is defined in turn as a "right to payment" § 101(5)(A), and a "right to payment", we have said, is "nothing more or less than an enforceable obligation". Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 552, 569, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). These definitions "reflect Congress' broad … view of the class of obligations that qualify as a "claim" giving rise to a debt ….

Reasoning syllogistically, Scholl concluded that the bankruptcy concept of "claim", while broad, "is not so broad as to encompass rights that do not constitute "enforceable obligation[s]". Id., 234 B.R. at 641. One does not have a "claim" for bankruptcy purposes, in other words, unless there is an "enforceable obligation". If the mere filing of a divorce action when coupled with a request for equitable distribution does not give rise to an "enforceable [**11] obligation" which in turn gives rise to a "right to payment", a debtor spouse's later filing of a bankruptcy petition does not give rise to a "claim" by the non-debtor spouse that is potentially dischargeable in the debtor spouse's bankruptcy. Id.

After deriving this principle, Scholl noted that the Bankruptcy Code does not specify when a "right to payment" arises for bankruptcy purposes. Applying

Avellino & Bienes v. M. Frenville Co. (In re M. Frenville Co.), 744 F.2d 332, 337, (3d Cir. 1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985), Scholl concluded that reference must be made to state law to make such a determination. Until a cause of action arises under state law, a creditor does not have a "claim" because there is no "right to payment". Id.

Scholl then consulted the domestic relations law of Pennsylvania to determine when a "claim" for equitable distribution arises for bankruptcy purposes. It looked specifically at the following portion of 23 Pa. C.S.A. § 3502(b):

If, at any time, a party has failed to comply with an order of equitable distribution, as provided for in this chapter or [**12] with the terms of an agreement as entered into between the parties, after hearing, the court may ….

Id., 234 B.R. at 641-42. The provision then goes on to enumerate nine remedies that are available in such circumstances. Included among the remedies is entry of a judgment. According to Scholl, this provision implies that a court order of equitable distribution or a contract gives rise to the [*102] availability of these remedies. Id., 234 B.R. at 641-42.

As was noted previously, the parties in Scholl had not reached an agreement concerning equitable distribution of marital property and the court had not issued such an order prior to the bankruptcy filing. From this the court concluded as follows: "Thus, there is no obligation that either spouse can seek to have enforced". Id., 234 B.R. at 642. Put another way, Scholl inferred from the above statutory provision that an agreement between the spouses as to distribution of marital property or a court order of equitable distribution is a prerequisite to a non-debtor spouse having a "claim" against the debtor spouse and to the debtor spouse owing a "debt" to the non-debtor spouse [**13] that is subject to discharge.

Debtor and defendant in the adversary action presently before us, we noted previously, had not reached agreement concerning equitable distribution of the marital property. Moreover, the court in the divorce action had not issued an order of equitable distribution prior to debtor's bankruptcy filing. Defendant has urged us to apply the above analysis as articulated in Scholl to the facts of this case and would have us conclude that debtor in our case owed no "enforceable obligation" to her and therefore that no "debt" arose that was subject to the discharge debtor received on April 24, 2000. We

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decline to so conclude for various reasons.

To begin with, Scholl's reliance upon 23 Pa. C.S.A. § 3502(c) is misplaced. The previously-quoted portion of § 3502(c) in our estimation does not support the inference that an agreement between spouses or a court order of equitable distribution is a prerequisite to having an "enforceable obligation" and, hence, to there being a "debt" which is potentially subject to discharge. Section 3502(c) instead only enumerates specific remedies that are available to enforce the obligation in the event a party to a [**14] divorce proceeding fails to comply when the parties have reached agreement concerning equitable distribution or the court has entered an order concerning same. The latter is a far cry from the former. In fact, the enumeration of nine remedies bolsters the contrary position. There would be no need for remedies if there was not an obligation, debt, or claim to enforce.

The matter does end there. According to Frenville, HN1[] a "claim" arises for bankruptcy purposes when the

cause of action underlying the "claim" arises under Pennsylvania law. 744 F.2d at 337. A cause of action arises under Pennsylvania law when one can first maintain an action to a successful conclusion. Kapil v. Association of Pennsylvania State College and University Faculties, 504 Pa. 92, 98, 470 A.2d 482, 485 (1983).

Defendant in this adversary action could have successfully maintained a request for equitable distribution when debtor first commenced the divorce proceeding on September 14, 1999, or, at the latest, when she requested equitable distribution of marital property on October 4, 1999. Her cause of action for equitable distribution arose on one of these dates and therefore arose [**15] well before the commencement of debtor's bankruptcy case on January 6, 2000 - i.e., it is a pre-petition "claim".

Our rejection of the above analysis set forth in Scholl does not end with this. The requirement that there must be either an agreement between the spouses concerning equitable distribution or an order of court concerning equitable distribution before a "claim" can arise is at odds with the definition of "claim" found at § 101(5)(A) of the Bankruptcy Code, which provides as follows:

HN2[ ] "claim" means --

[*103] (A) a right to payment, whether or not such right is reduced to judgment, liquidated,

unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.

11 U.S.C. § 101(5)(A).

According to this definition, "a right to payment" qualifies as a "claim" without regard to whether such right is reduced to judgment. The requirement in Scholl that there be an agreement between the spouses or a court order of equitable distribution does not square with this portion of the definition of "claim" and for that reason must be rejected.

Policy considerations bolster our construal of when a "claim" [**16] and a "debt" arise for bankruptcy purposes and militate against the view embraced in Scholl. In re Polliard identifies a potential "evil" in the position, adopted by Scholl, that a state court first must determine the respective ownership rights of the spouses of marital property before a bankruptcy court can exercise exclusive jurisdiction only over the property that is awarded to the debtor spouse.

Under this scenario, division of marital property between the spouses takes place in the absence of consideration by any other court of the impact of the division on creditors of the debtor spouse. The debtor spouse may intentionally allow all of the marital assets to pass to the non-debtor spouse, leaving nothing for creditors of the debtor spouse. Polliard, 152 B.R. at 54. Our view that the non-debtor spouse has a pre-petition "claim" and that the debtor spouse owes a "debt" to the non-debtor spouse even in the absence of adjudication of the request for equitable distribution avoids this potential "evil". The non-debtor spouse has a "claim" along with debtor's other creditors and shares bankruptcy estate assets on a pro rata basis along with them. If this [**17] result is too harsh or unjust, the non-debtor spouse could pursue an adversary action seeking to determine this unliquidated debt to be nondischargeable and payable from assets earned post-bankruptcy.

We conclude on the basis of the foregoing considerations that defendant in this adversary action had "a right to payment" and therefore a "claim" when she requested equitable distribution of marital property prior to the filing of debtor's bankruptcy petition. Debtor, in other words, owed defendant a pre-petition "debt" that had not yet been reduced to judgment when debtor received a discharge.

Scholl propounds additional arguments which, it asserts, offer "further support" for the proposition that the non-

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debtor spouse in that case did not have a pre-petition "claim" against debtor which gave rise to a potentially dischargeable "debt".

According to Scholl, it is a principle of Pennsylvania law that marital property is deemed to be in custodia legis -- i.e., under the wardship of the court - pending the outcome of equitable distribution proceedings and therefore is not subject to judicial liens. A creditor of one of the spouses may not execute on that spouse's interest [**18] in the marital property while the property is in custodia legis. Id., 234 B.R. at 642. As authority for proposition, Scholl cites to Keystone Savings Association v. Kitsock, 429 Pa. Super. 561, 567-68, 633 A.2d 165, 168 (1993).

The inability of a creditor to attach, Scholl maintains, "flows" from the absence of any present interest owned by the spouse "until the property has been divided". Id., 234 B.R. at 642. From this Scholl concludes that only entry of an agreement by the parties to the divorce action or a court order of equitable distribution "can create enforceable rights as against a [*104] spouse and thus potentially give rise to a right to payment". Without an enforceable agreement or an order of court "neither party has a cause of action against the other with respect to marital property". Id., 234 B.R. at 642-43.

We take issue with this argument for several reasons.

To begin with, the argument relies on the premiss that, under the law of Pennsylvania, marital property is automatically deemed upon the filing of a divorce complaint to be in custodia legis pending the outcome of equitable distribution [**19] proceedings and is not subject to judicial liens while it is in custodia legis. As authority for this proposition Scholl cites to Keystone Savings Association, supra, a decision of the Superior Court of Pennsylvania.

It is not certain that this is a correct statement of Pennsylvania law and is binding in our case. HN3[ ] When applying substantive law, a federal court is not free to impose its own view of what state law should be. It instead must apply state law as interpreted by the state's highest court, in this instance the Supreme Court of Pennsylvania. Federal Home Loan Mortgage Corp. v. Scottsdale Insurance Co., 316 F.3d 431, 443 (3d Cir. 2003). The Supreme Court of Pennsylvania has never addressed and decided this issue. See Mid-State Bank & Trust Co. v. Globalnet Int'l, Inc., 557 Pa. 555, 561, 735 A.2d 79, 82 (1999). It is noteworthy in this regard that the concurring opinion in Keystone Savings

Association questioned the propriety of applying the in custodia legis doctrine to marital property in a divorce proceeding. 429 Pa. Super. at 569-70, 633 A.2d at 169.

This is not to say that the in custodia [**20] legis doctrine categorically does not apply to marital property in divorce proceedings. It is to say only that Scholl merely applied the reasoning of Keystone Savings Association without undertaking the necessary analysis to predict whether the Pennsylvania Supreme would apply the doctrine of in custodia legis to marital property in a divorce proceeding. HN4[ ] In the absence of a reported decision by the Supreme Court of Pennsylvania, a federal court applying state law must undertake a specific analysis in predicting how the Supreme Court of Pennsylvania would apply Pennsylvania law. See Hughes v. Long, 242 F.3d 121, 128 (3d Cir. 2001). Scholl did not undertake such analysis but instead merely relied upon the holding of inferior Pennsylvania appellate courts on this matter, which holding may not be binding on us.

The matter does end there with respect to the first additional argument in Scholl which is said to provide "further support" for the conclusion arrived at therein. Even if it is assumed for the sake of argument that the in custodia legis doctrine applies to marital property pending its equitable distribution, we do not understand [**21] how it is supposed to follow from this that only an agreement between the parties or entry of a court order of equitable distribution can give rise to a "right to payment" and, hence, to a "debt" that is potentially subject to discharge in bankruptcy. Scholl, 234 B.R. at 642-43.

To begin with, we already have determined that this conclusion does not square with the definition of "claim" set forth at § 101(5)(A) as it bears on the definition of "debt" found at § 101(12) of the Bankruptcy Code. In arriving at this conclusion, which we have determined to be incorrect, Scholl points to the principle articulated in Keystone Savings Association that, because of the doctrine of in custodia legis, a judicial lien creditor of one spouse may not execute on that spouse's interest in marital property until the issue of equitable distribution is resolved. 429 Pa. Super. at 567-68, 610 A.2d at 168.

[*105] This would not, in our estimation, prevent a judicial lien holder from having a "claim" in the bankruptcy case against the spouse's bankruptcy estate even though the equitable distribution proceeding is not resolved by the time the bankruptcy case [**22] is commenced. If this is so, we can see no good reason

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why the non-debtor spouse should not also have a "claim" for equitable distribution even though the request also is not resolved by the time the bankruptcy case is resolved.

The final argument in Scholl presented in support of the above conclusion is based on what is characterized as "a common sense reading" of § 523(a)(15) of the Bankruptcy Code, which provides in part as follows:

HN5[ ] (a) A discharge under section 727 … of this title does not discharge an individual debtor from any debt -- ….

(15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record … unless --(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor; or(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a … former spouse, or child of the debtor

11 U.S.C. § 523 (a)(15).

[**23] Scholl initially focused on the phrase in § 523(a)(15) referring to a debt that is "incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of court". 234 B.R. at 643. None of these requirements, the court concluded, was present in Scholl. According to the court, debtor therein failed to identify any "debt" he had incurred during the course of the divorce or separation. Additionally, there was no separation agreement, divorce decree or other order "evidencing a debt". If there was any "debt", it had "yet to be incurred". Id., 234 B.R. at 643-44.

This analysis is without merit to the extent that it supposedly determines the outcome of the case presently before us. While it is correct to say in our case that there was no separation agreement or order of court evidencing a "debt" for equitable distribution owed by debtor, it is incorrect to say as a result that debtor had not incurred a "debt" owed to defendant which was potentially dischargeable.

Contrary to what Scholl asserts, it is not true that the alleged debt "had yet to be incurred". It was incurred,

[**24] albeit without a court order or agreement of the parties, when debtor commenced a divorce action against defendant and defendant responded by counterclaiming for equitable distribution of marital property. Put another way, the first of the three conjuncts found at § 523(a)(15) -- I e., a debt that was incurred by the debtor in the course of a divorce proceeding -- is satisfied in this case (as well as in Scholl).

To bolster this last argument, Scholl asserts that it would be "impossible to apply" § 523(a)(15)(A) and (B), supra, without there being a prior equitable distribution order of court to evaluate. Id., 234 B.R. at 644. Until it is known how marital assets are to be divided between the debtor spouse and the non-debtor spouse or how much money the former has been ordered to pay the latter, a bankruptcy court can neither apply § 523(a)(15)(A) and determine whether debtor is able to satisfy the award nor apply § 523(a)(15)(B) [*106] and balance the relative harms each spouse would suffer if the debt were enforced. Id., 234 B.R. at 644. From these considerations Scholl concluded that "Congress did not have in mind the dischargeability [**25] of future equitable distribution awards when it enacted § 523(a)(15)". Id., 234 B.R. at 644.

This argument is not persuasive for various reasons.

The "impossibility" of which Scholl speaks need not occur where the issue of equitable distribution has yet to be resolved by the time a debtor receives a discharge in bankruptcy, provided that the non-debtor spouse brings a timely adversary action seeking a determination that the resultant debt owed by debtor is excepted from discharge by § 523(a)(15) 1. HN6[ ] Once the equitable distribution issue is resolved in the divorce proceeding, the non-debtor spouse could then request re-opening of debtor's bankruptcy case pursuant to § 350(b) of the Bankruptcy Code. At that point it would be possible for the bankruptcy court to apply § 523(a)(15)(A) and (B) to the facts and to finally determine whether or not the debt is discharged. Such a procedure would comport with the requirement that chapter 7 estates be closed "as expeditiously as possible as is compatible with the best interest of parties". U.S.C. § 704(1).

1 It was noted previously that, in contrast to the situation presented in Scholl, defendant in this adversary action did not bring a timely adversary action seeking such a determination. She did not participate at all in debtor's bankruptcy case.

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[**26] To the extent that it would put the bankruptcy court in the "anomalous position" of applying the balancing test found at § 523(a)(15) right after the state court (or the bankruptcy court itself) has adjudicated the request for equitable distribution, so be it! HN7[ ] A bankruptcy court retains exclusive jurisdiction to determine whether a debt is dischargeable. See Caton v. Trudeau (Matter of Caton), 157 F.3d 1026, 1028 (5th Cir. 1998), cert. denied, 526 U.S. 1068, 119 S. Ct. 1462, 143 L. Ed. 2d 547 (1999). While there is some controversy as to whether this is true for each and every one of the fifteen exceptions to the discharge of a debt found at § 523(a), a bankruptcy court at the very least has exclusive jurisdiction to determine the dischargeability of a debt pursuant to § 523(a)(2), (4) and (15). In re Scott, 244 B.R. 885, 887 (Bankr. E.D. Mich. 1999).

Applying these considerations to the case presently before us, we conclude that this court has exclusive jurisdiction to decide whether the debt at issue in our case is excepted from discharge by virtue of § 523(a)(15) and that we must decide the matter on our own, even if it might [**27] appear to some to be "anomalous" for us to do so after another court (or the bankruptcy court itself) has engaged in a similar analysis in applying Pennsylvania law to decide the issue of equitable distribution in the first place.

Finally, before Congress enacted § 523(a)(15), debts for equitable distribution invariably were discharged in bankruptcy. This outcome changed with its enactment. Depending on how the analysis of § 523(a)(15)(A) and (B) played out, such a debt may or may not be excepted from discharge.

Congress unquestionably contemplated that such debts may be exempted from discharge even though they had not been judicially fixed prior to debtor's receipt of a discharge in bankruptcy and while the marital property still is under the jurisdiction of the state court in accordance with the in custodia legis doctrine. Had Congress intended to exclude an unresolved request for equitable distribution from the scope [*107] of the terms "claim" and "debt", we would expect some indication to that effect either in the language of § 523(a)(15) or in its legislative history. Neither gives any such indication.

We conclude in light of the foregoing that defendant had an unliquidated, [**28] disputed and unsecured "claim" - i.e., "a right to payment" - for equitable distribution prior to the commencement of debtor's chapter 7 bankruptcy case. The resultant pre-petition "debt" owed by debtor

was discharged in accordance with § 727(a) of the Bankruptcy Code when defendant did not in accordance with § 523(a)(15) object to its discharge prior to the bar date for so doing. As a consequence, defendant is prohibited by § 524(a)(2) of the Bankruptcy Code from continuing her pursuit of equitable distribution in the parties' on-going divorce action in state court.

An appropriate order shall issue.

BERNARD MARKOVITZ

U.S. Bankruptcy Judge

Dated: September 5, 2003

Complaint To Enforce Discharge Injunction And For Declaratory Relief

ORDER OF COURT

AND NOW, at Pittsburgh this 5th day of September, 2003, in accordance with the accompanying memorandum opinion, it hereby is ORDERED, ADJUDGED, and DECREED that JUDGMENT be and hereby is entered IN FAVOR OF plaintiff/debtor Ronald L. Schorr and AGAINST defendant Deborah L. Schorr.

The debt for equitable distribution owed by debtor to defendant was DISCHARGED in debtor's [**29] bankruptcy case. Defendant consequently is PROHIBITED from further pursuing equitable distribution of marital property in the divorce proceeding between debtor and defendant.

It is SO ORDERED.

BERNARD MARKOVITZ

U.S. Bankruptcy Judge

End of Document

299 B.R. 97, *106; 2003 Bankr. LEXIS 1087, **26

Urmann v. Walsh

United States District Court for the Western District of Pennsylvania

October 24, 2014, Decided; October 24, 2014, Filed

Civil Action No. 14-718

Reporter523 B.R. 472 *; 2014 U.S. Dist. LEXIS 151254 **

DIANA M. URMANN, Appellant, v. JAMES R. WALSH, TRUSTEE FOR THE BANKRUPTCY ESTATE OF DIANA M. URMANN, Appellee.

Prior History: [**1] Appeal Related to Bankruptcy Case No. 11-21606.

Walsh v. Urmann (In re Urmann), 2014 Bankr. LEXIS 1673 (Bankr. W.D. Pa., Apr. 15, 2014)Walsh v. Urmann (In re Urmann), 2014 Bankr. LEXIS 1629 (Bankr. W.D. Pa., Apr. 15, 2014)

Core Termsbankruptcy court, equitable distribution, pension, settlement, exemptions, divorce, Approve, marital, bankrupt estate, property of the estate, beneficiary, equitable, bankruptcy petition, argues, pension plan, one-half, payee, probability of success, divorce complaint, time of filing, proceedings, sustaining, factors, parties, spouse, funds, prong

Case Summary

OverviewHOLDINGS: [1]-A bankruptcy debtor's claim for equitable distribution of her husband's pension plan in a pending divorce action was property of the debtor's bankruptcy estate, and the debtor's interest was not excludable from the estate under 11 U.S.C.S. § 522(b)(4)(A) because no QDRO had been entered at the time the bankruptcy petition was filed; [2]-The bankruptcy court did not abuse its discretion in approving a settlement of the debtor's equitable distribution claim relating to her interest in the pension. The trustee was properly named the direct payee under the QDRO because he stepped into the debtor's shoes pursuant to 11 U.S.C.S. § 541 in settling the equitable distribution claim.

OutcomeJudgment affirmed.

LexisNexis® Headnotes

Bankruptcy Law > Procedural Matters > Judicial Review > Jurisdiction

Bankruptcy Law > ... > Judicial Review > Standards of Review > De Novo Standard of Review

HN1[ ] A district court has appellate jurisdiction over final judgments, orders and decrees of a bankruptcy court pursuant to 28 U.S.C.S. § 158(a)(1). The district court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law under a de novo standard.

Bankruptcy Law > Exemptions > Bankruptcy Code Exemptions

HN2[ ] Pursuant to the Bankruptcy Code, debtors may exempt some types of property from the bankruptcy estate. 11 U.S.C.S. § 522. A debtor may exempt "retirement funds" if they are in an account that is exempt from taxation under certain enumerated provisions of the Internal Revenue Code. 11 U.S.C.S. § 522(b)(3)(C) and (d)(12). The exemption available pursuant to § 522(d)(10)(E) allows a debtor to exempt funds under a pension plan to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. 11 U.S.C.S. § 522(d)(10)(E).

Bankruptcy Law > Estate Property > General Overview

HN3[ ] Property of a bankruptcy estate is determined as of the date the bankruptcy petition is filed. 11

Page 2 of 9

U.S.C.S. §§ 522, 541(a)(1).

Bankruptcy Law > Estate Property > General Overview

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN4[ ] State law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under 11 U.S.C.S. § 541(a). In Pennsylvania, a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets. Such marital interest constitutes a property interest in marital assets.

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

Bankruptcy Law > Estate Property > General Overview

HN5[ ] If a debtor, prior to filing a bankruptcy petition, files for divorce in Pennsylvania and also requests equitable distribution, such debtor will, as of the date of such bankruptcy petition filing, possess a marital interest in property, which marital interest (a) itself constitutes a legal and/or equitable interest of the debtor in property as of the commencement of the case, regardless of when such debtor becomes divorced, and (b) will thus constitute bankruptcy estate property regardless of when such debtor becomes divorced.

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

Bankruptcy Law > Estate Property > General Overview

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Child & Spouse Benefit Rules > Qualified Domestic Relations Orders

HN6[ ] In Pennsylvania a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets. The interest that vests in a bankruptcy debtor upon the filing of a divorce complaint is a right to equitable distribution. Such a right does not automatically confer upon the debtor any beneficiary status. Because the Employee Retirement Income Security Act has anti-alienation

provisions, and because ex-spouses do not have rights unless and until a Qualified Domestic Relations Order (QDRO) provides them with such, even if the debtor has a right to equitable distribution as of the petition date, she cannot be a beneficiary of her spouse's pension until a QDRO is entered.

Bankruptcy Law > ... > Judicial Review > Standards of Review > Abuse of Discretion

Bankruptcy Law > Procedural Matters > General Overview

Civil Procedure > Settlements > General Overview

HN7[ ] Pursuant to Fed. R. Bankr. P. 9019(a), courts may approve settlements if they find that the compromise is "fair and equitable." Compromises are favored in bankruptcy proceedings since they minimize litigation and expedite the administration of the bankruptcy estate. Determinations with respect to settlements are reviewed under the abuse of discretion standard. An abuse of discretion involves a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact. In exercising its discretion in determining whether to approve a settlement, the bankruptcy court considers four general factors: (1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the creditors.

Bankruptcy Law > Procedural Matters > General Overview

Civil Procedure > Settlements > General Overview

Family Law > ... > Equitable Distribution > Factors > General Overview

HN8[ ] 23 Pa. Cons. Stat. § 3502(a) contains eleven statutory factors a state court considers in determining the equitable division of marital property in divorce proceedings. A bankruptcy court, however, in deciding whether to approve a settlement of a marital property claim is not to decide the numerous questions of law and fact raised but rather to canvass the issues to see whether the settlement falls below the lowest point in the range of reasonableness.

Bankruptcy Law > Procedural Matters > General Overview

523 B.R. 472, *472; 2014 U.S. Dist. LEXIS 151254, **1

Page 3 of 9

Evidence > ... > Testimony > Credibility of Witnesses > General Overview

HN9[ ] As the trier of fact, a bankruptcy court is in a better position to evaluate the credibility of the witnesses than is a district court. The bankruptcy court is best positioned to assess the facts, particularly those related to credibility.

Bankruptcy Law > Estate Property > Contents of Estate > Property Recovered by Trustee

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

Bankruptcy Law > ... > Examiners, Officers & Trustees > Duties & Functions > Capacities & Roles

HN10[ ] Pursuant to 11 U.S.C.S. § 541, the bankruptcy estate includes all legal or equitable interests of the debtor in property as of the commencement of the bankruptcy. 11 U.S.C.S. § 541(a). A Chapter 7 trustee is charged with the duty to collect and reduce to money the property of the estate for which such trustee serves and close such estate as expeditiously as is compatible with the best interests of parties in interest. 11 U.S.C.S. § 704(a)(1. In actions brought by the trustee as successor to the debtor's interest under § 541, the trustee stands in the shoes of the debtor and can only assert those causes of action possessed by the debtor. Conversely, the trustee is, of course, subject to the same defenses as could have been asserted by the defendant had the action been instituted by the debtor.

Bankruptcy Law > Procedural Matters > General Overview

Bankruptcy Law > ... > Judicial Review > Standards of Review > General Overview

Civil Procedure > Settlements > General Overview

HN11[ ] Even if a settlement is fair and equitable to the parties to the settlement, approval by a bankruptcy court is not appropriate if the rights of others who are not parties to the settlement will be unduly prejudiced. A district court must determine that no one has been set apart for unfair treatment. Ignoring the effect of a settlement on rights of third parties contravenes a basic notion of fairness.

Counsel: For DIANA M. URMANN, Appellant: John P.

Vetica, Jr., LEAD ATTORNEY, Moon Township, PA; Matthew M. Herron, LEAD ATTORNEY, The Debt Doctors, Pittsburgh, PA.

For JAMES R. WALSH, Trustee for the Bankruptcy Estate of Diana M. Urmann, Appellee: James R. Walsh, LEAD ATTORNEY, Spence, Custer, Saylor, Wolfe & Rose, Johnstown, PA; Kevin J. Petak, LEAD ATTORNEY, Spence, Custer, Saylor, Wolfe & Rose, LLC, Johnstown, PA.

Judges: Nora Barry Fischer, United States District Judge.

Opinion by: Nora Barry Fischer

Opinion

[*474] MEMORANDUM OPINION

NORA BARRY FISCHER, District Judge.

I. INTRODUCTION

Pending before the Court is an appeal from an April 15, 2014 Memorandum Opinion and Order and Memorandum Order of the Bankruptcy Court in Bankruptcy Case No. 11-21606. (ECF No. 1). Appellant Diana M. Urmann ("Appellant" or "Urmann"), appeals the Bankruptcy Court's decisions sustaining, in part, the objections [*475] of Trustee James R. Walsh ("Trustee" or "Walsh") to her claim of exemption for an interest in her equitable distribution claim as it related to her non-debtor spouse's Reliance Steel & Aluminum Co. Master 401(k) Plan (the "pension"), and to the settlement of the equitable distribution claim. Based [**2] on the following, the Court will affirm the decisions of the Bankruptcy Court in all respects.

II. FACTUAL BACKGROUND

As the Bankruptcy Court has fully set forth the factual background in its findings of fact and conclusions of law supporting its decisions (ECF Nos. 1-33, 1-37), the Court restates only the facts pertinent to the instant appeal. Appellant filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code on March 18, 2011 and Walsh was appointed interim Trustee. (ECF No. 1-33 at p. 2). Prior to this filing, Appellant's husband, John C. Urmann, Jr., filed a complaint in divorce seeking dissolution of his marriage to Appellant on June 17, 2010. (Id.). As part of his divorce complaint, Mr. Urmann requested equitable distribution of their marital property.

523 B.R. 472, *472; 2014 U.S. Dist. LEXIS 151254, **1

Page 4 of 9

(Id.). At the time of the filing of the divorce complaint, the marital property included Mr. Urmann's pension worth approximately $106,224.26. (Id.). On January 21, 2011, Appellant filed her counterclaim to the divorce complaint, and asserted a claim for alimony, alimony pendent lite, and/or spousal support. (Id.). It is undisputed that at the time Appellant filed her bankruptcy petition, no final state court order had been [**3] entered related to any of the matters raised in the complaint and counterclaim in the divorce action.

Appellant represented on her Schedule B that she did not have an interest in any annuities, IRA, ERISA, or other pension plans; alimony, maintenance, support and property settlements; contingent and unliquidated claims; and/or any other kind of personal property not already listed in her schedules. (Id.). Appellant did not claim any exemptions for such property on Schedule C. (Id.). On her Statement of Financial Affairs, Plaintiff stated that she was not a party to any lawsuit filed within one year prior to filing of the bankruptcy proceeding. (Id. at pp. 2-3).

The Trustee subsequently convened a section 341 Meeting of Creditors ("MOC") on April 18, 2011. (Id. at p. 3). Upon questioning by the Trustee, Appellant disclosed her existing divorce proceedings, and her claims for equitable distribution and support. (Id.). Thereafter, on April 25, 2011, Appellant amended her Schedules B and C, and included and exempted a one-third interest in a life insurance policy valued at $2,058.87. (Id.). She did not, however, include her equitable distribution claim and/or spousal support claim. (Id.). [**4]

Shortly after the MOC, the Trustee, and/or Kevin J. Petak, Esquire, ("Petak"), counsel for the Trustee, repeatedly requested information from Appellant's bankruptcy counsel, Matthew M. Herron, Esquire ("Herron"), and/or Stephanie Jones McFadden, Esquire ("McFadden"), Appellant's divorce counsel, regarding the value of the pension. (Id. at p. 14). In failing to supply the information, Appellant averred that the information was not available. (Id.). During the evidentiary hearing before the Bankruptcy Court, however, correspondence entered into evidence revealed that Appellant had been provided information regarding the value of the pension prior to October 12, 2011, and the information was readily available to her as early as March 23, 2011. (Id. at p. 15). Despite repeated inquiries, this information was not supplied to the Trustee until October 24, 2012. (Id. at p. 14). According to correspondence introduced at the Bankruptcy hearing, the value of one-half [*476] of the

pension at the time of separation was $53,112.13, and Appellant was of the view that her equitable distribution claim was worth approximately $60,000.00. (Id. at pp. 8-9).

Thereafter, Petak contacted McFadden on October 30, [**5] 2012 and January 21, 2013, requesting a status report regarding the equitable distribution claim. (Id. at p. 15). Due to Appellant's inaction in resolving the equitable distribution claim in divorce court, Petak took steps to negotiate a settlement with Mr. Urmann's counsel directly, informing all counsel of his intent by copy of his correspondence. (Id. at p. 16). Petak, along with Appellant, McFadden, Mr. Urmann, and Mr. Urmann's attorney, attended the Master's Preliminary Conference scheduled in the divorce proceedings on August 20, 2013. (Id.). The equitable distribution claim was subsequently settled for $30,000.00. (Id. at p. 3). Petak drafted a qualified domestic relations order ("QDRO") for Appellant's signature in order to execute the settlement, but Appellant refused to sign the document. (Id. at p. 17).

In light of Appellant's refusal, on November 4, 2013, the Trustee filed a Motion to Approve Settlement seeking to settle the equitable distribution claim for $30,000.00. (Id. at p. 3). Shortly thereafter, on November 18, 2013, Appellant filed a second amendment to Schedules B and C and listed, for the first time, her interest in the pension of Mr. Urmann valued at $60,000.00, [**6] as well as an interest in alimony, maintenance and support for an undetermined amount. (Id.). Appellant also filed Objections to the Motion to Approve Settlement on November 21, 2013, wherein she argued that she did not possess a "claim" relative to her interest in the pension, that said interest was not property of the bankruptcy estate under 11 U.S.C. § 541(c)(2), and if it was considered property of the estate, it would be exemptable. (Id.). The Trustee filed Objections to Appellant's Amended Exemptions on December 13, 2013, and argued that Appellant did not have an interest in the pension but merely a claim for equitable distribution. (Id. at pp. 3-4).

An evidentiary hearing was held before the Bankruptcy Court on January 21, 2014 on both the Motion to Approve Settlement and the Objection to the Amended Exemptions. (Id. at p. 4). With respect to the Motion to Approve Settlement, Appellant claimed that her interest in the pension was excluded from property of the bankruptcy estate under 11 U.S.C. § 541(c)(2) and alternatively, even if it was property of the estate, the settlement should not be approved since a greater

523 B.R. 472, *475; 2014 U.S. Dist. LEXIS 151254, **2

Page 5 of 9

recovery was possible and the settlement was prejudicial to her. (Id. at p. 4). With respect to the Trustee's [**7] Objections, Appellant argued that if the interest in the pension was considered to be property of the estate, then it was exemptable in full under 11 U.S.C. §§ 522(b)(3)(C), (d)(10)(E), and/or (d)(12) and/or, in part, pursuant to (d)(5). (Id. at p. 4 n.3). At the conclusion of the hearing, supplemental briefs were filed by the parties. (Id. at p. 4).

On April 15, 2014, the Bankruptcy Court issued a Memorandum Opinion granting the Trustee's Motion to Approve Settlement. (ECF No. 1-33). The Bankruptcy Court also issued a Memorandum Order sustaining in part and overruling in part the Trustee's Objections to the Amended Exemptions. (ECF No. 1-37). Pertinent to this appeal, the Bankruptcy Court sustained the Trustee's objections to Appellant's claim of exemptions with respect to the equitable distribution claim pursuant to 11 U.S.C. §§ 522(b)(3)(C), (d)(10)(E), and (d)(12). (Id.). The instant appeal ensued.

[*477] III. LEGAL STANDARD

HN1[ ] This court has appellate jurisdiction over final judgments, orders and decrees of a bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law under a de novo standard. In re SubMicron Sys. Corp., 432 F.3d 448, 454 (3d Cir. 2006).

IV. DISCUSSION

Appellant raises three arguments on appeal. Appellant first argues that the Bankruptcy Court erred in [**8] rejecting her claimed exemptions relating to her interest in Mr. Urmann's pension. Appellant further argues that the Bankruptcy Court erred in approving the settlement of the equitable distribution claim between the Trustee and Mr. Urmann. Finally, Appellant contends that the Bankruptcy Court erred in ordering that the Trustee be named as the direct payee in the QDRO.

Claimed exemptions

HN2[ ] Pursuant to the Bankruptcy Code, debtors may exempt some types of property from the bankruptcy estate. See 11 U.S.C. § 522. A debtor may exempt "retirement funds" if they are in an "account that is exempt from taxation" under certain enumerated provisions of the Internal Revenue Code. See 11 U.S.C. §§ 522(b)(3)(C) and (d)(12). The exemption available

pursuant to § 522(d)(10)(E) allows a debtor to exempt funds under a pension plan "to the extent reasonably necessary for the support of the debtor and any dependent of the debtor." See 11 U.S.C. § 522(d)(10)(E).

Appellant claimed that her interest in Mr. Urmann's pension was exempt from the bankruptcy proceedings pursuant these provisions. The Trustee challenged the claimed exemptions on the grounds that Appellant did not have an interest in Mr. Urmann's pension at the time of the bankruptcy filing, but only had an interest in a claim for equitable [**9] distribution. The Bankruptcy Court agreed, noting that at the time Appellant filed her bankruptcy case, the claim for equitable distribution in the divorce case remained unresolved. (ECF No. 1-33 at p. 5). The Bankruptcy Court reasoned:

In a case strikingly similar to the within matter, the Court in Walsh v. Burgeson (In re Burgeson), 504 B.R. 800 (Bankr.W.D.Pa.2014), recently examined whether a debtor's interest in an estranged spouse's qualified pension plan is excluded from property of the estate under § 541(c)(2). Said analysis is hereby adopted and incorporated within. The Court in In re Burgeson held that where a debtor possesses a claim for equitable distribution at the time of filing, but no Qualified Domestic Relations Order ("QDRO") or divorce decree delineating the debtor's ownership interest in the pension plan was obtained prior to the filing of the bankruptcy petition, and the debtor was neither a participant nor named beneficiary under the pension plan, the debtor had no beneficiary interest in the pension but instead, possessed an interest in a claim for equitable distribution. In re Burgeson, 504 B.R. at 805. As such, the debtor's interest in the pension could not be excluded from the estate pursuant to ERISA and the interest was property of the estate. Id.

In the within matter, [**10] it is undisputed, and this Court finds, that at the time of filing, Debtor had not obtained a QDRO or similar order granting Debtor an ownership interest in the Pension. Likewise, Debtor has failed to present any evidence demonstrating that Debtor was a participant or named beneficiary of the Pension as described in Burgeson. Consequently, this Court finds that [*478] Debtor did not have a beneficiary interest in the Pension at the time of filing and that any interest Debtor did possess in the Pension, through her equitable distribution claim, is property of the

523 B.R. 472, *476; 2014 U.S. Dist. LEXIS 151254, **6

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estate.(ECF No. 1-33 at p. 6). The Bankruptcy Court concluded that because Appellant's interest in the equitable distribution claim did not qualify as an interest in retirement or pension funds, the Trustee had satisfied his ultimate burden of persuasion of demonstrating that Appellant's interest in the claim for equitable distribution was not exemptable under 11 U.S.C. §§ 522(b)(3)(C), (d)(10)(E), and/or (d)(12). (ECF No. 1-37 at No. 4).

In this appeal, Appellant argues that the Bankruptcy Court erred in sustaining the Trustee's objections to her claimed exemptions. Substantially similar arguments were addressed and specifically rejected by the court in Walsh v. Burgeson (In re Burgeson), 504 B.R. 800, 805 (Bankr. W.D. Pa. 2014), upon which the Bankruptcy [**11] Court relied. Accordingly, a discussion of Burgeson is in order. In Burgeson, the debtor, like the Appellant here, argued that her potential interest in her husband's pension plan in a pending divorce action was not property of the estate, and in the event that it was, her interest was entitled to exemption pursuant to 11 U.S.C. § 522(b)(4)(A). Burgeson, 504 B.R. at 803. At the time debtor filed for bankruptcy, her claim for equitable distribution had not yet been adjudicated and no divorce decree had been entered. Id. at 802. In sustaining the Trustee's objections to the debtor's claimed exemption, the court stated:

In the instant case, the Debtor filed her bankruptcy petition before obtaining a QDRO or divorce decree. Although she subsequently has obtained a QDRO, HN3[ ] property of a bankruptcy estate is determined as of the date the bankruptcy petition is filed. 11 U.S.C. §§ 522, 541(a)(1). Because no QDRO existed as of the Petition Date, and the Debtor was not a participant nor named as a beneficiary of the Pension, the Debtor had no beneficiary interest in the Pension as of the Petition Date; rather, at the time of filing the bankruptcy petition, the Debtor had an interest in a claim for equitable distribution. Thus, the Court finds that the Debtor's interest in the [**12] Pension cannot be excluded from the estate pursuant to ERISA's anti-alienation provisions.. . .

Furthermore, under Pennsylvania state law, the Debtor's interest in the equitable distribution claim must be included in the estate. HN4[ ] "State law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under § 541(a)." In re

Radinick, 419 B.R. 291, 294 (Bankr.W.D.Pa. 2009), (citing In re Frederes, 141 B.R. 289, 291 (Bankr.W.D.N.Y. 1992)); see also Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). In Pennsylvania, "a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets." In re Radinick, 419 B.R. 291, 295 (Bankr.W.D.Pa. 2009) (citing In re Bennett, 175 B.R. 181, 185 & 186 nn. 5, 6 (Bankr.E.D.Pa. 1994); In re Polliard, 152 B.R. 51, 53 (Bankr.W.D.Pa. 1993)). Such marital interest constitutes a property interest in marital assets. Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 184; In re Scholl, 234 B.R. 636, 641 (Bankr.E.D.Pa. 1999)). Thus:

[*479] HN5[ ] if a debtor, prior to filing a bankruptcy petition, files for divorce in Pennsylvania and also requests equitable distribution, such debtor will, as of the date of such bankruptcy petition filing, possess a marital interest in property, which marital interest (a) itself constitutes a legal and/or equitable interest of the debtor in property as of the commencement of the case, regardless of when such debtor becomes divorced, ... and (b) will thus constitute bankruptcy estate property regardless [**13] of when such debtor becomes divorced.

Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 182, 184; Scholl, 234 B.R. at 638, 641; 11 U.S.C.A. § 541(a)(1)).

Under Pennsylvania law, the Debtor had a right to equitable distribution at the time she filed the Divorce Complaint and as of the Petition Date; as such, said interest is hereby deemed to be property of her bankruptcy estate.

Burgeson, 504 B.R. at 805-06. The court went on to reject the debtor's argument that her interest in the pension should be exempted from her estate, reasoning:

However, as noted supra, HN6[ ] "in Pennsylvania a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets." Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 186 nn. 5, 6; Polliard, 152 B.R. at 53). The

523 B.R. 472, *478; 2014 U.S. Dist. LEXIS 151254, **10

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interest that vested in the Debtor upon the filing of the Divorce Complaint was a right to equitable distribution. Such a right did not automatically confer upon the Debtor any beneficiary status. Because ERISA has anti-alienation provisions, and because ex-spouse's do not have rights unless and until a QDRO provides them with such, even though Debtor had a right to equitable distribution as of the Petition Date, she could not be a beneficiary of the Pension until a QDRO was entered, which was after the Petition Date. [**14]

Burgeson, 504 B.R. at 807.

In light of Burgeson, as well as the case law cited therein, and for the reasons stated by the Bankruptcy Court, Appellant does not qualify for the claimed exemptions. Accordingly, the Court finds that the Bankruptcy Court did not err in sustaining the Trustee's objections with respect to the claimed exemptions.

Approval of Settlement

Appellant further argues that the Bankruptcy Court erred in approving the settlement of her equitable distribution claim as it related to her interest in Mr. Urmann's pension "for half of the amount" to which she was entitled. (ECF No. 3 at p. 16). HN7[ ] Pursuant to Bankruptcy Rule 9019(a), courts may approve settlements if they find that the compromise is "fair and equitable." Crawford v. Zambrano (In re Zambrano Corp.), 2014 Bankr. LEXIS 592, 2014 WL 585305 at *3 (Bankr. W.D. Pa. 2014). Compromises are favored in bankruptcy proceedings since they minimize litigation and expedite the administration of the bankruptcy estate. See In re Martin, 91 F.3d 389, 393 (3d Cir. 1996) (quoting 9 Collier on Bankruptcy ¶ 9019.03[1] (15th ed. 1993)). Determinations with respect to settlements are reviewed under the abuse of discretion standard. Id. "An abuse of discretion involves 'a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact.'" Valenti v. Mitchell, 962 F.2d 288, 299 (3d Cir. 1992) (quoting International Union, UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir. 1987)). In exercising its discretion in determining whether to [**15] approve a settlement, the Bankruptcy Court considers four [*480] general factors: (1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest of the creditors. Martin, 91 F.3d at 393.

Here, the Bankruptcy Court considered the relevant

factors in determining whether the settlement was fair and equitable. As to the first factor, the probability of success in litigation, the Bankruptcy Court found that the value of the pension at the time of separation was $106,224.26, an amount not disputed by Appellant in this appeal. (ECF No. 1-33 at p. 9).1 The Bankruptcy Court found it unlikely that Appellant would be successful in obtaining an award of $60,000.00, an amount greater than the value of one-half of the pension. (Id.). The Court further found that Appellant's success in receiving even one-half the value was tentative. (Id.). The Bankruptcy Court supported these findings by pointing to Attorney McFadden's testimony at the hearing, wherein she testified that a division of assets was not necessarily equal and that other considerations were examined [**16] in determining the division. (Id.). Based on this testimony, the Bankruptcy Court concluded that whether the Trustee would be successful in receiving one-half of the value of the pension at trial would be within the full discretion of the state court hearing the claim and subject to that court's determination. (Id.) As such, the Bankruptcy Court concluded that the uncertainty of the litigation weighed in favor of approving the settlement. (Id.).

The Court agrees with the Bankruptcy Court's conclusion and finds that it did not abuse its discretion in concluding that the probability of success in obtaining more than one-half of the pension was low. Moreover, the Court rejects Appellant's contention that the Bankruptcy Court should have considered the factors enumerated in 23 Pa.C.S.A. § 3502(a) in evaluating the probability of success prong. HN8[ ] This section contains eleven statutory factors a state court considers in [**17] determining the equitable division of marital property in divorce proceedings. The Bankruptcy Court, however, is not to "decide the numerous questions of law and fact raised ... but rather to canvass the issues to see whether the settlement fall[s] below the lowest point in the range of reasonableness." In re Neshaminy Office Bldg. Associates, 62 B.R. 798, 803 (E.D.Pa. 1986) (citing In re Carla Leather, 44 B.R. 457, 465 (Bankr. S.D.N.Y. 1984)). The Court therefore finds no error in this regard.

The Bankruptcy Court next examined the third prong of the Martin factors, finding it was closely related to the

1 As the Bankruptcy Court observed, the Trustee did not argue that if he were to proceed to trial on the equitable distribution claim he would be unsuccessful in receiving an award at all; rather, the probability of success factor related to the amount that would be awarded. (ECF No. 1-33 at p. 8).

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first prong, and concluded that the inconvenience of litigation, including the additional cost and delay, would ultimately net no additional benefit. (Id. at pp. 9-10). The Bankruptcy Court credited Attorney Petak's testimony that the costs of litigation would exceed any additional benefit that would be gained from further litigation. (Id. at p. 10). Attorney Petak testified that in order to proceed with the litigation, the bankruptcy estate would need to engage an expert witness, and would also incur attorney's fees in the approximate amount of $20,000.00 to $25,000.00, effectively negating any anticipated additional recovery that the Trustee would receive even if awarded the full one-half value of the pension. (Id. at [**18] p. 10). The Bankruptcy [*481] Court specifically assigned little weight to Attorney McFadden's testimony that the resolution of the equitable distribution claim would cost approximately $2,000.00, based on her unfamiliarity with the proposed settlement, as well as her lack of involvement in the negotiations. (Id. at p. 10). The Bankruptcy Court further found that even if Attorney McFadden's estimation was reliable, the estate was without sufficient funds to retain Attorney McFadden, or any other divorce counsel. (Id. at p. 11).

Appellant argues that the Bankruptcy Court "simply relied upon the testimony of Attorney Petak" in evaluating this prong. (ECF No. 3 at p. 18). As this Court recently stated, however, HN9[ ] "[a]s the trier of fact, the Bankruptcy Court was in a better position to evaluate the credibility of the witnesses than is this Court." Corso v. Walker, 449 B.R. 838, 843 (W.D.Pa. 2011) (citing In re Myers, 491 F.3d 120, 126 (3d Cir. 2007) ("The Bankruptcy Court is best positioned to assess the facts, particularly those related to credibility ...")). Accordingly, this Court defers to the Bankruptcy Court's factual findings, which are not clearly erroneous and are supported by the record.

With regard to the second factor, the likely difficulties in collection, the Bankruptcy Court made [**19] the following findings:

... The Court notes that with the QDRO in place, the plan administrator of the Pension would make a distribution directly to Movant-Trustee upon the liquidation date, estimated at trial to occur in roughly six years, whereas absent the QDRO the Movant-Trustee would be dependent on Mr. Urmann's voluntary turnover of the settlement proceeds received by Mr. Urmann via distributions and/or withdrawals from the Pension upon reaching a certain age. The Court recognizes that direct

payment from Mr. Urmann's plan administrator minimizes the risk of Mr. Urmann's failure to cooperate in the future and/or the necessity of litigation to compel payment(s) to the Movant-Trustee. Moreover, in the event that the equitable distribution claim is paid to the Debtor, the Movant-Trustee would similarly be forced to rely on Debtor's voluntary turnover of the equitable distribution claim's proceeds. As Debtor has been wholly uncooperative with the Movant-Trustee, as well as his counsel, since Debtor's divulgence of the existing equitable distribution claim at the MOC, the Court finds that the Movant-Trustee would have a greater chance of collection of the estate assets with a QDRO [**20] directly payable to Movant-Trustee in place as contemplated by the proposed settlement.

(ECF No. 1-33 at p. 11).

Appellant argues that the Bankruptcy Court abused its discretion in approving the settlement with the Trustee being named as the direct payee under a QDRO. (ECF No. 3 at p. 22). Appellant contends that pursuant to ERISA, only a spouse, former spouse, child or other dependent of a plan participant can be named as an alternate payee. See 29 U.S.C. § 1056(d)(3)(K). Conversely, the Trustee maintains that under 11 U.S.C. § 541, he necessarily "steps into the shoes" of the debtor as it relates to any and all interest that the debtor possessed as of the bankruptcy filing, including the debtor's claim for equitable distribution, and can therefore appropriately be designated as an alternate payee. (ECF No. 5 at p. 22). The Court is of the view that the Trustee has the better side of the argument.

HN10[ ] Pursuant to § 541, the bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement" of the bankruptcy. 11 U.S.C. § 541(a); see also O'Dowd v. [*482] Trueger, 233 F.3d 197, 202 (3d Cir. 2000). These legal and equitable interests include causes of action. 3 Collier on Bankruptcy ¶ 323.02[1] (15th rev. ed. 2001); accord O'Dowd, 233 F.3d at 202-03. A Chapter 7 trustee is charged with the duty [**21] to "collect and reduce to money the property of the estate for which such trustee serves and close such estate as expeditiously as is compatible with the best interests of parties in interest...." 11 U.S.C. § 704(a)(1); Martin, 91 F.3d at 394. "[I]n actions brought by the trustee as successor to the debtor's interest under section 541, the 'trustee stands in the shoes of the debtor and can only assert those causes of action possessed by the debtor.' [Conversely], [t]he trustee is, of course, subject to the

523 B.R. 472, *480; 2014 U.S. Dist. LEXIS 151254, **17

Page 9 of 9

same defenses as could have been asserted by the defendant had the action been instituted by the debtor.'" Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 356 (3d Cir. 2001) (quoting Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154 (3d Cir. 1989)). The Trustee here stepped into the shoes of the Appellant in settling the equitable distribution claim. Faced with an estranged spouse and a consistently uncooperative debtor who failed and refused to execute the necessary documents (findings the Appellant does not dispute), the Bankruptcy Court appropriately exercised its discretion in finding that the Trustee would have a greater chance of collection of the estate assets if the Trustee was named as a direct payee in the QDRO. (ECF No. 1-33 at p. 11). To find otherwise would result in an additional litigation burden on the Trustee to collect the pension, running counter to the [**22] Trustee's duty to fulfill his statutory duties expeditiously. Accordingly, the Court finds no abuse of discretion with respect to this Martin factor.2

Appellant does not dispute the Bankruptcy Court's finding that the proposed settlement was in the best interest of the creditors. Accordingly, the Court need not address this prong.

Finally, as the Appellant points out, in addition to the Martin factors, the Bankruptcy Court must consider whether the proposed settlement is fair and equitable. Walsh v. Hefron-Tillotson, Inc. (In re Devon Capitol Management, Inc.), 261 B.R. 619, 623 (Bankr. W.D.Pa. 2001). HN11[ ] "Even if a settlement is fair and equitable to the parties to the settlement, approval is not appropriate if the rights of others who are not parties to the settlement will be unduly prejudiced. We must determine that 'no one has been set apart for unfair treatment'. Ignoring the effect of a settlement on [**23] rights of third parties 'contravenes a basic notion of fairness'." Id. (citations omitted).

Here, the essence of the Appellant's challenge is that the settlement was prejudicial to her since a larger settlement amount would have produced a surplus to the estate and yielded a larger payment to her. (ECF

2 Appellant further argues that the Bankruptcy Court exceeded its jurisdiction because only a state court can "issue" a QDRO. (ECF No. 3 at pp. 23-24). The Bankruptcy Court did not, however, issue a QDRO; rather, it simply ordered that the Plan Administrator accept the Trustee's execution of any and all documents to effectuate a withdrawal of the pension funds as an alternate payee. (ECF No. 35 at p. 2).

No. 3 at p. 20). The Bankruptcy Court, however, specifically rejected this argument, observing that Appellant's contention that the equitable distribution claim was worth approximately $60,000.00 was unsubstantiated. (ECF No. 1-33 at pp. 13-14). Moreover, the Bankruptcy Court further found that any perceived hardship or unfairness to the Appellant was a direct result of her [*483] own inaction and misconduct, which the Bankruptcy Court thoroughly chronicled based on the evidence revealed at the hearing, conduct which the Appellant has not factually challenged on appeal. (Id. at pp. 14-17.). Considering the Bankruptcy Court's findings in light of the evidence produced at the hearing, this Court finds no basis to conclude that the Bankruptcy Court erred in approving the settlement.

VI. CONCLUSION

Based on the foregoing, the Appellant's appeal is DENIED and the April 15, 2014 Memorandum Opinion, Order, [**24] and Memorandum Order are AFFIRMED. An appropriate Order follows.

/s/ Nora Barry FischerNora Barry Fischer

Nora Barry FischerNora Barry Fischer

United States District Judge

October 24, 2014

[EDITOR'S NOTE: The following court-provided text does not appear at this cite in B.R.]

[*none] ORDER OF COURT

AND NOW, this 24th day of October, 2014, in accordance with the foregoing Memorandum Opinion,

IT IS HEREBY ORDERED that the Appeal of Diana M. Urmann is DENIED and the April 15, 2014 Memorandum Opinion, Order, and Memorandum Order of the Bankruptcy Court are AFFIRMED.

IT IS FUTHER ORDERED that the Clerk of Court shall mark this case CLOSED.

/s/ Nora Barry FischerNora Barry Fischer

Nora Barry FischerNora Barry Fischer

United States District Judge

End of Document

523 B.R. 472, *482; 2014 U.S. Dist. LEXIS 151254, **21

Walsh v. Burgeson (In re Burgeson)

United States Bankruptcy Court for the Western District of Pennsylvania

January 16, 2014, Decided

Bankruptcy No. 10-71273-JAD, Chapter 7, Doc. # 55

Reporter504 B.R. 800 *; 2014 Bankr. LEXIS 193 **; 2014 WL 198824

IN RE: MICHELE G. BURGESON, Debtor.JAMES R. WALSH, ESQUIRE, TRUSTEE OF THE BANKRUPTCY ESTATE OF MICHELE G. BURGESON, Movant, v. MICHELE G. BURGESON, Respondent.

Core TermsPension, exemption, equitable distribution, beneficiary, bankrupt estate, Ex-Husband, Divorce, marital, provisions, bankruptcy petition, constitutes, spouse, divorce action, argues

Case Summary

OverviewHOLDINGS: [1]-A Chapter 7 debtor was not allowed under 11 U.S.C.S. § 522(b)(4)(A) to exempt the full amount of an interest she acquired in an ERISA-qualified pension plan her husband owned, even though she filed for divorce before she declared bankruptcy, because a state court issued a QDRO which gave her an interest in her husband's plan after she declared bankruptcy; however, the debtor was allowed to claim an exemption under § 522(d)(5) that was limited to $10,325; [2]-Because no QDRO existed on the date the debtor filed her bankruptcy petition and she was not named as a beneficiary of her husband's plan, the amount she received under the QDRO could not be excluded from her estate pursuant to ERISA's anti-alienation provisions.

OutcomeThe court sustained the trustee's objection.

LexisNexis® Headnotes

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

Pensions & Benefits Law > ... > ERISA Pension Plan

Qualification Requirements > Basic Plan Requirements > Alienation & Assignment of Benefits

HN1[ ] Pursuant to 11 U.S.C.S. § 541(c)(2), property that is subject to restrictions on transfer by "applicable nonbankruptcy law" is excluded from property of a debtor's bankruptcy estate. In Patterson v. Shumate, the United States Supreme Court held that debtors are entitled to exclude interests in the Employee Retirement Income Security Act ("ERISA")-qualified pensions pursuant to § 541(c)(2), due to ERISA's transfer restriction provisions included in 29 U.S.C.S. § 1056(d)(1).

Business & Corporate Compliance > ... > ERISA Pension Plan Qualification Requirements > Participation & Vesting > Participation Requirements

HN2[ ] The Employee Retirement Income Security Act, 29 U.S.C.S. § 1001 et seq., defines a "participant" as the following: any employee or former employee or an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit. 29 U.S.C.S. § 1002(7).

Evidence > Burdens of Proof > Allocation

Business & Corporate Compliance > ... > ERISA > ERISA Pension Plan Qualification Requirements > Payment of Benefits

HN3[ ] "Beneficiary" is defined by the Employee Retirement Income Security Act, 29 U.S.C.S. § 1001 et seq., as a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. 29 U.S.C.S. §

Page 2 of 8

1002(8). Pursuant to this language, a beneficiary must prove a "designation" by a participant or the terms of the plan.

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Child & Spouse Benefit Rules > Qualified Domestic Relations Orders

HN4[ ] While many courts have extended the reasoning of the United States Supreme Court's decision in Patterson v. Shumate to exclude a debtor's interest in an ex-spouse's Employee Retirement Income Security Act-qualified pension plan, such courts have only excluded such an interest where the debtor obtained a qualified domestic relations order or divorce decree delineating the debtor's ownership interest in the pension plan prior to the debtor's filing for bankruptcy.

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Basic Plan Requirements > Alienation & Assignment of Benefits

Business & Corporate Compliance > ... > ERISA Pension Plan Qualification Requirements > Participation & Vesting > Participation Requirements

Business & Corporate Compliance > ... > ERISA > ERISA Pension Plan Qualification Requirements > Payment of Benefits

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Child & Spouse Benefit Rules > Qualified Domestic Relations Orders

HN5[ ] In Boggs v. Boggs, the United States Supreme Court, noting that the axis around which the Employee Retirement Income Security Act's ("ERISA's"), 29 U.S.C.S. § 1001 et seq., protections revolve are the concepts of "participant" and "beneficiary," stated that in creating the qualified domestic relations order ("QDRO") mechanism, Congress was careful to provide that an alternate payee who is the spouse, former spouse, child, or other dependent of a participant is to be considered a plan beneficiary. In In re Nelson, the United States Court of Appeals for the Eighth Circuit stated that Congress intended that all persons conferred beneficiary status via a QDRO be given the same protections ERISA affords to plan participants. Those protections include ERISA's anti-alienation provisions.

Therefore, a person who acquires an interest in an ERISA plan via a QDRO can exclude that interest from a bankruptcy estate in the same way that a plan participant herself could have excluded it.

Bankruptcy Law > Exemptions > Bankruptcy Code Exemptions

Business & Corporate Compliance > ... > ERISA > ERISA Pension Plan Qualification Requirements > Payment of Benefits

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Child & Spouse Benefit Rules > Qualified Domestic Relations Orders

HN6[ ] Both the United States Supreme Court's decision in Boggs v. Boggs and the United States Court of Appeals for the Eighth Circuit's decision in In re Nelson indicate that a spouse can be conferred beneficiary status under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C.S. § 1001 et seq,, for purposes of claiming that payments the spouse receives under his or her spouse's ERISA plan are exempt from creditors' claims under 11 U.S.C.S. § 522, but only via a qualified domestic relations order ("QDRO") entered prior to the date on which the spouse files his or her bankruptcy petition. The QRDO provides the basis for a spouse to assert an entitlement to a benefit under an ERISA-qualified pension. Otherwise, ERISA does not confer beneficiary status on nonparticipants by reason of their marital or dependent status.

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

HN7[ ] Property of a bankruptcy estate is determined as of the date the bankruptcy petition is filed. 11 U.S.C.S. §§ 522, 541(a)(1).

Business & Corporate Compliance > ... > ERISA > ERISA Pension Plan Qualification Requirements > Payment of Benefits

Pensions & Benefits Law > ... > ERISA Pension Plan Qualification Requirements > Child & Spouse Benefit Rules > Qualified Domestic Relations Orders

HN8[ ] The Superior Court of Pennsylvania has

504 B.R. 800, *800; 2014 Bankr. LEXIS 193, **193

Page 3 of 8

recognized that apart from the survivor benefit, the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C.S. § 1001 et seq., does not mandate that other benefits be provided to a participant's spouse. The ERISA creates no substantive rights in the case of divorce, but only accommodates, by the provisions governing qualified domestic relations orders, rights created by state matrimonial law.

Bankruptcy Law > ... > Bankruptcy > Estate Property > Contents of Estate

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN9[ ] Under Pennsylvania state law, a debtor's interest in an equitable distribution claim must be included in the debtor's bankruptcy estate. State law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under 11 U.S.C.S. § 541(a). In Pennsylvania, a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets. Such marital interest constitutes a property interest in marital assets. Thus, if a debtor, prior to filing a bankruptcy petition, files for divorce in Pennsylvania and also requests equitable distribution, such debtor will, as of the date of such bankruptcy petition filing, possess a marital interest in property, which marital interest (a) itself constitutes a legal and/or equitable interest of the debtor in property as of the commencement of the case, regardless of when such debtor becomes divorced, and (b) will thus constitute bankruptcy estate property regardless of when such debtor becomes divorced.

Bankruptcy Law > Exemptions > Claims & Objections

Bankruptcy Law > Procedural Matters > General Overview

Evidence > Burdens of Proof > Allocation

Evidence > Burdens of Proof > Burden Shifting

HN10[ ] One of the fundamental goals of bankruptcy relief is to afford a "fresh start" to honest, but unfortunate, debtors, and such a policy is implemented in large part by honest debtors receiving a discharge of certain pre-petition indebtedness and retaining certain assets as "exempt" from the bankruptcy liquidation process. As such, it is axiomatic that bankruptcy

exemptions be liberally construed in favor of debtors. Given the public policy behind exemptions, it follows that the Federal Rules of Bankruptcy Procedure provide that an objecting party has the burden of proving that exemptions are not properly claimed. Fed. R. Bankr. P. 4003(c). With respect to exemption litigation, the burden of production is a shifting one when there is an objection to a claimed exemption. Thus, the objecting party bears both the initial burden of production and the ultimate burden of persuasion in any controversy regarding the legitimacy of claimed exemptions.

Bankruptcy Law > Exemptions > Bankruptcy Code Exemptions

HN11[ ] Under 11 U.S.C.S. § 522(b)(4)(A), retirement funds are exempted from a debtor's bankruptcy estate if they received a favorable determination under 26 U.S.C.S. § 7805, and that determination is in effect as of the date of the filing of the petition in a case under the Bankruptcy Code.

Family Law > ... > Property Distribution > Equitable Distribution > General Overview

HN12[ ] In Pennsylvania, a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets.

Counsel: [**1] For Michele G. Burgeson, Debtor: David J. Hopkins, Du Bois, PA.

For James R. Walsh, Trustee: David J. Novak, Spence Custer Saylor Wolfe & Rose, Johnstown, PA; Kevin J. Petak, Spence Custer Saylor Wolfe & Rose, LLC, Johnstown, PA; James R. Walsh, Spence, Custer, Saylor, Wolfe & Rose, Johnstown, PA.

Judges: JEFFERY A. DELLER, United States Chief Bankruptcy Judge.

Opinion by: JEFFERY A. DELLER

Opinion

[*801] MEMORANDUM OPINION

The matter before the Court is an objection to

504 B.R. 800, *800; 2014 Bankr. LEXIS 193, **193

Page 4 of 8

exemptions (the "Objection") filed by James R. Walsh, Esquire, trustee (the "Trustee"), challenging the exemptions claimed by the debtor, Michele G. Burgeson (the "Debtor"). The matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and the Court has jurisdiction [*802] over the matter pursuant to 28 U.S.C. § 1334(b).

Through the Objection, filed pursuant to 11 U.S.C. § 522(l), the Trustee requests that this Court disallow the Debtor's exemption relating to any and all interest in her ex-husband's ERISA-qualified pension (the "Pension") and decree that the Debtor's interest in the Pension is property of the bankruptcy estate. The Trustee argues that the Debtor's interest in the Pension cannot be exempted under 11 U.S.C. § 522(d)(10)(E) because the Debtor had no interest in the Pension at the time she filed her bankruptcy petition, but instead [**2] possessed an interest in a claim for equitable distribution. As such, the Trustee argues that the debtor's exemption in the equitable distribution claim should be limited to $10,325 under 11 U.S.C. § 522(d)(5). For the reasons set forth more fully below, the Trustee's objection is sustained.

I.

The Debtor commenced the instant case by filing a voluntary petition (the "Petition") for relief under Chapter 7 of the U.S. Bankruptcy Code on October 27, 2010 (the "Petition Date"). Prior to filing her Petition, the Debtor filed a complaint in divorce (the "Divorce Complaint") in the Court of Common Pleas of Jefferson County, Pennsylvania, against her now ex-husband, Mr. Martin L. Burgeson (the "Ex-Husband"), found at Docket Number 11033-2009. (See Doc. # 68, ¶ 10). The Debtor and her Ex-Husband were married in the Commonwealth of Pennsylvania on May 30, 1992, and the Divorce Complaint was filed on September 25, 2009. (See id. at ¶¶ 5, 10). In Count II of the Divorce Complaint, the Debtor requested equitable distribution of all marital property. (See id. at ¶ 11). The only assets of the marriage were the Debtor's pension, the Ex-Husband's Pension, and a John Deere lawn mower. (See Doc. # 70, pp. 3-4).

At issue here [**3] is the Debtor's interest in the Ex-Husband's Pension, which constitutes a benefit plan under the Employee Retirement Income Security Act ("ERISA"), codified at 29 U.S.C. § 1001. On the Petition Date, the Ex-Husband was employed by Windstream Communications, Inc., and was a participant in the Windstream Communications, Inc. ERISA-qualified

Pension. (See Doc. # 68, ¶ 7). Throughout the marriage, the Ex-Husband was the sole named participant in the Pension. (See id. at ¶ 9). At no time was the Debtor employed by Windstream Communications, Inc. or a participant in the Pension. (See id. at ¶ 8).

As of the Petition Date, the Debtor's claim for equitable distribution had not yet been adjudicated and no divorce decree had yet been entered. The Debtor disclosed an interest in "[u]nliquidated claims related to divorce action" in her original Schedule B, an interest which the parties "agree relate[s] . . . and refer[s] to the Debtor's claim for [e]quitable [d]istribution." (Id. at ¶ 13). The Debtor claimed an exemption in said interest pursuant to 11 U.S.C. § 522(d)(5) and valued the exemption at "[u]nknown." (Id. at ¶ 14).

On December 15, 2010, the Trustee filed his original objection to the Debtor's exemption in the unliquidated claim related to the divorce action. (See Doc. # 17). A hearing [**4] was held on January 27, 2011, and the Court entered an order sustaining the original objection and limiting the Debtor's exemption under § 522(d)(5) to $10,325. (See Doc. # 30). After the Debtor attempted to amend her Schedules B and C, the Trustee and the Debtor filed a stipulation with the Court, through which the parties agreed that the amendments to Schedule C would be withdrawn without prejudice to the Debtor filing amended [*803] exemptions once the equitable distribution claim was determined. (See Doc. # 35). The stipulation was approved by order dated February 28, 2011. (See Doc. # 36).

On September 18, 2012, the Divorce Master issued a Report and Recommendation as the parties could not amicably resolve the equitable distribution claim. (See Doc. # 68, ¶ 19). The Report and Recommendation provided that the Debtor was to be awarded one half of the value of her Ex-Husband's Pension from the period of May 30, 1992 to August 15, 2009, and such sums were to be transferred to the Debtor through a Qualified Domestic Relations Order ("QDRO"). (See Doc. # 70, p. 4). No actual value was placed on the Pension or the share awarded to the Debtor. (See Doc. # 68, ¶ 20). The Report and Recommendation was approved [**5] by order dated October 12, 2012 granting the Debtor fifty percent of the marital portion of the Pension. (See id. at ¶ 21). No objections were filed to the state court order which became final and non-appealable. (See Doc. # 70, p. 4).

The Debtor then filed amended Schedule B and C (the "Amended Schedules") on February 5, 2013. (See Doc.

504 B.R. 800, *801; 2014 Bankr. LEXIS 193, **1

Page 5 of 8

# 53). In the Amended Schedules, the Debtor removed the asset and claimed exemption in the "[u]nliquidated claims related to divorce action," disclosed an interest in the ERISA-approved Pension "for informational purposes only," and claimed an exemption in the Pension pursuant to 11 U.S.C. § 522(d)(10)(E). (Doc. # 53). The Trustee filed an objection to the amended exemptions on March 8, 2013. (See Doc. # 55). A hearing on the matter was held on April 11, 2013, and the Trustee and the Debtor filed briefs on June 17, 2013 and August 1, 2013, respectively. (See Doc. ## 69, 70). Pursuant to an order of Court dated August 20, 2013, the Trustee and the Debtor re-briefed the issue to specifically address whether the Debtor owned a legal or equitable property interest in the Pension as of the Petition Date, filing supplemental briefs on September 20, 2013 and September 22, 2013. (See Doc. ## 72, [**6] 74, 75). The matter is now ripe for decision.

II.

The issues before the Court are: (a) whether the Debtor's interest in her Ex-Husband's Pension was property of her bankruptcy estate as of the Petition Date, and (b) if so, whether such interest can be exempted under the Bankruptcy Code. The Court addresses each issue in turn.

A.

The Debtor argues that the holding in Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d. 519 (1992) supports the argument that her interest in the Pension should be excluded from her bankruptcy estate. For the reasons set forth below, the Court finds the Debtor's argument unpersuasive.

HN1[ ] Pursuant to 11 U.S.C. § 541(c)(2), property that is subject to restrictions on transfer by "applicable nonbankruptcy law" is excluded from property of the bankruptcy estate. 11 U.S.C. § 541. In Patterson, the Supreme Court held that debtors are entitled to exclude interests in ERISA-qualified pensions pursuant to 11 U.S.C. § 541(c)(2), due to ERISA's transfer restriction provisions included in 29 U.S.C. § 1056(d)(1). Patterson, 504 U.S. at 759 ("The antialienation provision required for ERISA qualification . . . constitutes an enforceable transfer restriction for purposes of § 541(c)(2)'s exclusion of property from the bankruptcy estate.").

The case at issue is distinguishable from Patterson, where the Supreme Court found the Debtor's interest in

his own pension could [**7] be excluded from his bankruptcy estate; here, the Debtor herself [*804] was not a participant or beneficiary in the Pension at issue. HN2[ ] ERISA defines "participant" as the following:

any employee or former employee or an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.

29U.S.C. § 1002(7). It is undisputed that the Ex-Husband was the sole participant in the Windstream Communications, Inc. Pension, that the Debtor was never employed by Windstream Communications, Inc., and that the Debtor was never a participant in the Pension. (See Doc. # 68, ¶¶ 8, 9).

Nor was the Debtor ever a beneficiary of the Pension. HN3[ ] "Beneficiary" is defined by ERISA as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. § 1002(8). Pursuant to this language, "[a] beneficiary must prove . . . a 'designation' by the participant or the terms of the plan." Cobb v. Central States, 461 F.3d 632, 636 (5th Cir. 2006). The Debtor has not proven or alleged that either her Ex-Husband [**8] or the Pension term's designate her as a beneficiary. Under ERISA's plain language, the Debtor was not a Pension participant or beneficiary. Nor has the Debtor demonstrated that, as of the petition Date, the Debtor was "eligible to receive any such benefit" under the Pension. As such, the Debtor's reliance upon ERISA and Patterson v. Shumate is misplaced.

Further, HN4[ ] while many courts have extended the reasoning in Patterson to also exclude a debtor's interest in an ex-spouse's ERISA-qualified pension plan, such courts have only excluded such an interest where the debtor obtained a QDRO or divorce decree delineating the debtor's ownership interest in the pension plan prior to the debtor's filing for bankruptcy. See, e.g., In re Wilson, 158 B.R. 709 (Bankr. S.D. Ohio 1993); In re Debolt, 177 B.R. 31, 36 (Bankr. W.D. Pa.1994); In re Brown, 168 B.R. 331, 334-335 (Bankr. N.D.Ill.1994); Brown v. Pitzer (In re Brown), 249 B.R. 303, 308-310 (S.D. Ind. 2000).

HN5[ ] In Boggs v. Boggs, 520 U.S. 833, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997), the Supreme Court,

504 B.R. 800, *803; 2014 Bankr. LEXIS 193, **5

Page 6 of 8

noting that the "axis around which ERISA's protections revolve is the concepts of participant and beneficiary," stated that "[i]n creating the QDRO mechanism Congress was careful to provide that the alternate payee, the 'spouse, former spouse, child, or other dependent of a participant,' is to be considered a plan beneficiary." Boggs, 520 U.S. at 846-47, 854. In In re Nelson, 322 F.3d 541 (8th Cir. 2003), the court stated that Congress intended that:

all persons conferred beneficiary status via a QDRO be given the same protections ERISA [**9] affords to plan participants. Those protections include ERISA's anti-alienation provisions. Therefore, a person who acquires an interest in an ERISA plan via a QDRO can exclude that interest from a bankruptcy estate in the same way that the plan participant herself could have excluded it.

Nelson, 322 F.3d at 545. HN6[ ] Both Boggs and Nelson clearly indicate that a spouse can be conferred beneficiary status, but only via a QDRO entered prior to the petition date. See also In re Lalchandani, 279 B.R. 880 (1st Cir. BAP 2002); In re Hthiy, 283 B.R. 447 (Bankr. E.D. Mich. 2002). The QRDO provides the basis for a spouse to assert an entitlement to a benefit under an ERISA-qualified pension. Otherwise, "ERISA does not confer beneficiary status [*805] on nonparticipants by reason of their marital or dependent status." Boggs, 520 U.S. at 847.

In the instant case, the Debtor filed her bankruptcy petition before obtaining a QDRO or divorce decree. Although she subsequently has obtained a QDRO, HN7[

] property of a bankruptcy estate is determined as of the date the bankruptcy petition is filed. 11 U.S.C. §§ 522, 541(a)(1). Because no QDRO existed as of the Petition Date, and the Debtor was not a participant nor named as a beneficiary of the Pension, the Debtor had no beneficiary interest in the Pension as of the Petition Date; rather, at the time of filing the bankruptcy petition, the [**10] Debtor had an interest in a claim for equitable distribution. Thus, the Court finds that the Debtor's interest in the Pension cannot be excluded from the estate pursuant to ERISA's anti-alienation provisions.

Despite case law requiring a QDRO for a debtor to exclude an interest in an ex-spouse's pension, the Debtor argues that she had an interest in the pension through other ERISA provisions, arguing that "[e]very aspect of ERISA is meant to bestow protection and a stream of income upon a spouse." (Doc. # 75, p. 4). In support of this contention, the Debtor cites ERISA's joint

and survivor annuity provisions of section 1055 and civil action remedy provisions of section 1132 as evidence. (See id.) Not only are these provisions inapplicable to the instant case, as the Debtor is not a survivor beneficiary nor a civil complainant under section 1132, but HN8[ ] the Superior Court of Pennsylvania has recognized that "[a]part from the survivor benefit . . . , ERISA does not mandate that other benefits be provided to a participant's spouse. . . . ERISA creates no substantive rights in the case of divorce, but only accommodates, by the provisions governing QDRO's, rights created by state matrimonial law." Holz v. Holz, 2004 PA Super 181, 850 A.2d 751, 762 n.5 (Pa. Super. 2004), appeal denied, 582 Pa. 700, 871 A.2d 192 (2005), (citing Edmonds v. Edmonds, 184 Misc.2d 928, 931, 710 N.Y.S.2d 765, 769 (N.Y. Sup. Ct. 2000)). As such, the [**11] Debtor has failed to convince the Court that ERISA provides her with any interest in her Ex-Husband's Pension absent a pre-bankruptcy QDRO.

Furthermore, HN9[ ] under Pennsylvania state law, the Debtor's interest in the equitable distribution claim must be included in the estate. "State law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under § 541(a)." In re Radinick, 419 B.R. 291, 294 (Bankr. W.D. Pa. 2009), (citing In re Frederes, 141 B.R. 289, 291 (Bankr. W.D.N.Y. 2009)); see also Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L. Ed. 2d 136 (1979). In Pennsylvania, "a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets." In re Radinick, 419 B.R. 291, 295 (Bankr. W.D. Pa. 2009) (citing In re Bennett, 175 B.R. 181, 185 & 186 nn. 5, 6 (Bankr. E.D. Pa. 1994); In re Polliard, 152 B.R. 51, 53 (Bankr. W.D. Pa. 1993)). Such marital interest constitutes a property interest in marital assets. Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 184; In re Scholl, 234 B.R. 636, 641 (Bankr. E.D. Pa. 1999)). Thus:

if a debtor, prior to filing a bankruptcy petition, files for divorce in Pennsylvania and also requests equitable distribution, such debtor will, as of the date of such bankruptcy petition filing, possess a marital interest in property, which marital interest (a) itself constitutes a legal and/or equitable interest of the debtor in property as of the commencement of the case, regardless of when such debtor [*806] becomes divorced, . . . and (b) will [**12] thus constitute bankruptcy estate property regardless of when such debtor becomes divorced.

504 B.R. 800, *804; 2014 Bankr. LEXIS 193, **8

Page 7 of 8

Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 182, 184; Scholl, 234 B.R. at 638, 641; 11 U.S.C.A. § 541(a)(1)).

Under Pennsylvania law, the Debtor had a right to equitable distribution at the time she filed the Divorce Complaint and as of the Petition Date; as such, said interest is hereby deemed to be property of her bankruptcy estate.

B.

Having determined that the Debtor's right to equitable distribution constitutes bankruptcy estate property, the Court turns next to the issue of whether such an interest may be exempted from the estate.

The Court first acknowledges that HN10[ ] one of the fundamental goals of bankruptcy relief is to afford a "fresh start" to honest, but unfortunate, debtors, and that such a policy is implemented in large part by honest debtors receiving a discharge of certain pre-petition indebtedness and retaining certain assets as "exempt" from the bankruptcy liquidation process. As such, it is "axiomatic that bankruptcy exemptions . . . be liberally construed in favor of debtors." In re Claude, 206 B.R. 374, 377 (Bankr. W.D. Pa. 1997). Given the public policy behind exemptions, it follows that the Bankruptcy Rules provide that "the objecting party has the burden of proving that the exemptions are not properly claimed." Fed. R. Bankr. P. 4003(c). With respect [**13] to exemption litigation, the burden of production is a shifting one when there is an objection to a claimed exemption. In re Hendrickson, 274 B.R. 138, 149 (Bankr. W.D. Pa. 2002). Thus, the objecting party bears both the initial burden of production and the ultimate burden of persuasion in any controversy regarding the legitimacy of claimed exemptions. In re Carter, 182 F.3d 1027, 1029-30 n. 3 (9th Cir. 1999).

The Debtor argues that she had an interest in the Pension under state law, and such interest should be exempted from her estate pursuant to 11 U.S.C. § 522(b)(4)(A). The Trustee avers that because the Debtor had only a right to equitable distribution as of the Petition Date, any exemption in the Pension ultimately awarded to the Debtor in connection with the equitable distribution claim should be limited under 11 U.S.C. § 522(d)(5).

As set forth above, the Debtor's filing of his section 522(b)(4)(A) exemption gives rise to a presumption of the claimed exemption's prima facie validity. However,

the Court finds that the Trustee met his burden in overcoming the presumptive validity of the Debtor's claimed exemption by successfully arguing that the Debtor had only a claim for equitable distribution as of the Petition Date, and not an interest in a retirement fund for purposes of section 522(b)(4)(A).

HN11[ ] Under section 522(b)(4)(A), retirement funds are exempted from the bankruptcy estate if they "received [**14] a favorable determination under section 7805 of the Internal Revenue Code of 1986, and that determination is in effect as of the date of the filing of the petition in a case under this title." 11 U.S.C. § 522. The Debtor asserts the applicability of this section pursuant to Pennsylvania law, specifically pointing to 23 Pa.C.S. § 3501, which provides that "marital property" includes "all property acquired by either party during the marriage." 23 Pa.C.S. § 3501.

However, as noted supra, HN12[ ] "in Pennsylvania a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for [*807] equitable distribution of marital assets." Radinick, 419 B.R. at 295 (citing Bennett, 175 B.R. at 185, 186 nn. 5, 6; Polliard, 152 B.R. at 53). The interest that vested in the Debtor upon the filing of the Divorce Complaint was a right to equitable distribution. Such a right did not automatically confer upon the Debtor any beneficiary status. Because ERISA has anti-alienation provisions, and because ex-spouse's do not have rights unless and until a QDRO provides them with such, even though Debtor had a right to equitable distribution as of the Petition Date, she could not be a beneficiary of the Pension until a QDRO was entered, which was after the Petition Date.

The Court therefore finds that the Debtor [**15] cannot exempt her interest in her right to claim an equitable distribution of the marital assets pursuant to 11 U.S.C. § 522(b)(4)(A). The Court agrees with the Trustee that the equitable distribution claim can be exempted instead under 11 U.S.C. § 522(d)(5). Pursuant to the order entered on January 17, 2011, the Debtor's exemption under § 522(d)(5) is limited to $10,325. (See Doc. # 31).

III.

In conclusion, the Court finds that as of the Petition Date, the Debtor had a right to equitable distribution pursuant to Pennsylvania law. Because no QDRO was awarded as of the Petition Date, the Debtor is unable to exempt the interest from her bankruptcy estate.

504 B.R. 800, *806; 2014 Bankr. LEXIS 193, **12

Page 8 of 8

Because her interest qualifies as a claim for equitable distribution, the Debtor's exemption in the asset is limited to $10,325 under 11 U.S.C. § 522(d)(5). The Trustee's objection is sustained. An appropriate order will be entered.

Date: January 16, 2014

/s/ Jeffery A. Deller

JEFFERY A. DELLERJEFFERY A. DELLER

United States Chief Bankruptcy Judge

[EDITOR'S NOTE: The following court-provided text does not appear at this cite in B.R.]

[*none] ORDER

And now, this 16th day of January 2014, for the reasons set forth in the Memorandum Opinion filed herewith, the Court hereby sustains the Objection to Exemptions filed by James R. Walsh, Esquire, trustee at Doc. # 55. The Court finds that the debtor, Michele G. Burgeson, [**16] is unable to exempt any interest in her ex-husband's pension plan from her bankruptcy estate because such interest qualifies as a claim for equitable distribution. As such, the Debtor's exemption in the asset is limited to $10,325 under 11 U.S.C. § 522(d)(5).

Date: January 16, 2014

/s/ Jeffery A. Deller

JEFFERY A. DELLERJEFFERY A. DELLER

United States Chief Bankruptcy Judge

End of Document

504 B.R. 800, *807; 2014 Bankr. LEXIS 193, **15

4-523 Collier on Bankruptcy P 523.11

Collier on Bankruptcy, Sixteenth Edition > Chapter 5 BANKRUPTCY CODE, Creditors, the Debtor, and the Estate > Subchapter II Debtor’s Duties and Benefits > Chapter 523 Exceptions to Discharge

¶  523.11 Discharge Exception for Domestic Support Obligations, Property Settlement Agreements; §  523(a)(5)

Section 523(a)(5) excepts from discharge debts for a domestic support obligation. The term “domestic support obligation” is defined by section 101(14A)1 as:

a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—

(A) owed to or recoverable by—

(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—

(i) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.

Use of the words “former spouse” should serve to overrule pre-Code cases holding that annulment of a marriage voided in its inception and therefore an agreement to support the debtor’s wife was dischargeable in his bankruptcy.2 A party to an annulled marriage would still be a “former spouse.” Also, the language makes it absolutely clear that alimony payable after divorce is nondischargeable. The use of the term “spouse” makes it clear that alimony, maintenance and support due to a husband from a debtor-wife falls within the exception. The meaning of the defined term “domestic support obligation” was explained in the legislative history of the 2005 Act:

As defined in the Act, the term includes a debt owed to or recoverable by: (1) a spouse, former spouse, or child of the debtor, or such child’s parent, legal guardian, or responsible relative; or (2) a governmental unit. To qualify as a domestic support obligation, the debt must be in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit), without regard to whether such debt is expressly so designated. It

1 See ¶  101.14A supra.

2 In re Collis, 184 Misc. 717, 53 N.Y.S.2d 316 (1945); see also Norris v. Norris, 324 F.2d 826 (9th Cir. 1963).

Page 2 of 11 4-523 Collier on Bankruptcy P 523.11

must be established or subject to establishment before, on, or after the date of the order of relief pursuant to: (1) a separation agreement, divorce decree, or property settlement agreement; (2) an order of a court of record; or (3) a determination made in accordance with applicable nonbankruptcy law by a governmental unit. It does not apply to a debt assigned to a nongovernmental entity, unless it was assigned voluntarily by the spouse, former spouse, child, or parent solely for the purpose of collecting the debt.3

The term “domestic support obligation” is more expansive than the type of debt covered under the prior version of section 523(a)(5).4 Under prior law, to be nondischargeable under section 523(a)(5), an obligation must have arisen “in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement.”5 Under current law, the term also encompasses debts that “are subject to establishment” in a separation agreement, divorce decree, property settlement agreement, court order or other determination by a governmental unit on “or after the date of the order for relief” in a bankruptcy case. The new term is broader than the type of debt included in former section 523(a)(5) in that a domestic support obligation includes a debt arising after the commencement of the bankruptcy case.6 This more expansive aspect of the term is of no consequence under section 523(a)(5) because, even under prior law, debts arising postpetition were not dischargeable in most circumstances.7 The more expansive term is much more significant to a debtor seeking a discharge under chapter 11 or 12.8 The defined term is also significant in that it is employed in several other sections of the Code that determine the rights of debtors and creditors in connection with a variety of subjects including the priority of distribution,9 exemptions,10 preferences,11 dismissal of chapter 7 cases for abuse,12 dismissal of chapter 11 cases13 dismissal of chapter 12 cases,14 dismissal of chapter 13 cases15 and calculation of disposable income in chapter 13 cases.16

[1] Relationship of a “Domestic Support Obligation” to Section 523(a)(15); Dischargeability Since its enactment, for purposes of dischargeability, the Code has drawn a distinction between an obligation that is in the nature of alimony, maintenance and support and other types obligations arising out of a marital relationship, more specifically, a debt arising in the course of a divorce or separation or in connection with a separation agreement or divorce decree. The latter type of debt is commonly referred to as a property settlement obligation.

3 H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 59 (2005), reprinted in App. Pt. 10(b) infra.

4 H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 16 (2005), reprinted in App. Pt. 10(b) infra. 5 Former 11 U.S.C. §  523(a)(5) (2004), amended by Pub L. No. 109-8, §  215(1) (2005).

6 H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 16 (2005), reprinted in App. Pt. 10(b) infra.

7 Except for those debts arising postpetition which are treated as if they arose prepetition when chapter 11, 12 or 13 cases are converted to chapter 7, see 11 U.S.C. §  348(d), the chapter 7 discharge applies to debts that arose before the commencement of the bankruptcy case, see 11 U.S.C. §  727(b).

8 See, e.g., 11 U.S.C. §§  1112(p), 1129(a)(14), 1208(c)(10), 1225(a)(7), 1228(a), 1307(c)(11), 1325(a)(10), 1328(a). 9 11 U.S.C. §  507(A)(1). 10 11 U.S.C. §  522(c)(1) (referring to 11 U.S.C. §  523(a)(5)). 11 11 U.S.C. §  547(c)(7). 12 11 U.S.C. §  707(c)(3).

13 11 U.S.C. §  1112(b)(4)(P).

14 11 U.S.C. §  1208(c)(10).

15 11 U.S.C. §  1307(c)(11). 16 11 U.S.C. §  1325(b)(2)(A)(ii).

Page 3 of 11 4-523 Collier on Bankruptcy P 523.11

Section 523(a)(15) provides unqualifiedly that a debt encompassed by section 523(a)(15) is nondischargeable. Thus, with respect to dischargeability in cases under chapters 7, 11 and 12, all of which base dischargeability on section 523(a),17 the distinction between a domestic support obligation and other types of obligations arising out of a marital relationship is of no practical consequence. However, in chapter 13, debts encompassed by section 523(a)(5) are not dischargeable, while debts encompassed by section 523(a)(15) are dischargeable.18 The distinction also remains significant in other contexts under the Code.19

[2] Broad Construction Given to Terms Alimony and Support The terms “alimony” and “support” are given a broad construction to promote the congressional policy that favors enforcement of obligations for spousal and child support. In this respect, Congress has recognized the legitimate needs of the dependents of a bankruptcy debtor and has overridden the general bankruptcy policy in which exceptions to discharge are construed narrowly.20 The determination whether an obligation is in the nature of alimony, support or maintenance is one of federal bankruptcy law, not state law.21 To ensure that the underlying policy of section 523(a)(5) is given effect, a federal court’s determination as to whether an obligation is “actually in the nature of alimony, maintenance, or support” is governed neither by state law treatment of the obligation nor by the label the parties have affixed to the obligation.22 Payments that would not be considered alimony or support under state law may be considered alimony or support for purposes of section 523(a)(5).23 Nevertheless, although state law is not dispositive, the bankruptcy court will examine state law for guidance in making its decision.24

[3] Requirement That Obligation Be in Connection with or Subject to Establishment in a Separation Agreement, Divorce Decree or Court Order

To be nondischargeable under section 523(a)(5), a debt must have been established or be subject to establishment before, on or after the commencement of the case through the provisions of a separation agreement, property settlement agreement, divorce decree, other order of a court of record or a determination made in accordance with State or territorial law by a governmental unit.25

17 See ¶  523.02 supra.

18 11 U.S.C. §  1328(a).

19 See, e.g., 11 U.S.C. §§  507(a)(1), 547(c)(7), 707(c)(3), 1112(p), 1129(a)(14), 1208(c)(10), 1225(a)(7), 1228(a), 1307(b)(11), 1325(a)(8), 1325(b)(2), 1328(a).

20 See In re Jones, 9 F.3d 878 (10th Cir. 1993); In re Stacey, 164 B.R. 210 (Bankr. D.N.H. 1994); In re Peters, 133 B.R. 291 (S.D.N.Y. 1991), aff’d, 964 F.2d 166 (2d Cir. 1992); In re Booch, 95 B.R. 852 (Bankr. N.D. Ga. 1988); see also Mullally v. Carter, 67 B.R. 535, 538 (N.D. Ill. 1986) (discussing historic policy against bankruptcy discharge of family financial obligations).

21 See H.R. Rep. No. 595, 95th Cong., 1st Sess. 363 (1977), reprinted in App. Pt. 4(d)(i) infra; S. Rep. No. 989, 95th Cong., 2d. Sess. 77–79 (1978), reprinted in App. Pt. 4(e)(i) infra.

22 In re Young, 35 F.3d 499 (10th Cir. 1994); In re Fitzgerald, 9 F.3d 517, 30 C.B.C.2d 185 (6th Cir. 1993); In re Sampson, 997 F.2d 717, 29 C.B.C.2d 198 (10th Cir. 1993). Section 523(a)(5) is intended to overrule cases such as In re Waller, 494 F.2d 447 (6th Cir. 1974), which assumed that the law of the state in which the bankruptcy court sits is controlling on the question of whether a debt qualifies as alimony, maintenance or support so as to be nondischargeable.

23 In re Biggs, 907 F.2d 503 (5th Cir. 1990); In re Harrell, 754 F.2d 902, 12 C.B.C.2d 340 (11th Cir. 1985); Shaver v. Shaver, 736 F.2d 1314 (9th Cir. 1984); Melichar v. Ost, 661 F.2d 300 (4th Cir. 1981).

24 Forsdick v. Turgeon, 812 F.2d 801, 16 C.B.C.2d 452 (2d Cir. 1987); In re Spong, 661 F.2d 6, 5 C.B.C.2d 242 (2d Cir. 1981). 25 11 U.S.C. §  101(14A)(C).

Page 4 of 11 4-523 Collier on Bankruptcy P 523.11

The reference to court orders was originally added to the Code in 1984,26 making it clear that the exception covers cases in which there was no marriage, such as support orders for children born out of wedlock. Before 1984, courts had divided on the issue of whether debts for support of children born out of wedlock were dischargeable in chapter 7 cases.27 The scope of the exception has been further expanded to include cases where a court has not yet entered an order creating an obligation in the nature of alimony or support, but such an order “is subject” to be being entered. Prior to the 2005 amendments, a mere agreement to pay for support and maintenance did not fall within the exception.28 Nor did section 523(a)(5) except from discharge contracted for liabilities for goods purchased (even if they were necessaries),29 medical attention furnished30 or board supplied31 by a parent for the use and benefit of a wife and child.32 It is likely that the expanded scope of the exception established by the 2005 amendments will apply to claims for alimony or support that have actually been filed or otherwise asserted but have not yet been determined as of the filing of the bankruptcy case. However, since, under applicable nonbankruptcy law, such claims ordinarily relate back only to the date of filing, claims which might be “subject” to a support order, but cannot be included in a support order because they predate the initiation of support proceedings should continue to be dischargeable debts.

[4] Requirement That Debt Be to a Spouse, Former Spouse, Child, Child’s Parent, Legal Guardian, Responsible Relative or Governmental Unit

To be nondischargeable as a domestic support obligation under section 523(a)(5), a debt must be owed to “a spouse, former spouse or child of the debtor or such child’s parent, legal guardian or responsible relative  …  [or] a governmental unit.”33 Under section 523(a)(5), prior to the 2005 Act, most courts held that the determination whether a particular obligation is owed to a spouse, former spouse or child of the debtor was not dependent on the identity of the payee of the obligation. An obligation may be nondischargeable support even though it is not payable directly to the spouse or child of the debtor.34 As one court has reasoned, “the pertinent inquiry …  is whether payment has been ordered in recognition and fulfillment of a duty to provide for the well-being of his or her child.”35

26 Pub. L. No. 98-353 (1984), reprinted in App. Pt. 6(a) infra; see also 130 Cong. Rec. S 6094 (daily ed. May 21, 1984) (remarks of Sen. Exon).

27 Compare Shine v. Shine, 802 F.2d 583 (1st Cir. 1986) with Lake County Dep’t of Public Welfare v. Marino (In re Marino), 29 B.R. 797 (N.D. Ind. 1983); In re Fenstermacher, 8 C.B.C.2d 1294, 31 B.R. 77 (Bankr. D. Neb. 1983).

28 Leib v. Auerbach, 10 N.J. Super. 391, 76 A.2d 726 (Co. Ct. N.J. 1950); Wintrode v. Connors, 67 Ohio App. 106, 35 N.E.2d 1018 (1941); Schwoll v. Meeks, 76 Ohio App. 231, 63 N.E.2d 831 (1944).

29 Schellenberg v. Mullaney, 112 A.D. 384, 98 N.Y.S. 432 (1906).

30 In re Meyers, 12 F.2d 938 (W.D.N.Y. 1926). But see In re Livengood, 157 B.R. 678 (Bankr. D. Idaho 1993); In re Beattie, 28 C.B.C.2d 849, 150 B.R. 699 (Bankr. S.D. Ill. 1993).

31 In re Lo Grasso, 23 F. Supp. 340 (W.D.N.Y. 1938); Leman v. Locke, 240 Mass. 551, 134 N.E. 343 (1922).

32 Wintrode v. Connors, 67 Ohio App. 106, 35 N.E.2d 1018 (1941). But see In re Ozey, 166 B.R. 169 (Bankr. N.D. Okla. 1994) (contract to pay children’s college expenses nondischargeable).

33 11 U.S.C. §  101(14A)(A)(i)–(ii). The reference to the child’s parent, legal guardian or responsible relative was added by the 2005 Act. Pub L. No. 109-8, §  211(2) (2005), reprinted in App. Pt. 10(a) infra.

34 In re Tremblay, 162 B.R. 60 (Bankr. D. Me. 1993); Monsanto Industrial Chemicals, Inc. v. Harris, 161 B.R. 385 (Bankr. E.D. Mich. 1993); In re Glynn, 138 B.R. 360 (Bankr. D. Conn. 1992).

35 Cain v. Isenhower (In re Cain), 29 B.R. 591, 596 (quoting Deeb v. Morris (In re Morris), 5 C.B.C.2d 371, 374, 14 B.R. 217, 219 (Bankr. D. Colo. 1981)).

Page 5 of 11 4-523 Collier on Bankruptcy P 523.11

This issue arises frequently in the context of a debtor’s obligation to pay: (1) attorney’s fees incurred by a spouse or former spouse in divorce proceedings36 and postdivorce proceedings where the award of attorney’s fees under state law is based on financial need;37 (2) attorney’s fees incurred for a court-appointed counsel or a guardian ad litem for a debtor’s child;38 and (3) attorney’s fees awarded to the mother in a paternity action against the debtor and medical expenses (i.e., birth expenses) incurred by the mother of a child of the debtor born out of wedlock.39 Although the courts have not been consistent, the language of the statute dictates that if the obligation is not one owed to the spouse, former spouse, former spouse or child of the debtor or such child’s parent, legal guardian or responsible relative, it is dischargeable under section 523(a)(5), even though it is in the nature of support.40 A debt owed to or recoverable by a governmental unit is nondischargeable if it is in the nature of alimony, maintenance or support. However, if the support obligation is assigned involuntarily to the governmental unit by a spouse, former spouse, child of the debtor or such child’s legal guardian or relative responsible for the purpose of collecting the debt, the debt is not a domestic support obligation, it does not fall within the scope of section 523(a)(5) and it is dischargeable.41

[5] Requirement That Debt Be in Nature of Alimony, Maintenance or Support The term “domestic support obligation” expressly includes within its definition the requirement that the debt be “in the nature of alimony, maintenance, or support  …  without regard to whether such debt is expressly so designated.” Prior to the 2005 Act, former section 523(a)(5)(B) expressed the same principle, albeit through a convoluted, double negative. Notwithstanding the change in the statutory text, the scope of the exception remains the same. Regardless of designation, debts which are actually in the nature of alimony, maintenance, or support are nondischargeable under section 523(a)(5) and those debts which are not of that nature are not encompassed by the exception to discharge of that provision. If a debt is found dischargeable under section 523(a)(5), it may nonetheless be nondischargeable if it is a property settlement obligation covered by the discharge exception in section 523(a)(15). When the characterization of a debt as alimony, maintenance or support is in dispute, the court should hold an evidentiary hearing to determine whether the debt is actually in the nature of alimony, maintenance or support within the meaning of section 523(a)(5). If a debt is determined to be in the nature of alimony, maintenance or support, it is nondischargeable and the bankruptcy court has no power to balance the need of the recipient spouse against the need of the debtor for a fresh start.42 The critical issue is whether the parties intended the obligation to provide support to the debtor’s spouse, former spouse or child.

The question whether a debt is in the nature of alimony, maintenance or support often arises in cases also raising the issue of whether the debt is owed to a spouse, former spouse or child of the debtor.43 Regardless how these issues are framed, the

36 In re Spong, 661 F.2d 6, 5 C.B.C.2d 242 (2d Cir. 1981). But see In re Garcia, 32 C.B.C.2d 1, 174 B.R. 529 (Bankr. W.D. Mo. 1994).

37 Strickland v. Shannon (In re Strickland), 90 F.3d 444 (11th Cir. 1996); Joseph v. O’Toole (In re Joseph), 16 F.3d 86 (5th Cir. 1995); In re Jones, 9 F.3d 878, 30 C.B.C.2d 206 (10th Cir. 1993); In re Catlow, 663 F.2d 960 (9th Cir. 1981).

38 In re Miller, 55 F.3d 1487, 33 C.B.C.2d 1044 (10th Cir.), cert. denied, 516 U.S. 916, 116 S. Ct. 305, 133 L. Ed. 2d 210 (1995); In re Peters, 964 F.2d 166 (2d Cir. 1992), aff’g 133 B.R. 291 (S.D.N.Y. 1991).

39 Hudson v. Raggio & Raggio, Inc. (In re Hudson), 107 F.3d 355, 37 C.B.C.2d 1109 (5th Cir. 1997); In re Seibert, 914 F.2d 102, 23 C.B.C.2d 1157 (7th Cir. 1990); Smith v. Barbre (In re Barbre), 91 B.R. 846 (Bankr. S.D. Ill. 1988); In re Booch, 95 B.R. 852 (Bankr. N.D. Ga. 1988).

40 In re Visness, 57 F.3d 775 (9th Cir. 1995), cert. denied, 516 U.S. 1099, 116 S. Ct. 828, 133 L. Ed. 2d 770 (1996); In re Burnes, 405 B.R. 654 (Bankr. W.D. Mo. 2009); In re Erfourth, 126 B.R. 736 (Bankr. W.D. Mich. 1991) (cost of placing child in group home dischargeable); In re Lutz, 128 B.R. 244 (Bankr. W.D. Mo. 1991) (debt owed to debtor’s sister for support of debtor’s child dischargeable). See generally Sommer & McGarity, Collier Family Law and the Bankruptcy Code, ¶  6.03[3] (Matthew Bender). 41 11 U.S.C. §  101(14A)(D).

42 Vickers v. Vickers (In re Vickers), 7 C.B.C.2d 849, 853, 24 B.R. 112, 116 (Bankr. M.D. Tenn. 1982).

43 See ¶  523.11[4] supra.

Page 6 of 11 4-523 Collier on Bankruptcy P 523.11

proper inquiry is whether the payment obligation derived from a duty to provide for the well-being of the spouse, former spouse or child. When that is the case, courts have not hesitated to find that the obligation is nondischargeable. For example, in Strickland v. Shannon (In re Strickland),44 the court held that an award of attorney’s fees granted in favor of the debtor’s former spouse and against the debtor, which arose from the debtor’s unsuccessful attempt to modify the child custody and support provisions of a divorce judgment and was based upon a state statute authorizing the award on the basis of the relative need and ability to pay of the parties, was in the nature of support and thus nondischargeable under section 523(a)(5). The issue of whether a debt should be characterized as alimony, maintenance or support arises, with some frequency, when a support obligor has overpaid the support obligation and the support recipient is obliged to repay the overpayment. Most courts have held that such debts are not in the nature of alimony, maintenance or support. The fact that the overpayment was made mistakenly as part of a support obligation does not mean that the duty to repay, too, is in the nature of support. Usually, the overpayment should be characterized as nothing more than a debt for the repayment of money that the creditor was not legally obligated to pay in the first instance.44a In some circumstances, however, such as overpayments made when the creditor had custody of the parties’ children and the payment worked a deprivation upon those entitled to support, the overpayments may be characterized as “intended for and in the nature of support.”44b The question whether an overpayment should be characterized as alimony, maintenance or support also has arisen in the context of the overpayment of government benefits. A few courts have expanded the definition of “domestic support obligation” beyond its obvious intent to encompass such debts, even though the debts bear no relation to support orders or support obligations of debtors. These courts have held that if a debtor is determined to have received an overpayment of funds intended to support dependents the obligation to repay the overpayment is a domestic support obligation.44c In reaching this result, these courts ignore the fact that the reference to administrative determinations was originally added to the Code in order to encompass noncourt adjudications of family support obligations, not to render nondischargeable every decision made by any governmental agency that arguably impacts the financial condition of the debtor’s family. These decisions also fail to recognize that the debt to the state for the overpayment of benefits is a debt for the return of a benefit paid to the debtor which should not have been paid in the first place, not a debt that should have been paid by the debtor to provide support to a child or a spouse.44d

[6] Factors Considered in Distinguishing Alimony, Maintenance and Support Claims from Property Settlement Claims The issue of whether a particular debt is a nondischargeable alimony, maintenance or support claim is one of federal bankruptcy law.45 However, it is not always easy to distinguish domestic support obligations, covered by section 523(a)(5), from property settlement claims, which are not covered by section 523(a)(5). Particularly when the debt arises from a negotiated separation agreement, the parties often focus on the state law implications of their agreement, not how the obligation would be characterized in a bankruptcy case. Thus, the bankruptcy court’s retrospective inquiry is into the intentions of the parties with respect to an issue that they may not have fully considered. When the obligation arises from a state court order, the order has been based on state statutes or

44 90 F.3d 444, 36 C.B.C.2d 718 (11th Cir. 1996).

44a In re Kloeppner, 460 B.R. 759 (D. Minn.2011); In re Taylor, 478 B.R. 419 (B.A.P. 10th Cir. 2012); In re Van Hook, 426 B.R. 296 (Bankr. N.D. Ill. 2010). But see In re Norbut, 387 B.R. 199 (Bankr. S.D. Ohio 2008); In re Baker, 294 B.R. 281 (Bankr. N.D. Ohio 2002).

44b See Kerr v. Meadors (In re Knott), 2012 Bankr. LEXIS 5063 ((Bankr. N.D. Ga. Oct. 23, 2012). Cf. In re Drinkard, 245 (Bankr. 91, 93 (Bankr. N.D. Tex. 2000) (overpayment found not to be in the nature of support where creditor “made no showing that the debtor was ordered to pay him support … [or] provide any evidence that the amounts overpaid would be necessary for … other children’s support”).

44c Wisconsin Dep’t of Workforce Dev. v. Ratliff, 390 B.R. 607, 616 (E.D. Wis. 2008) (food stamp benefits were intended to support debtor’s children so overpayment was nondischargeable); In re Hernandez, 2012 Bankr. LEXIS 5302 (Bankr. D. Neb. Nov. 8, 2012); In re Schauer, 391 B.R. 430 (Bankr. E.D. Wis. 2008); cf. In re Tinnell, 2009 Bankr. LEXIS 1604 (Bankr. D. Neb. June 12, 2009) (no evidence that an administrative determination based on evidence had ever been made).

44d In re Hickey, 473 B.R. 361 (Bankr. D. Or. 2012).

45 See ¶  523.11[1] supra.

Page 7 of 11 4-523 Collier on Bankruptcy P 523.11

doctrines that may or may not be helpful in characterizing the nature of the obligation for purposes of section 523(a)(5). State law generally recognizes that the issues of property division and support are inextricably intertwined. State law governing support and division of property takes into account comparable factors—primarily the financial resources and needs of the parties. Similarly, separation agreements often treat support and property division as somewhat interchangeable. A spouse who receives more property may need less support. An obligation denominated as a property settlement may be essential to the support of the recipient of the property. Conversely, an obligation denominated as alimony may be a substitute for property that the obligee would otherwise have received. These trade-offs are often made by the parties with a view toward tax or business consequences. The main principle guiding bankruptcy courts in determining whether a debt is nondischargeable alimony, maintenance or support is the intent of the parties or the state court in creating the obligation and the purpose of the obligation in light of the parties’ circumstances at that time.46 If the intent is not explicitly expressed, the bankruptcy court must attempt to infer the intent by examining the underlying facts of the case. To assist in this difficult inquiry, the courts have developed a series of factors that may be considered in distinguishing alimony, maintenance or support obligations from property division obligations.47

[a] Factor No. 1: Labels in Agreement or Order It is well established that the bankruptcy court is not bound by the labels given to an debt in the parties’ agreement or in the order creating the debt.48 The bankruptcy court must look behind the label and determine the true nature of the obligation. Even so, the label given to an obligation may well be an accurate indication of the parties’ intent and deference to that characterization may be given by the bankruptcy court.49 Similarly, when a state court enters an order after articulating the factors it considers, the label attached to the obligation by the court is entitled to great weight.50 Because extraneous factors, such as business or tax considerations, are less likely to affect court orders, more weight is generally given to the labeling of an obligation in a court order as opposed to the labels in an agreement. In cases involving marital agreements, the bankruptcy court will consider the labels in the agreement, but other factors are also given weight in the ultimate determination under section 523(a)(5). The amount of deference given by the bankruptcy court to the labels in an agreement will often depend on the detail, precision and structure of the entire agreement. Thus, the bankruptcy court may defer to the language of an agreement that contains a consistent and clear designation of different types of payment obligations.51 On the other hand, an agreement that contains a waiver of alimony but that also creates an obligation to make payments to help provide the other spouse with housing may be construed as only a limited waiver of alimony for purposes of section 523(a)(5).52

[b] Factor No. 2: Income and Needs of the Parties at the Time the Obligation Became Fixed

46 Friedkin v. Sternberg (In re Sternberg), 85 F.3d 1400 (9th Cir. 1996); Yeates v. Yeates (In re Yeates), 807 F.2d 874 (10th Cir. 1986); Shaver v. Shaver, 736 F.2d 1314 (9th Cir. 1984).

47 In re Fitzgerald, 9 F.3d 517, 30 C.B.C.2d 185 (6th Cir. 1993); Davidson v. Davidson (In re Davidson), 947 F.2d 1294, 25 C.B.C.2d 1501 (5th Cir. 1991); Gianakas v. Gianakas (In re Gianakas), 917 F.2d 759, 23 C.B.C.2d 1510 (3d Cir. 1990). For extensive discussion of the case law pertaining to obligations in the nature of alimony, maintenance or support under section 523(a)(5), see generally Sommer & McGarity, Collier Family Law and the Bankruptcy Code, ¶¶  6.04–6.06 (Matthew Bender).

48 Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir. 1989); Goin v. Rives (In re Goin), 808 F.2d 1391 (10th Cir. 1987); Benich v. Benich (In re Benich), 811 F.2d 943 (5th Cir. 1987); Forsdick v. Turgeon, 812 F.2d 801, 16 C.B.C.2d 452 (2d Cir. 1987).

49 Catron v. Catron (In re Catron), 164 B.R. 912 (E.D. Va. 1994).

50 Forsdick v. Turgeon, 812 F.2d 801, 16 C.B.C.2d 452 (2d Cir. 1987); Long v. West (In re Long), 794 F.2d 928 (4th Cir. 1986).

51 Sampson v. Sampson (In re Sampson), 997 F.2d 717 (10th Cir. 1993); Tilley v Jessee, 789 F.2d 1074, 14 C.B.C.2d 1376 (4th Cir. 1986).

52 Carrigg v. Carrigg (In re Carrigg), 5 C.B.C.2d 446, 14 B.R. 658 (Bankr. D.S.C. 1981).

Page 8 of 11 4-523 Collier on Bankruptcy P 523.11

Perhaps the most important factor considered by the bankruptcy courts in evaluating the intentions of the parties is their financial situation when they entered into their agreement or when the state court entered its order fixing the obligation.53 If the obligee spouse or former spouse would have had difficulty in providing for himself or herself and the parties’ children, it is likely that the obligation will be determined to be in the nature of alimony, maintenance or support and therefore nondischargeable, regardless of how the obligation is labeled.54

In In re Calhoun,55 the Court of Appeals for the Sixth Circuit stated that the inquiry must focus on whether the purpose and effect of the obligation at the time it was created was to provide for the daily needs of the former spouse and any children. The court also held that an additional consideration is the current abilities and needs of the parties.56 However, virtually all other courts have held that the current financial posture of the parties is not relevant.57

[c] Factor No. 3: Amount and Outcome of Property Division A factor closely related to the parties’ relative financial needs is an analysis of the property divided at the time of the divorce. As stated earlier, the fact that a spouse received or did not receive a substantial amount of marital property can affect the need for ongoing support. In addition, when a payment obligation is directly linked to the sale of identifiable property, the obligation is more likely to be determined to have arisen from property division and therefore, to be dischargeable as far as section 523(a)(5) is concerned. However, the source of the payment obligation does not conclusively determine the nature of the obligation, and if the payment is necessary for the support of the obligee, the bankruptcy court may determine the debt to be nondischargeable.58

[d] Factor No. 4: Whether the Obligation Terminates on Obligee’s Death or Remarriage or on Emancipation of Children

An obligation that terminates on the death or remarriage of the obligee or the emancipation of the parties’ children is likely to have been intended for support.59 However, the absence of termination provisions does not dictate the conclusion that the debt is a property settlement obligation.60

[e] Factor No. 5: Number and Frequency of Payments An obligation due to be paid in a lump sum or in a limited number of payments over a short period of time is more likely to be considered a property settlement rather than for support. On the other hand, a long-term obligation to make regular monthly payments is more characteristic of support. By itself, this factor may be of limited use in the inquiry, particularly as the number of installments increases. Since an award of alimony may be made for a limited duration, the mere fact that there are a limited number of installment

53 Dennis v. Dennis (In re Dennis), 25 F.3d 274, 31 C.B.C.2d 713 (5th Cir. 1994), cert. denied, 513 U.S. 1081, 115 S. Ct. 732, 130 L. Ed. 2d 636 (1995).

54 See Yeates v. Yeates (In re Yeates), 807 F.2d 874 (10th Cir. 1986); Shaver v. Shaver, 736 F.2d 1314 (9th Cir. 1984).

55 715 F.2d 1103, 9 C.B.C.2d 290 (6th Cir. 1983).

56 But see In re Fitzgerald, 9 F.3d 517 (6th Cir. 1993) (limiting Calhoun holding to obligations not designated as alimony or support).

57 E.g., Draper v. Draper, 790 F.2d 52 (8th Cir. 1986); In re Harrell, 754 F.2d 902, 12 C.B.C.2d 340 (11th Cir. 1985).

58 Buccino v. Buccino, 397 Pa. Super. 241, 580 A.2d 13 (Pa. Super. 1990); Goin v. Rives (In re Goin), 808 F.2d 1391 (10th Cir. 1987); Zaera v. Raff (In re Raff), 93 B.R. 41 (Bankr. S.D.N.Y. 1988).

59 Fitzgerald v. Fitzgerald (In re Fitzgerald), 9 F.3d 517, 30 C.B.C.2d 185 (6th Cir. 1993); Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir. 1989); see also In re Morel, 983 F.2d 104 (8th Cir. 1992).

60 Sampson v. Sampson (In re Sampson), 997 F.2d 717 (10th Cir. 1993); Singer v. Singer (In re Singer), 787 F.2d 1033, 14 C.B.C.2d 1386 (6th Cir. 1986).

Page 9 of 11 4-523 Collier on Bankruptcy P 523.11

payments due cannot be dispositive.61 Conversely, tax considerations may lead parties to spread out the payment of a property settlement obligation.62 Most commonly, this factor will be considered in conjunction with other, more significant factors.63

[f] Factor No. 6: Waiver of Alimony or Support Rights in Agreement Provisions in marital agreements for the waiver of alimony or support may be considered by the bankruptcy court in determining whether an obligation is in the nature of alimony, maintenance or support.64 However, this factor is of limited utility. If an agreement provides for payments to the nondebtor spouse designated as a property division but lacks other meaningful provisions for support, the obligation is nonetheless likely to be characterized as nondischargeable support.65

[g] Factor No. 7: Availability of State Court Procedures to Modify the Obligation or Enforce It Through Contempt Remedy

If an obligation is judicially modifiable or enforceable by contempt-of-court remedies, it is more likely to be determined to be in the nature of alimony, maintenance or support. However, this factor must be considered in connection with the other factors discussed above. The fact that an obligation is not modifiable may be due to the parties’ agreement itself and, therefore, does not bear on the issue of whether the obligation was intended to support the nondebtor spouse. Other indicia may require that a nonmodifiable obligation be determined to be nondischargeable support.66

[h] Factor No. 8: Tax Treatment of Obligation In applying section 523(a)(5) of the Bankruptcy Code, some courts have considered the tax treatment given to marital obligations under the Internal Revenue Code, since both Codes attempt to distinguish obligations in the nature of alimony, maintenance or support from property division obligations. The interests of the debtor are at cross-purposes under the two statutes. Thus, when a debtor treated his payments as a nondeductible expense, one court held that the obligation was dischargeable since it was unlikely the debtor would have foregone the favorable tax treatment had the parties intended the obligation to be support.67 A debtor who attempted to qualify payments as deductible alimony or support for purposes of federal income tax treatment may be unable to successfully assert that the obligation is not alimony, maintenance or support for purposes of section 523(a)(5). Some courts have even held that a debtor is estopped from doing so.68

61 See Forsdick v. Turgeon, 812 F.2d 801, 16 C.B.C.2d 452 (2d Cir. 1987).

62 See Messnick v. Messnick (In re Messnick), 104 B.R. 89 (Bankr. E.D. Wis. 1989).

63 Pattie v. Pattie (In re Pattie), 112 B.R. 437 (Bankr. M.D. Fla. 1990). See generally Brody v. Brody (In re Brody), 3 F.3d 35 (2d Cir. 1993).

64 Beiler v. Beiler, 80 B.R. 63 (Bankr. E.D. Va. 1987); Wadleigh v. Wadleigh (In re Wadleigh), 68 B.R. 499 (Bankr. D. Vt. 1986).

65 Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir. 1989).

66 In re Albin, 591 F.2d 94 (9th Cir. 1979).

67 Tilley v. Jessee, 789 F.2d 1074, 14 C.B.C.2d 1376 (4th Cir. 1986); see also Beiler v. Beiler, 80 B.R. 63 (Bankr. E.D. Va. 1987).

68 Robb-Fulton v. Robb (In re Robb), 23 F.3d 895, 30 C.B.C.2d 2061 (4th Cir. 1994); In re Davidson, 947 F.2d 1294, 25 C.B.C.2d 1501 (5th Cir. 1991).

Page 10 of 11 4-523 Collier on Bankruptcy P 523.11

The Bankruptcy Code and the Internal Revenue Code have different purposes; tax treatment by itself should not be dispositive of dischargeability under section 523(a)(5).69 As with other factors, courts can and should look to the tax treatment given to the obligation in conjunction with the other factors discussed above.

[7] Distinguishing Interests in Property from Dischargeable Debts; Pensions In many cases, debtors file their bankruptcy petitions while divorce proceedings containing equitable distribution claims are pending or after an agreement or state court order has equitably distributed an asset titled in the debtor’s name. Frequently, the asset involved is the debtor’s interest in a pension. In such cases, the bankruptcy court must decide the fundamental question whether the debtor’s obligations to the spouse or former spouse are no more than a right to payment,70 and, therefore, potentially dischargeable as a debt under the Code, or whether the nondebtor former spouse has obtained a property interest in the asset itself. If the spouse obtained an ownership interest in the asset, no debt exists which may be discharged, and the spouse’s rights will be unimpaired by the bankruptcy filing unless there is some basis for avoiding the transfer of the property interest to the spouse. In making the inquiry into the nature of the obligation, the bankruptcy court will necessarily examine state law. In many jurisdictions, the spouse will have obtained a separate ownership interest in the pension.71 The spouse’s ownership interest may attach even if the equitable distribution proceedings have not been completed prior to the bankruptcy filing.72 Some cases also refer to the state court proceedings as creating a constructive trust in which the debtor is the trustee with bare legal title and the spouse is the beneficiary whose beneficial interest in the asset is not part of the bankruptcy estate pursuant to section 541(d) of the Code.73 If the court’s conclusion is that the spouse does not have a property interest in the asset, the court must analyze whether the obligation is dischargeable based on the relevant factors under section 523(a)(5).74

[8] Status of Assigned Debts under Section 523(a)(5) A debt for alimony, maintenance or support, although otherwise within the terms of the definition of domestic support obligation in section 101(14A), is excluded from the statutory definition and is therefore dischargeable under section 523(a)(5), if it has been assigned to a nongovernmental entity. However, if the debt was assigned voluntarily by the spouse, former spouse, child, or parent solely for the purpose of collection, the debt is a domestic support obligation and is not discharged pursuant to section 523(a)(5).75 However, a debt does not become dischargeable simply by virtue of a state court order directing the obligor to make payment directly to a third party.76 Prior to the 2005 Act, section 523(a)(5) provided that debts assigned pursuant to section 408(a)(3)77 of the Social Security Act78 or any debt assigned to the federal government or to a state or a political subdivision of a state were not within the class of debts dischargeable based on their status as assigned debts. The nondischargeability of a debt in the nature of

69 Friedkin v. Sternberg (In re Sternberg), 85 F.3d 1400 (9th Cir. 1996) (citing Sommer & McGarity, Collier Family Law and the Bankruptcy Code, ¶  6.04[10] (Matthew Bender 1996)). 70 11 U.S.C. §  101(12); 11 U.S.C. §  101(5).

71 In re Chandler, 805 F.2d 555 (5th Cir. 1986); In re Teichman, 774 F.2d 1395, 13 C.B.C.2d 1077 (9th Cir. 1985).

72 In re Bennett, 175 B.R. 181 (Bankr. E.D. Pa. 1994).

73 11 U.S.C. §  541(d); see McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192, 36 C.B.C.2d 1074 (6th Cir. 1996); Bush v. Taylor, 912 F.2d 989, 23 C.B.C.2d 1294 (8th Cir. 1990).

74 See ¶  523.11[6] supra.

75 See H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 59 (2005), reprinted in App. Pt. 10(b) infra.

76 See ¶  523.11[4] supra. 77 The cross-reference to the Social Security Act was changed from section 402(a)(26) to section 408(a)(3) by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193. 78 Section 2334(b) of title XXIII of the Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, approved August 13, 1981.

Page 11 of 11 4-523 Collier on Bankruptcy P 523.11

alimony or support which has been assigned to a governmental unit has been maintained in the definition of domestic support obligation in section 101(14A) and the incorporation of that term into the section 523(a)(5) discharge exception.79

Collier on Bankruptcy Copyright 2016, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

End of Document

79 H.R. Rep. No. 109-31, 109th Cong., 1st Sess. 59 (2005), reprinted in App. Pt. 10(b) infra.

Official Form 108 Statement of Intention for Individuals Filing Under Chapter 7 page 1

Official Form 108

Statement of Intention for Individuals Filing Under Chapter 7 12/15

If you are an individual filing under chapter 7, you must fill out this form if: creditors have claims secured by your property, or you have leased personal property and the lease has not expired.

You must file this form with the court within 30 days after you file your bankruptcy petition or by the date set for the meeting of creditors, whichever is earlier, unless the court extends the time for cause. You must also send copies to the creditors and lessors you list on the form.

If two married people are filing together in a joint case, both are equally responsible for supplying correct information. Both debtors must sign and date the form.

Be as complete and accurate as possible. If more space is needed, attach a separate sheet to this form. On the top of any additional pages, write your name and case number (if known).

Part 1: List Your Creditors Who Have Secured Claims

1. For any creditors that you listed in Part 1 of Schedule D: Creditors Who Have Claims Secured by Property (Official Form 106D), fill in theinformation below.

Identify the creditor and the property that is collateral What do you intend to do with the property that secures a debt?

Did you claim the property as exempt on Schedule C?

Creditor’s name:

Surrender the property.

Retain the property and redeem it.

Retain the property and enter into aReaffirmation Agreement.

Retain the property and [explain]: __________

______________________________________

No

YesDescription of property securing debt:

Creditor’s name:

Surrender the property.

Retain the property and redeem it.

Retain the property and enter into aReaffirmation Agreement.

Retain the property and [explain]: __________

______________________________________

No

YesDescription of property securing debt:

Creditor’s name:

Surrender the property.

Retain the property and redeem it.

Retain the property and enter into aReaffirmation Agreement.

Retain the property and [explain]: __________

______________________________________

No

YesDescription of property securing debt:

Creditor’s name:

Surrender the property.

Retain the property and redeem it.

Retain the property and enter into aReaffirmation Agreement.

Retain the property and [explain]: __________

______________________________________

No

YesDescription of property securing debt:

Debtor 1 __________________________________________________________________ First Name Middle Name Last Name

Debtor 2 ________________________________________________________________ (Spouse, if filing) First Name Middle Name Last Name

United States Bankruptcy Court for the: __________ District of __________

Case number ___________________________________________ (If known)

Fill in this information to identify your case:

Check if this is anamended filing

Debtor 1 ______________________________________________________ Case number (If known)_____________________________________ First Name Middle Name Last Name

Official Form 108 Statement of Intention for Individuals Filing Under Chapter 7 page 2

Part 2: List Your Unexpired Personal Property Leases

For any unexpired personal property lease that you listed in Schedule G: Executory Contracts and Unexpired Leases (Official Form 106G), fill in the information below. Do not list real estate leases. Unexpired leases are leases that are still in effect; the lease period has not yet ended. You may assume an unexpired personal property lease if the trustee does not assume it. 11 U.S.C. § 365(p)(2).

Describe your unexpired personal property leases Will the lease be assumed?

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Lessor’s name: No

YesDescription of leased property:

Part 3: Sign Below

Under penalty of perjury, I declare that I have indicated my intention about any property of my estate that secures a debt and any personal property that is subject to an unexpired lease.

___________________________________________ ___________________________________________

Signature of Debtor 1 Signature of Debtor 2

Date _________________ Date _________________ MM / DD / YYYY MM / DD / YYYY

Official Form 122A–2 Chapter 7 Means Test Calculation page 1

Official Form 122A–2

Chapter 7 Means Test Calculation 04/16

To fill out this form, you will need your completed copy of Chapter 7 Statement of Your Current Monthly Income (Official Form 122A-1).

Be as complete and accurate as possible. If two married people are filing together, both are equally responsible for being accurate. If more space is needed, attach a separate sheet to this form. Include the line number to which the additional information applies. On the top of any additional pages, write your name and case number (if known).

Part 1: Determine Your Adjusted Income

1. Copy your total current monthly income. ............................................................... Copy line 11 from Official Form 122A-1 here ........... $_________

2. Did you fill out Column B in Part 1 of Form 122A–1?

No. Fill in $0 for the total on line 3.

Yes. Is your spouse filing with you?

No. Go to line 3.

Yes. Fill in $0 for the total on line 3.

3. Adjust your current monthly income by subtracting any part of your spouse’s income not used to pay for thehousehold expenses of you or your dependents. Follow these steps:

On line 11, Column B of Form 122A–1, was any amount of the income you reported for your spouse NOTregularly used for the household expenses of you or your dependents?

No. Fill in 0 for the total on line 3.

Yes. Fill in the information below:

State each purpose for which the income was used

For example, the income is used to pay your spouse’s tax debt or to support people other than you or your dependents

Fill in the amount you are subtracting from your spouse’s income

___________________________________________________ $______________

___________________________________________________ $______________

___________________________________________________ + $______________

Total. ................................................................................................. $______________Copy total here ............... ─ $_________

4. Adjust your current monthly income. Subtract the total on line 3 from line 1. $_________

Debtor 1 _________________________________________________________________ First Name Middle Name Last Name

Debtor 2 ________________________________________________________________ (Spouse, if filing) First Name Middle Name Last Name

United States Bankruptcy Court for the: __________ District of __________

Case number ___________________________________________ (If known)

  Fill in this information to identify your case:

According to the calculations required by this Statement:

1. There is no presumption of abuse.

2. There is a presumption of abuse.

Check if this is an amended filing

Check the appropriate box as directed in

lines 40 or 42: 

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 2

Part 2: Calculate Your Deductions from Your Income

The Internal Revenue Service (IRS) issues National and Local Standards for certain expense amounts. Use these amounts to answer the questions in lines 6-15. To find the IRS standards, go online using the link specified in the separate instructions for this form. This information may also be available at the bankruptcy clerk’s office.

Deduct the expense amounts set out in lines 6-15 regardless of your actual expense. In later parts of the form, you will use some of your actual expenses if they are higher than the standards. Do not deduct any amounts that you subtracted from your spouse’s income in line 3 and do not deduct any operating expenses that you subtracted from income in lines 5 and 6 of Form 122A–1.

If your expenses differ from month to month, enter the average expense.

Whenever this part of the form refers to you, it means both you and your spouse if Column B of Form 122A–1 is filled in.

5. The number of people used in determining your deductions from income

Fill in the number of people who could be claimed as exemptions on your federal income tax return,plus the number of any additional dependents whom you support. This number may be different fromthe number of people in your household.

National Standards You must use the IRS National Standards to answer the questions in lines 6-7.

6. Food, clothing, and other items: Using the number of people you entered in line 5 and the IRS National Standards, fillin the dollar amount for food, clothing, and other items. $________

7. Out-of-pocket health care allowance: Using the number of people you entered in line 5 and the IRS National Standards,fill in the dollar amount for out-of-pocket health care. The number of people is split into two categoriespeople who areunder 65 and people who are 65 or olderbecause older people have a higher IRS allowance for health care costs. If youractual expenses are higher than this IRS amount, you may deduct the additional amount on line 22.

People who are under 65 years of age

7a. Out-of-pocket health care allowance per person $____________

7b. Number of people who are under 65 X ______

7c. Subtotal. Multiply line 7a by line 7b. $____________ Copy here $___________

People who are 65 years of age or older

7d. Out-of-pocket health care allowance per person $____________

7e. Number of people who are 65 or older X ______

7f. Subtotal. Multiply line 7d by line 7e. $____________ Copy here + $___________

7g. Total. Add lines 7c and 7f. ..................................................................................... $___________ Copy total here$________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 3

Local Standards You must use the IRS Local Standards to answer the questions in lines 8-15.

Based on information from the IRS, the U.S. Trustee Program has divided the IRS Local Standard for housing for bankruptcy purposes into two parts:

Housing and utilities – Insurance and operating expenses Housing and utilities – Mortgage or rent expenses

To answer the questions in lines 8-9, use the U.S. Trustee Program chart.

To find the chart, go online using the link specified in the separate instructions for this form. This chart may also be available at the bankruptcy clerk’s office.

8. Housing and utilities – Insurance and operating expenses: Using the number of people you entered in line 5, fill in thedollar amount listed for your county for insurance and operating expenses. ........................................................................ $____________

9. Housing and utilities – Mortgage or rent expenses:

9a. Using the number of people you entered in line 5, fill in the dollar amount listedfor your county for mortgage or rent expenses. ...................................................................... $___________

9b. Total average monthly payment for all mortgages and other debts secured by your home.

To calculate the total average monthly payment, add all amounts that are contractually due to each secured creditor in the 60 months after you file for bankruptcy. Then divide by 60.

Name of the creditor Average monthly payment

___________________________________ $____________

___________________________________ $____________

___________________________________ + $____________

Total average monthly payment $____________ Copy

here ─ $___________Repeat this amount on line 33a.

9c. Net mortgage or rent expense.

Subtract line 9b (total average monthly payment) from line 9a (mortgage or rent expense). If this amount is less than $0, enter $0. ..................................................................

Copy

here$___________ $___________

10. If you claim that the U.S. Trustee Program’s division of the IRS Local Standard for housing is incorrect and affectsthe calculation of your monthly expenses, fill in any additional amount you claim.

$___________

Explainwhy:

_________________________________________________________________ _________________________________________________________________

11. Local transportation expenses: Check the number of vehicles for which you claim an ownership or operating expense.

0. Go to line 14.

1. Go to line 12.2 or more. Go to line 12.

12. Vehicle operation expense: Using the IRS Local Standards and the number of vehicles for which you claim theoperating expenses, fill in the Operating Costs that apply for your Census region or metropolitan statistical area. $___________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 4

13. Vehicle ownership or lease expense: Using the IRS Local Standards, calculate the net ownership or lease expensefor each vehicle below. You may not claim the expense if you do not make any loan or lease payments on the vehicle.In addition, you may not claim the expense for more than two vehicles.

Vehicle 1 Describe Vehicle 1: _______________________________________________________________

_______________________________________________________________

13a. Ownership or leasing costs using IRS Local Standard. ................................................... $___________

13b. Average monthly payment for all debts secured by Vehicle 1.

Do not include costs for leased vehicles.

To calculate the average monthly payment here and on line 13e, add all amounts that are contractually due to each secured creditor in the 60 monthsafter you filed for bankruptcy. Then divide by 60.

Name of each creditor for Vehicle 1 Average monthly payment

_____________________________________ $____________

_____________________________________ + $____________

Total average monthly payment $____________ Copy

here ─ $____________Repeat this amount on line 33b.

13c. Net Vehicle 1 ownership or lease expense

Subtract line 13b from line 13a. If this amount is less than $0, enter $0. ............................. $____________

Copy net Vehicle 1 expense

here ..... $_________

Vehicle 2 Describe Vehicle 2: _______________________________________________________________

_______________________________________________________________

13d. Ownership or leasing costs using IRS Local Standard. ................................................. $____________

13e. Average monthly payment for all debts secured by Vehicle 2.

Do not include costs for leased vehicles.

Name of each creditor for Vehicle 2 Average monthly payment

_____________________________________ $____________

_____________________________________ + $____________

Total average monthly payment $____________ Copy

here ─ $____________Repeat this amount on line 33c.

13f. Net Vehicle 2 ownership or lease expense

Subtract line 13e from 13d. If this amount is less than $0, enter $0. ..................................... $____________

Copy net Vehicle 2 expense

here ... $________

14. Public transportation expense: If you claimed 0 vehicles in line 11, using the IRS Local Standards, fill in thePublic Transportation expense allowance regardless of whether you use public transportation. $________

15. Additional public transportation expense: If you claimed 1 or more vehicles in line 11 and if you claim that you may alsodeduct a public transportation expense, you may fill in what you believe is the appropriate expense, but you may not claimmore than the IRS Local Standard for Public Transportation. $________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 5

Other Necessary Expenses In addition to the expense deductions listed above, you are allowed your monthly expenses for the following IRS categories.

16. Taxes: The total monthly amount that you will actually owe for federal, state and local taxes, such as income taxes, self-employment taxes, Social Security taxes, and Medicare taxes. You may include the monthly amount withheld from yourpay for these taxes. However, if you expect to receive a tax refund, you must divide the expected refund by 12 andsubtract that number from the total monthly amount that is withheld to pay for taxes.

Do not include real estate, sales, or use taxes.

$________

17. Involuntary deductions: The total monthly payroll deductions that your job requires, such as retirement contributions,union dues, and uniform costs.

Do not include amounts that are not required by your job, such as voluntary 401(k) contributions or payroll savings. $________

18. Life insurance: The total monthly premiums that you pay for your own term life insurance. If two married people are filingtogether, include payments that you make for your spouse’s term life insurance. Do not include premiums for lifeinsurance on your dependents, for a non-filing spouse’s life insurance, or for any form of life insurance other than term. $________

19. Court-ordered payments: The total monthly amount that you pay as required by the order of a court or administrativeagency, such as spousal or child support payments.

Do not include payments on past due obligations for spousal or child support. You will list these obligations in line 35. $________

20. Education: The total monthly amount that you pay for education that is either required:

as a condition for your job, or

for your physically or mentally challenged dependent child if no public education is available for similar services. $________

21. Childcare: The total monthly amount that you pay for childcare, such as babysitting, daycare, nursery, and preschool.

Do not include payments for any elementary or secondary school education. $_______

22. Additional health care expenses, excluding insurance costs: The monthly amount that you pay for health care thatis required for the health and welfare of you or your dependents and that is not reimbursed by insurance or paid by ahealth savings account. Include only the amount that is more than the total entered in line 7.Payments for health insurance or health savings accounts should be listed only in line 25. $________

23. Optional telephones and telephone services: The total monthly amount that you pay for telecommunication services foryou and your dependents, such as pagers, call waiting, caller identification, special long distance, or business cell phoneservice, to the extent necessary for your health and welfare or that of your dependents or for the production of income, if itis not reimbursed by your employer.

Do not include payments for basic home telephone, internet and cell phone service. Do not include self-employmentexpenses, such as those reported on line 5 of Official Form 122A-1, or any amount you previously deducted.

+ $_______

24. Add all of the expenses allowed under the IRS expense allowances.

Add lines 6 through 23. $_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 6

Additional Expense Deductions These are additional deductions allowed by the Means Test.

Note: Do not include any expense allowances listed in lines 6-24.

25. Health insurance, disability insurance, and health savings account expenses. The monthly expenses for healthinsurance, disability insurance, and health savings accounts that are reasonably necessary for yourself, your spouse, or yourdependents.

Health insurance $____________

Disability insurance $____________

Health savings account + $____________

Total $____________ Copy total here ..................................... $________

Do you actually spend this total amount?

No. How much do you actually spend?

Yes$___________

26. Continuing contributions to the care of household or family members. The actual monthly expenses that you willcontinue to pay for the reasonable and necessary care and support of an elderly, chronically ill, or disabled member ofyour household or member of your immediate family who is unable to pay for such expenses. These expenses mayinclude contributions to an account of a qualified ABLE program. 26 U.S.C. § 529A(b).

$________

27. Protection against family violence. The reasonably necessary monthly expenses that you incur to maintain the safetyof you and your family under the Family Violence Prevention and Services Act or other federal laws that apply.

By law, the court must keep the nature of these expenses confidential.

$________

28. Additional home energy costs. Your home energy costs are included in your insurance and operating expenses on line 8.

If you believe that you have home energy costs that are more than the home energy costs included in expenses on line8, then fill in the excess amount of home energy costs.

You must give your case trustee documentation of your actual expenses, and you must show that the additional amountclaimed is reasonable and necessary.

$________

29. Education expenses for dependent children who are younger than 18. The monthly expenses (not more than $160.42*per child) that you pay for your dependent children who are younger than 18 years old to attend a private or publicelementary or secondary school.

You must give your case trustee documentation of your actual expenses, and you must explain why the amount claimed isreasonable and necessary and not already accounted for in lines 6-23.

* Subject to adjustment on 4/01/19, and every 3 years after that for cases begun on or after the date of adjustment.

$________

30. Additional food and clothing expense. The monthly amount by which your actual food and clothing expenses arehigher than the combined food and clothing allowances in the IRS National Standards. That amount cannot be more than5% of the food and clothing allowances in the IRS National Standards.

To find a chart showing the maximum additional allowance, go online using the link specified in the separate instructions forthis form. This chart may also be available at the bankruptcy clerk’s office.

You must show that the additional amount claimed is reasonable and necessary.

$_______

31. Continuing charitable contributions. The amount that you will continue to contribute in the form of cash or financialinstruments to a religious or charitable organization. 26 U.S.C. § 170(c)(1)-(2).

+ $_______

32. Add all of the additional expense deductions.

Add lines 25 through 31.

$_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 7

Deductions for Debt Payment

33. For debts that are secured by an interest in property that you own, including home mortgages, vehicleloans, and other secured debt, fill in lines 33a through 33e.

To calculate the total average monthly payment, add all amounts that are contractually due to each securedcreditor in the 60 months after you file for bankruptcy. Then divide by 60.

Mortgages on your home:

Average monthly payment

33a. Copy line 9b here ................................................................................................................ $_____________

Loans on your first two vehicles:

33b. Copy line 13b here. ............................................................................................................ $_____________

33c. Copy line 13e here. .......................................................................................................... . $_____________

33d. List other secured debts:

Name of each creditor for other secured debt

Identify property that secures the debt

Does payment include taxes or insurance?

_______________________________ ________________________ No

Yes $____________

_______________________________ ________________________ No

Yes $____________

_______________________________ ________________________ No

Yes+ $____________

33e. Total average monthly payment. Add lines 33a through 33d. .................................................... $____________ Copy total

here $_________

34. Are any debts that you listed in line 33 secured by your primary residence, a vehicle,or other property necessary for your support or the support of your dependents?

No. Go to line 35.

Yes. State any amount that you must pay to a creditor, in addition to the paymentslisted in line 33, to keep possession of your property (called the cure amount). Next, divide by 60 and fill in the information below.

Name of the creditor Identify property that secures the debt

Total cure amount

Monthly cure amount

_______________________ ____________________ $__________ ÷ 60 =  $_____________

_______________________ ____________________ $__________ ÷ 60 =  $_____________

_______________________ ____________________ $__________ ÷ 60 =  + $_____________

Total $_____________ Copy total

here $________

35. Do you owe any priority claims such as a priority tax, child support, or alimony ─that are past due as of the filing date of your bankruptcy case? 11 U.S.C. § 507.

No. Go to line 36.

Yes. Fill in the total amount of all of these priority claims. Do not include current orongoing priority claims, such as those you listed in line 19.

Total amount of all past-due priority claims ................................................................. $____________ ÷ 60 = $_________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 8

36. Are you eligible to file a case under Chapter 13? 11 U.S.C. § 109(e).For more information, go online using the link for Bankruptcy Basics specified in the separateinstructions for this form. Bankruptcy Basics may also be available at the bankruptcy clerk’s office.

No. Go to line 37.

Yes. Fill in the following information.

Projected monthly plan payment if you were filing under Chapter 13 $_____________

Current multiplier for your district as stated on the list issued by the Administrative Office of the United States Courts (for districts in Alabama and North Carolina) or by the Executive Office for United States Trustees (for all other districts).

To find a list of district multipliers that includes your district, go online using the link specified in the separate instructions for this form. This list may also be available at the bankruptcy clerk’s office.

x ______

Average monthly administrative expense if you were filing under Chapter 13 $_____________ Copy total

here $_________

37. Add all of the deductions for debt payment.Add lines 33e through 36. ..............................................................................................................................................................

$_________

Total Deductions from Income

38. Add all of the allowed deductions.

Copy line 24, All of the expenses allowed under IRS expense allowances .....................................................................

$______________

Copy line 32, All of the additional expense deductions .......... $______________

Copy line 37, All of the deductions for debt payment ............. + $______________

Total deductions $______________ Copy total here ............................... $_________

Part 3: Determine Whether There Is a Presumption of Abuse

39. Calculate monthly disposable income for 60 months

39a. Copy line 4, adjusted current monthly income ..... $_____________

39b. Copy line 38, Total deductions. ......... − $_____________

39c. Monthly disposable income. 11 U.S.C. § 707(b)(2).

Subtract line 39b from line 39a. $_____________

Copy

here $____________

For the next 60 months (5 years) ........................................................................................................... x 60

39d. Total. Multiply line 39c by 60. .................................................................................................................. $____________Copy

here $________

40. Find out whether there is a presumption of abuse. Check the box that applies:

The line 39d is less than $7,700*. On the top of page 1 of this form, check box 1, There is no presumption of abuse. Goto Part 5.

The line 39d is more than $12,850*. On the top of page 1 of this form, check box 2, There is a presumption of abuse. Youmay fill out Part 4 if you claim special circumstances. Then go to Part 5.

The line 39d is at least $7,700*, but not more than $12,850*. Go to line 41.

* Subject to adjustment on 4/01/19, and every 3 years after that for cases filed on or after the date of adjustment.

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122A–2 Chapter 7 Means Test Calculation page 9

41. 41a. Fill in the amount of your total nonpriority unsecured debt. If you filled out ASummary of Your Assets and Liabilities and Certain Statistical Information Schedules (Official Form 106Sum), you may refer to line 3b on that form. .......................................................... .

$___________

x .25

41b. 25% of your total nonpriority unsecured debt. 11 U.S.C. § 707(b)(2)(A)(i)(I).

Multiply line 41a by 0.25. .......................................................................................................................... $___________

Copy

here $________

42. Determine whether the income you have left over after subtracting all allowed deductionsis enough to pay 25% of your unsecured, nonpriority debt.

Check the box that applies:

Line 39d is less than line 41b. On the top of page 1 of this form, check box 1, There is no presumption of abuse.Go to Part 5.

Line 39d is equal to or more than line 41b. On the top of page 1 of this form, check box 2, There is a presumptionof abuse. You may fill out Part 4 if you claim special circumstances. Then go to Part 5.

Part 4: Give Details About Special Circumstances

43. Do you have any special circumstances that justify additional expenses or adjustments of current monthly income for which there is noreasonable alternative? 11 U.S.C. § 707(b)(2)(B).

No. Go to Part 5.

Yes. Fill in the following information. All figures should reflect your average monthly expense or income adjustmentfor each item. You may include expenses you listed in line 25.

You must give a detailed explanation of the special circumstances that make the expenses or income adjustments necessary and reasonable. You must also give your case trustee documentation of your actual expenses or income adjustments.

Give a detailed explanation of the special circumstances Average monthly expense or income adjustment

_______________________________________________________________________________ $__________________

_______________________________________________________________________________ $__________________

_______________________________________________________________________________ $__________________

_______________________________________________________________________________ $__________________

Part 5: Sign Below

By signing here, I declare under penalty of perjury that the information on this statement and in any attachments is true and correct.

___________________________________________________ ___________________________________Signature of Debtor 1 Signature of Debtor 2

Date _________________ Date _________________ MM / DD / YYYY MM / DD / YYYY

Official Form 122C-1 Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period page 1

Official Form 122C-1

Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period 12/15

Be as complete and accurate as possible. If two married people are filing together, both are equally responsible for being accurate. If more space is needed, attach a separate sheet to this form. Include the line number to which the additional information applies. On the top of any additional pages, write your name and case number (if known).

Part 1: Calculate Your Average Monthly Income

1. What is your marital and filing status? Check one only.

Not married. Fill out Column A, lines 2-11.

Married. Fill out both Columns A and B, lines 2-11.

Fill in the average monthly income that you received from all sources, derived during the 6 full months before you file this bankruptcy case. 11 U.S.C. § 101(10A). For example, if you are filing on September 15, the 6-month period would be March 1 through August 31. If the amount of your monthly income varied during the 6 months, add the income for all 6 months and divide the total by 6. Fill in the result. Do not include any income amount more than once. For example, if both spouses own the same rental property, put the income from that property in one column only. If you have nothing to report for any line, write $0 in the space.

Column A Debtor 1

Column B Debtor 2 or non-filing spouse

2. Your gross wages, salary, tips, bonuses, overtime, and commissions (before allpayroll deductions). $__________ $__________

3. Alimony and maintenance payments. Do not include payments from a spouse. $__________ $__________

4. All amounts from any source which are regularly paid for household expenses ofyou or your dependents, including child support. Include regular contributions froman unmarried partner, members of your household, your dependents, parents, androommates. Do not include payments from a spouse. Do not include payments youlisted on line 3. $_________ $__________

5. Net income from operating a business, profession, orfarm

Debtor 1 Debtor 2

Gross receipts (before all deductions) $______ $______

Ordinary and necessary operating expenses – $______ – $______

Net monthly income from a business, profession, or farm$______ $______

Copy here $_________ $__________

6. Net income from rental and other real property Debtor 1 Debtor 2

Gross receipts (before all deductions) $______ $______

Ordinary and necessary operating expenses – $______ – $______

Net monthly income from rental or other real property $______ $______Copy here $_________ $__________

Check as directed in lines 17 and 21:

According to the calculations required by this Statement:

1. Disposable income is not determined under 11 U.S.C. § 1325(b)(3).

2. Disposable income is determined under 11 U.S.C. § 1325(b)(3).

3. The commitment period is 3 years.

4. The commitment period is 5 years.

Debtor 1 __________________________________________________________________ First Name Middle Name Last Name

Debtor 2 ________________________________________________________________ (Spouse, if filing) First Name Middle Name Last Name

United States Bankruptcy Court for the: __________ District of __________

Case number ___________________________________________ (If known)

  Fill in this information to identify your case:

Check if this is an amended filing

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-1 Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period page 2

Column A Debtor 1

Column B Debtor 2 or non-filing spouse

7. Interest, dividends, and royalties $____________ $__________

8. Unemployment compensation $____________ $__________

Do not enter the amount if you contend that the amount received was a benefit underthe Social Security Act. Instead, list it here: .......................................

For you ................................................................................... $_____________

For your spouse ................................................................... $_____________

9. Pension or retirement income. Do not include any amount received that was abenefit under the Social Security Act. $____________ $__________

10. Income from all other sources not listed above. Specify the source and amount.Do not include any benefits received under the Social Security Act or paymentsreceived as a victim of a war crime, a crime against humanity, or international ordomestic terrorism. If necessary, list other sources on a separate page and put thetotal below.

__________________________________________________________________ $____________ $___________

__________________________________________________________________ $____________ $___________

Total amounts from separate pages, if any. + $____________ + $__________

11. Calculate your total average monthly income. Add lines 2 through 10 for eachcolumn. Then add the total for Column A to the total for Column B. $____________ + $___________ = $________

Total average monthly income

Part 2: Determine How to Measure Your Deductions from Income

12. Copy your total average monthly income from line 11. ...................................................................................................................... $_____________

13. Calculate the marital adjustment. Check one:

You are not married. Fill in 0 below.

You are married and your spouse is filing with you. Fill in 0 below. You are married and your spouse is not filing with you.

Fill in the amount of the income listed in line 11, Column B, that was NOT regularly paid for the household expenses ofyou or your dependents, such as payment of the spouse’s tax liability or the spouse’s support of someone other thanyou or your dependents.Below, specify the basis for excluding this income and the amount of income devoted to each purpose. If necessary,list additional adjustments on a separate page.

If this adjustment does not apply, enter 0 below.

__________________________________________________________________________ $___________

__________________________________________________________________________ $___________

__________________________________________________________________________ + $___________ 

Total............................................................................................................................................ $___________ Copy here    ─____________

14. Your current monthly income. Subtract the total in line 13 from line 12. $ __________

15. Calculate your current monthly income for the year. Follow these steps:

15a. Copy line 14 here ...................................................................................................................................................................................... $ ____________

Multiply line 15a by 12 (the number of months in a year). x 12

15b. The result is your current monthly income for the year for this part of the form.  ................................................................................. $___________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-1 Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period page 3

16. Calculate the median family income that applies to you. Follow these steps:

16a. Fill in the state in which you live. _________

16b. Fill in the number of people in your household. _________

16c. Fill in the median family income for your state and size of household. ..............................................................................................

To find a list of applicable median income amounts, go online using the link specified in the separate instructions for this form. This list may also be available at the bankruptcy clerk’s office.

$___________

17. How do the lines compare?

17a. Line 15b is less than or equal to line 16c. On the top of page 1 of this form, check box 1, Disposable income is not determined under11 U.S.C. § 1325(b)(3). Go to Part 3. Do NOT fill out Calculation of Your Disposable Income (Official Form 122C–2).

17b. Line 15b is more than line 16c. On the top of page 1 of this form, check box 2, Disposable income is determined under 11 U.S.C. § 1325(b)(3). Go to Part 3 and fill out Calculation of Your Disposable Income (Official Form 122C–2). On line 39 of that form, copy your current monthly income from line 14 above.

Part 3: Calculate Your Commitment Period Under 11 U.S.C. § 1325(b)(4)

18. Copy your total average monthly income from line 11. ........................................................................................................................ $__________

19. Deduct the marital adjustment if it applies. If you are married, your spouse is not filing with you, and you contend thatcalculating the commitment period under 11 U.S.C. § 1325(b)(4) allows you to deduct part of your spouse’s income, copythe amount from line 13.19a. If the marital adjustment does not apply, fill in 0 on line 19a. ................................................................................................

─ $__________

19b. Subtract line 19a from line 18. $__________

20. Calculate your current monthly income for the year. Follow these steps:

20a. Copy line 19b.. ......................................................................................................................................................................................... $___________

Multiply by 12 (the number of months in a year). x 12

20b. The result is your current monthly income for the year for this part of the form. $___________

20c. Copy the median family income for your state and size of household from line 16c. ................................................................... $___________

21. How do the lines compare?

Line 20b is less than line 20c. Unless otherwise ordered by the court, on the top of page 1 of this form, check box 3,The commitment period is 3 years. Go to Part 4.

Line 20b is more than or equal to line 20c. Unless otherwise ordered by the court, on the top of page 1 of this form,check box 4, The commitment period is 5 years. Go to Part 4.

Part 4: Sign Below

By signing here, under penalty of perjury I declare that the information on this statement and in any attachments is true and correct.

___________________________________________________ ____________________________________Signature of Debtor 1 Signature of Debtor 2

Date _________________ Date _________________

MM / DD / YYYY MM / DD / YYYY

If you checked 17a, do NOT fill out or file Form 122C–2.

If you checked 17b, fill out Form 122C–2 and file it with this form. On line 39 of that form, copy your current monthly income from line 14 above.

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 1

Official Form 122C-2

Chapter 13 Calculation of Your Disposable Income 04/16

To fill out this form, you will need your completed copy of Chapter 13 Statement of Your Current Monthly Income and Calculation of Commitment Period (Official Form 122C–1).

Be as complete and accurate as possible. If two married people are filing together, both are equally responsible for being accurate. If more space is needed, attach a separate sheet to this form. Include the line number to which the additional information applies. On the top of any additional pages, write your name and case number (if known).

Part 1: Calculate Your Deductions from Your Income

The Internal Revenue Service (IRS) issues National and Local Standards for certain expense amounts. Use these amounts to answer the questions in lines 6-15. To find the IRS standards, go online using the link specified in the separate instructions for this form. This information may also be available at the bankruptcy clerk’s office.

Deduct the expense amounts set out in lines 6-15 regardless of your actual expense. In later parts of the form, you will use some of your actual expenses if they are higher than the standards. Do not include any operating expenses that you subtracted from income in lines 5 and 6 of Form 122C–1, and do not deduct any amounts that you subtracted from your spouse’s income in line 13 of Form 122C–1.

If your expenses differ from month to month, enter the average expense.

Note: Line numbers 1-4 are not used in this form. These numbers apply to information required by a similar form used in chapter 7 cases.

5. The number of people used in determining your deductions from income

Fill in the number of people who could be claimed as exemptions on your federal income taxreturn, plus the number of any additional dependents whom you support. This number maybe different from the number of people in your household.

National Standards

You must use the IRS National Standards to answer the questions in lines 6-7.

6. Food, clothing, and other items: Using the number of people you entered in line 5 and the IRS NationalStandards, fill in the dollar amount for food, clothing, and other items. $________

7. Out-of-pocket health care allowance: Using the number of people you entered in line 5 and the IRS NationalStandards, fill in the dollar amount for out-of-pocket health care. The number of people is split into twocategories─people who are under 65 and people who are 65 or older─because older people have a higher IRSallowance for health care costs. If your actual expenses are higher than this IRS amount, you may deduct theadditional amount on line 22.

Debtor 1 __________________________________________________________________ First Name Middle Name Last Name

Debtor 2 ________________________________________________________________ (Spouse, if filing) First Name Middle Name Last Name

United States Bankruptcy Court for the: __________ District of _________

Case number ___________________________________________ (If known)

  Fill in this information to identify your case:

Check if this is an amended filing

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 2

People who are under 65 years of age

7a. Out-of-pocket health care allowance per person $______________

7b. Number of people who are under 65 X ______

7c. Subtotal. Multiply line 7a by line 7b. $______________Copy

here $___________

People who are 65 years of age or older

7d. Out-of-pocket health care allowance per person $______________

7e. Number of people who are 65 or older X ______

7f. Subtotal. Multiply line 7d by line 7e. $______________Copy

here + $__________

7g. Total. Add lines 7c and 7f. ...................................................................................................... $___________ Copy here ....... $________

LocalStandards

You must use the IRS Local Standards to answer the questions in lines 8-15.

Based on information from the IRS, the U.S. Trustee Program has divided the IRS Local Standard for housing for bankruptcy purposes into two parts:

Housing and utilities – Insurance and operating expenses Housing and utilities – Mortgage or rent expenses

To answer the questions in lines 8-9, use the U.S. Trustee Program chart. To find the chart, go online using the link specified in the separate instructions for this form. This chart may also be available at the bankruptcy clerk’s office.

8. Housing and utilities – Insurance and operating expenses: Using the number of people you entered in line 5, fillin the dollar amount listed for your county for insurance and operating expenses. $________

9. Housing and utilities – Mortgage or rent expenses:

9a. Using the number of people you entered in line 5, fill in the dollar amount listed for your county for mortgage or rent expenses. $____________

9b. Total average monthly payment for all mortgages and other debts secured by your home.

To calculate the total average monthly payment, add all amounts that are contractually due to each secured creditor in the 60 months after you file for bankruptcy. Next divide by 60.

Name of the creditor Average monthly payment

_________________________________ $__________

_________________________________ $__________

_________________________________ + $__________

9b. Total average monthly payment $__________ Copy

here ─ $____________Repeat this amount on line 33a.

9c. Net mortgage or rent expense.

Subtract line 9b (total average monthly payment) from line 9a (mortgage or rent expense). If this number is less than $0, enter $0.

Copy here ....... $____________ $________

10. If you claim that the U.S. Trustee Program’s division of the IRS Local Standard for housing is incorrect and affectsthe calculation of your monthly expenses, fill in any additional amount you claim.

$________

Explain why:

______________________________________________________________________________________________________________________________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 3

11. Local transportation expenses: Check the number of vehicles for which you claim an ownership or operating expense.

0. Go to line 14.

1. Go to line 12.2 or more. Go to line 12.

12. Vehicle operation expense: Using the IRS Local Standards and the number of vehicles for which you claim the operatingexpenses, fill in the Operating Costs that apply for your Census region or metropolitan statistical area. $_______

13. Vehicle ownership or lease expense: Using the IRS Local Standards, calculate the net ownership or lease expense foreach vehicle below. You may not claim the expense if you do not make any loan or lease payments on the vehicle. Inaddition, you may not claim the expense for more than two vehicles.

Vehicle 1 Describe Vehicle 1: _________________________________________________________________

_________________________________________________________________

13a. Ownership or leasing costs using IRS Local Standard ....................................... $____________

13b. Average monthly payment for all debts secured by Vehicle 1.

Do not include costs for leased vehicles.

To calculate the average monthly payment here and on line 13e, add all amounts that are contractually due to each secured creditor in the 60 months after you file for bankruptcy. Then divide by 60.

Name of each creditor for Vehicle 1 Average monthly payment

_________________________________ $__________

_________________________________ + $__________

Total average monthly payment $__________

Copy

here ─ $___________ Repeat this amount on line 33b.

13c. Net Vehicle 1 ownership or lease expense

Subtract line 13b from line 13a. If this number is less than $0, enter $0. ............ $___________Copy net Vehicle

1 expense here $_______

Vehicle 2 Describe Vehicle 2: _________________________________________________________________

_________________________________________________________________

13d. Ownership or leasing costs using IRS Local Standard ................................... $___________

13e. Average monthly payment for all debts secured by Vehicle 2.

Do not include costs for leased vehicles.

Name of each creditor for Vehicle 2 Average monthly payment

_________________________________ $__________

_________________________________ + $__________

Total average monthly payment $__________

Copy

here ─ $___________ Repeat this amount on line 33c.

13f. Net Vehicle 2 ownership or lease expense

Subtract line 13e from 13d. If this number is less than $0, enter $0. ................... $__________

Copy net Vehicle 2 expense here

$_______

14. Public transportation expense: If you claimed 0 vehicles in line 11, using the IRS Local Standards, fill in the PublicTransportation expense allowance regardless of whether you use public transportation. $_______

15. Additional public transportation expense: If you claimed 1 or more vehicles in line 11 and if you claim that you may alsodeduct a public transportation expense, you may fill in what you believe is the appropriate expense, but you may not claimmore than the IRS Local Standard for Public Transportation. $_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 4

Other Necessary Expenses

In addition to the expense deductions listed above, you are allowed your monthly expenses for the following IRS categories.

16. Taxes: The total monthly amount that you actually pay for federal, state and local taxes, such as income taxes,self-employment taxes, social security taxes, and Medicare taxes. You may include the monthly amount withheldfrom your pay for these taxes. However, if you expect to receive a tax refund, you must divide the expectedrefund by 12 and subtract that number from the total monthly amount that is withheld to pay for taxes.Do not include real estate, sales, or use taxes.

$_______

17. Involuntary deductions: The total monthly payroll deductions that your job requires, such as retirement contributions,union dues, and uniform costs.

Do not include amounts that are not required by your job, such as voluntary 401(k) contributions or payroll savings. $_______

18. Life insurance: The total monthly premiums that you pay for your own term life insurance. If two married people are filingtogether, include payments that you make for your spouse’s term life insurance.

Do not include premiums for life insurance on your dependents, for a non-filing spouse’s life insurance, or for any form oflife insurance other than term. $_______

19. Court-ordered payments: The total monthly amount that you pay as required by the order of a court or administrativeagency, such as spousal or child support payments.

Do not include payments on past due obligations for spousal or child support. You will list these obligations in line 35. $_______

20. Education: The total monthly amount that you pay for education that is either required: as a condition for your job, or for your physically or mentally challenged dependent child if no public education is available for similar services.

$_______

21. Childcare: The total monthly amount that you pay for childcare, such as babysitting, daycare, nursery, and preschool.Do not include payments for any elementary or secondary school education. $_______

22. Additional health care expenses, excluding insurance costs: The monthly amount that you pay for health care that isrequired for the health and welfare of you or your dependents and that is not reimbursed by insurance or paid by a healthsavings account. Include only the amount that is more than the total entered in line 7.

Payments for health insurance or health savings accounts should be listed only in line 25. $_______

23. Optional telephones and telephone services: The total monthly amount that you pay for telecommunication servicesfor you and your dependents, such as pagers, call waiting, caller identification, special long distance, or business cellphone service, to the extent necessary for your health and welfare or that of your dependents or for the production ofincome, if it is not reimbursed by your employer.

Do not include payments for basic home telephone, internet or cell phone service. Do not include self-employmentexpenses, such as those reported on line 5 of Form 122C-1, or any amount you previously deducted.

+ $________

24. Add all of the expenses allowed under the IRS expense allowances.Add lines 6 through 23.

$________

Additional Expense Deductions

These are additional deductions allowed by the Means Test.

Note: Do not include any expense allowances listed in lines 6-24.

25. Health insurance, disability insurance, and health savings account expenses. The monthly expenses for healthinsurance, disability insurance, and health savings accounts that are reasonably necessary for yourself, your spouse, oryour dependents.

Health insurance $__________

Disability insurance $__________

Health savings account + $__________

Total $__________ Copy total here ...................................................................... $________

Do you actually spend this total amount?

No. How much do you actually spend?

Yes$__________

26. Continuing contributions to the care of household or family members. The actual monthly expenses that you willcontinue to pay for the reasonable and necessary care and support of an elderly, chronically ill, or disabled member ofyour household or member of your immediate family who is unable to pay for such expenses. These expenses mayinclude contributions to an account of a qualified ABLE program. 26 U.S.C. § 529A(b).

$_______

27. Protection against family violence. The reasonably necessary monthly expenses that you incur to maintain the safety ofyou and your family under the Family Violence Prevention and Services Act or other federal laws that apply.

By law, the court must keep the nature of these expenses confidential. $_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 5

28. Additional home energy costs. Your home energy costs are included in your insurance and operating expenses on line 8.

If you believe that you have home energy costs that are more than the home energy costs included in expenses on line 8,then fill in the excess amount of home energy costs.

You must give your case trustee documentation of your actual expenses, and you must show that the additional amountclaimed is reasonable and necessary.

$_______

29. Education expenses for dependent children who are younger than 18. The monthly expenses (not morethan $160.42* per child) that you pay for your dependent children who are younger than 18 years old to attend aprivate or public elementary or secondary school.

You must give your case trustee documentation of your actual expenses, and you must explain why the amountclaimed is reasonable and necessary and not already accounted for in lines 6-23.

* Subject to adjustment on 4/01/19, and every 3 years after that for cases begun on or after the date of adjustment.

$_______

30. Additional food and clothing expense. The monthly amount by which your actual food and clothing expenses arehigher than the combined food and clothing allowances in the IRS National Standards. That amount cannot be morethan 5% of the food and clothing allowances in the IRS National Standards.

To find a chart showing the maximum additional allowance, go online using the link specified in the separateinstructions for this form. This chart may also be available at the bankruptcy clerk’s office.

You must show that the additional amount claimed is reasonable and necessary.

$_______

31. Continuing charitable contributions. The amount that you will continue to contribute in the form of cash or financialinstruments to a religious or charitable organization. 11 U.S.C. § 548(d)(3) and (4).

Do not include any amount more than 15% of your gross monthly income.

+ $________

32. Add all of the additional expense deductions.

Add lines 25 through 31. $_________

Deductions for Debt Payment

33. For debts that are secured by an interest in property that you own, including home mortgages, vehicleloans, and other secured debt, fill in lines 33a through 33e.

To calculate the total average monthly payment, add all amounts that are contractually dueto each secured creditor in the 60 months after you file for bankruptcy. Then divide by 60.

Average monthly payment

Mortgages on your home

33a. Copy line 9b here ................................................................................................... $___________

Loans on your first two vehicles

33b. Copy line 13b here. ............................................................................................... $___________

33c. Copy line 13e here. ............................................................................................... $___________

33d. List other secured debts:

Name of each creditor for other secured debt

Identify property that secures the debt

Does payment include taxes or insurance?

___________________________________ ________________________

No

Yes $___________

___________________________________ ________________________

No

Yes $___________

___________________________________ ________________________

No

Yes+ $___________

33e. Total average monthly payment. Add lines 33a through 33d. .......................................... $___________ Copy total

here $_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 6

34. Are any debts that you listed in line 33 secured by your primary residence, a vehicle, or other property necessaryfor your support or the support of your dependents?

No. Go to line 35.

Yes. State any amount that you must pay to a creditor, in addition to the payments listed in line 33, to keeppossession of your property (called the cure amount). Next, divide by 60 and fill in the information below.

Name of the creditor Identify property that secures the debt

Total cure amount

Monthly cure amount

_________________________ __________________ $__________ ÷ 60 =  $___________

_________________________ __________________ $__________ ÷ 60 =  $___________

_________________________ __________________ $__________ ÷ 60 =  + $___________

Total $___________ Copy total

here $_______

35. Do you owe any priority claimssuch as a priority tax, child support, or alimony that are past due as ofthe filing date of your bankruptcy case? 11 U.S.C. § 507.

No. Go to line 36.

Yes. Fill in the total amount of all of these priority claims. Do not include current orongoing priority claims, such as those you listed in line 19.

Total amount of all past-due priority claims. .................................................................... $______________ ÷ 60 $_______

36. Projected monthly Chapter 13 plan payment $______________

Current multiplier for your district as stated on the list issued by the AdministrativeOffice of the United States Courts (for districts in Alabama and North Carolina) or bythe Executive Office for United States Trustees (for all other districts).

To find a list of district multipliers that includes your district, go online using the linkspecified in the separate instructions for this form. This list may also be available at thebankruptcy clerk’s office.

x ______

Average monthly administrative expense $______________ Copy total

here $_______

37. Add all of the deductions for debt payment. Add lines 33e through 36. $_______

Total Deductions from Income

38. Add all of the allowed deductions.

Copy line 24, All of the expenses allowed under IRS expense allowances ................................... $______________

Copy line 32, All of the additional expense deductions ...................................................................... $______________

Copy line 37, All of the deductions for debt payment .........................................................................+ $______________

Total deductions ........................................................................................................................................ $______________ Copy total

here $_______

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 7

Part 2: Determine Your Disposable Income Under 11 U.S.C. § 1325(b)(2)

39. Copy your total current monthly income from line 14 of Form 122C-1, Chapter 13Statement of Your Current Monthly Income and Calculation of Commitment Period. ...................................................................

$_______

40. Fill in any reasonably necessary income you receive for support for dependentchildren. The monthly average of any child support payments, foster care payments, ordisability payments for a dependent child, reported in Part I of Form 122C-1, that youreceived in accordance with applicable nonbankruptcy law to the extent reasonablynecessary to be expended for such child.

$____________

41. Fill in all qualified retirement deductions. The monthly total of all amounts that youremployer withheld from wages as contributions for qualified retirement plans, asspecified in 11 U.S.C. § 541(b)(7) plus all required repayments of loans from retirementplans, as specified in 11 U.S.C. § 362(b)(19).

$____________

42. Total of all deductions allowed under 11 U.S.C. § 707(b)(2)(A). Copy line 38 here ............ $____________

43. Deduction for special circumstances. If special circumstances justify additionalexpenses and you have no reasonable alternative, describe the special circumstancesand their expenses. You must give your case trustee a detailed explanation of thespecial circumstances and documentation for the expenses.

Describe the special circumstances Amount of expense

______________________________________________________ $___________ 

______________________________________________________ $___________ 

______________________________________________________ + $___________ 

Total $___________Copy here

+ $_____________

44. Total adjustments. Add lines 40 through 43. .................................................................................... $____________Copy here – $______

45. Calculate your monthly disposable income under § 1325(b)(2). Subtract line 44 from line 39. $_______

Part 3: Change in Income or Expenses

46. Change in income or expenses. If the income in Form 122C-1 or the expenses you reported in this form have changedor are virtually certain to change after the date you filed your bankruptcy petition and during the time your case will beopen, fill in the information below. For example, if the wages reported increased after you filed your petition, check122C-1 in the first column, enter line 2 in the second column, explain why the wages increased, fill in when the increaseoccurred, and fill in the amount of the increase.

Form Line Reason for change Date of change Increase or decrease?

Amount of change

122C─1

122C─2____ _______________________________ ____________

Increase

Decrease $____________

122C─1

122C─2____ _______________________________ ____________

Increase

Decrease $____________

122C─1

122C─2____ _______________________________ ____________

Increase

Decrease $____________

122C─1

122C─2____ _______________________________ ____________

Increase

Decrease $____________

Debtor 1 _______________________________________________________ Case number (if known)_____________________________________ First Name Middle Name Last Name

Official Form 122C-2 Chapter 13 Calculation of Your Disposable Income page 8

Part 4: Sign Below

By signing here, under penalty of perjury you declare that the information on this statement and in any attachments is true and correct.

___________________________________________________ __________________________________

Signature of Debtor 1 Signature of Debtor 2

Date _________________ Date _________________ MM / DD / YYYY MM / DD / YYYY

99IN RE HERTZBERGCite as 521 B.R. 99 (Bkrtcy.W.D.Pa. 2014)

the relief it contemplated sought the nega-tion of the Sheriff’s Sale. As a result, thisCourt determined that the second prongwas not satisfied.Whether the Judgment was RenderedPrior to the Debtor’s Bankruptcy?

The parties do not dispute that theSheriff’s Sale occurred prior to the Debt-or’s bankruptcy. As a result, the thirdprong was satisfied.

Is the Plaintiff Seeking Review of aState Judgment?

To determine whether the Debtor isseeking review of a state judgment and theSheriff’s Sale in particular, this Courtmust determine whether the adjudicationof the Debtor’s hypothetical §§ 544(a) or548(a) claims would require this Court toreview the merits of a prior state courtadjudication. In no way may it be saidthat this Court’s approval of the Stipula-tion would entail the review of any priorstate court determination. See, e.g., 72P.S. § 5860.601; Hunter v. McKlveen, 361Pa. 479, 483, 65 A.2d 366 (Pa.1949) (recog-nizing that the validity of a tax sale is‘‘necessarily dependent on a valid assess-ment’’). To enter the Consent Order or tootherwise confirm that the Debtor has theauthority to enter into the agreement em-bodied by the Consent Order, this Court isnot required to revisit any finding theSheriff’s Sale was contingent upon. Forexample, this Court was not required toaddress the valuation of the Property asdetermined pursuant to the Sheriff’s Saleor the fact that some unpaid amount wasowed to the City which entitled it to sellthe Property.

Accordingly, this Court determined thatthe fourth prong, along with the secondprong, was not satisfied and this Courtconfirmed that the Rooker–Feldman Doc-trine did not divest this Court of its juris-diction to grant the relief sought by theStipulation.

CONCLUSION

[8] Consistent with this Court’s forego-ing analysis, this Court determined that itsconsideration of the Stipulation and subse-quent entry of the Consent Order did notimplicate the Rooker–Feldman Doctrine.The relief sought by the Settling Partiesand granted by this Court did not negate aprior state court judgment. To the con-trary, the Consent Order simply repre-sented the Settling Parties’ resolution ofthe dispute arising from the Debtor’s exer-cise of his right of redemption and theeffect that this act had upon the rights of2013 LLC that it obtained pursuant to theSheriff’s Sale.

,

In re Todd HERTZBERG, Debtor.

Rosemary C. Crawford, Trustee for theBankruptcy Estate of Susan

Hertzberg, Plaintiff,

v.

Todd Hertzberg, Defendant.

Bankruptcy No. 13–23753–JAD.Adversary No. 14–2141–JAD.

United States Bankruptcy Court,W.D. Pennsylvania.

Signed Nov. 4, 2014.

Background: Chapter 7 trustee filed ad-versary proceeding against debtor’s for-mer husband, who was a Chapter 11 debt-or-in-possession, seeking turnover of$145,000 in retirement funds. Chapter 11debtor moved to dismiss.

Holdings: The Bankruptcy Court, JefferyA. Deller, Chief Judge, held that:

100 521 BANKRUPTCY REPORTER

(1) trustee’s allegations were sufficient tosupport claim for turnover of the re-tirement funds;

(2) trustee’s allegations were not sufficientto support fraudulent transfer claim;and

(3) relief from automatic stay in husband’sChapter 11 case was warranted.

Ordered accordingly.

1. Bankruptcy O3066(1)Chapter 7 trustee’s allegations that

debtor obtained a legal or equitable inter-est in $145,000 of retirement funds byvirtue of a marital settlement agreementwere sufficient to support claim for turn-over of the retirement funds against debt-or’s former husband. 11 U.S.C.A. §§ 541,542.

2. Bankruptcy O2724Chapter 7 trustee’s allegations that

debtor obtained a legal or equitable inter-est in $145,000 of retirement funds byvirtue of a marital settlement agreementwere insufficient to support fraudulenttransfer claims against debtor’s formerhusband under Bankruptcy Code provi-sions and state law, absent allegations withrespect to a transfer of assets away fromhusband to the detriment of debtor. 11U.S.C.A. §§ 548, 550; 12 Pa.C.S.A. § 5101et seq.

3. Bankruptcy O2422.5(4.1)Unique facts of Chapter 7 trustee’s

adversary proceeding against debtor’s for-mer husband, who was a Chapter 11 debt-or-in-possession, for turnover of $145,000in retirement funds warranted relief fromautomatic stay in husband’s Chapter 11case; husband suffered no real prejudiceby continuation of the adversary proceed-ing, as the court was more than capable ofoverseeing the litigation to insure that hus-band, as debtor-in-possession, could obtain

his ‘‘fresh start’’ and not obtain an imper-missible ‘‘head start’’ to the detriment ofother parties-in-interest who may have anenforceable equitable interest against theretirement funds. 11 U.S.C.A. § 362(a).

4. Bankruptcy O2392, 2394.1

Acts against the debtor or property ofthe debtor or his estate are stayed byoperation of Bankruptcy Code provisiongoverning the automatic stay; this is trueeven when the property is merely ‘‘argu-ably’’ property of the debtor or his estate.11 U.S.C.A. § 362(a).

5. Bankruptcy O2391

Purpose of the automatic stay is topreserve the status quo, to provide thedebtor with breathing room while thedebtor reorganizes his affairs and pursuesa permanent injunction as to dischargeablein personam claims, and to avoid unilateraldismemberment of the estate by roguecreditors to the detriment of other partieshaving an interest in the outcome of abankruptcy. 11 U.S.C.A. § 362(a).

Rosemary C. Crawford, Crawford Mc-Donald, LLC, Allison Park, PA, pro se.

Robert O. Lampl, Mary Bower Sheats,Frank, Gale, Bails, Murcko & Pocrass,P.C., Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION

JEFFERY A. DELLER, Chief Judge.

This is a case that finds itself in a uniqueposition. That position is a chapter 7bankruptcy trustee filing suit against achapter 11 debtor-in-possession. The gra-vamen of the dispute is that the chapter 7trustee is seeking the turnover of $145,000in retirement funds (the ‘‘RetirementFunds’’) in the possession, custody and

101IN RE HERTZBERGCite as 521 B.R. 99 (Bkrtcy.W.D.Pa. 2014)

control of the chapter 11 debtor-in-posses-sion.1

Since this adversary proceeding con-cerns property of the bankruptcy estates,or more appropriately property of onebankruptcy estate and alleged property ofthe other bankruptcy estate, and since thisadversary proceeding also implicates thecontours of the automatic stay, this adver-sary is a core proceeding pursuant to 28U.S.C. §§ 157(b)(2)(E),2 (G), and (O). ThisCourt also has subject-matter jurisdictionpursuant to 28 U.S.C. §§ 1334(b) and (e).

For the reasons set forth below, thisCourt concludes that the chapter 7 trusteehas, at least in part, stated a claim forrelief as it relates to the Retirement Fundsat issue.

I.

The facts, as alleged by the chapter 7trustee in the Complaint to Turnover Re-tirement Funds (the ‘‘Complaint’’) are notterribly complicated. These allegationsare summarized herein, albeit in a differ-ent order as alleged by the chapter 7trustee.

Susan M. Hertzberg is the former wifeof the debtor-in-possession Todd Hertz-berg. Before this Court, Mrs. Hertzbergfiled her own voluntary petition underchapter 7 of the United States BankruptcyCode. While not stated in the Complaint,the Court takes judicial notice of the filing

and observes that her bankruptcy filingoccurred on February 27, 2012 and wasfiled at Bankruptcy No. 12–20888–GLT.

Upon the filing of Mrs. Hertzberg’schapter 7 bankruptcy case, Ms. RosemaryC. Crawford was duly appointed trustee,charged with the duty of reducing estateassets to cash and making distributions tothe creditors of the bankruptcy estate ofMrs. Hertzberg. One such asset that Mrs.Hertzberg had as of the filing of her bank-ruptcy case was whatever rights, title andinterests she had pursuant to a MarriageSettlement Agreement dated October 5,2010 by and between Mrs. Hertzberg andTodd Hertzberg. It is alleged that pursu-ant to this Marital Settlement Agreement,Mrs. Hertzberg acquired an interest in$145,000 of the Retirement Funds.

Approximately 19 months after Mrs.Hertzberg filed her chapter 7 liquidationcase, on September 3, 2013, Mr. Hertzbergfiled his chapter 11 reorganization casebefore this Court at Bankruptcy No. 13–23753–JAD. After the commencement ofhis chapter 11 case, the chapter 7 trusteein the case of Mrs. Hertzberg filed theabove referenced Complaint alleging, interalia, that:1 $145,000 of the Retirement Funds are

property of the bankruptcy estate ofMrs. Hertzberg.

1 The chapter 7 trustee made numerousrequests that $145,000 of the Retire-ment Funds be turned over to the

1. As of the petition date, Todd Hertzberg had$626,000 of Retirement Funds in his posses-sion, custody and control. See Schedule B,Dkt. # 14 filed at Bankruptcy No. 13–23753–JAD. This adversary proceeding concernsonly $145,000 of such funds.

2. See e.g., Beard v. Braunstein, 914 F.2d 434,444 (3d Cir.1990)(core turnover proceeding iswhere property of the estate is not properlydelivered to the bankruptcy trustee). To theextent the cause of action of the chapter 7trustee is either a non-core proceeding, see

e.g., Drauschak v. VMP Holdings Ass’n, L.P.,(In re Drauschak), 481 B.R. 330 (Bankr.E.D.Pa.2012), or is a so-called ‘‘Constitutionalcore’’ matter pursuant to Stern v. Marshall,––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d475 (2011), this Memorandum Opinion shallconstitute this Court’s proposed findings, con-clusions, and report and recommendation tothe United States District Court pursuant toExecutive Benefits Ins. Agency v. Arkison, –––U.S. ––––, 134 S.Ct. 2165, 189 L.Ed.2d 83(2014).

102 521 BANKRUPTCY REPORTER

chapter 7 trustee for the benefit of thebankruptcy estate of Mrs. Hertzberg.

1 The debtor-in-possession, Mr. Hertz-berg, through his attorney, ignoredthe chapter 7 trustee’s repeated turn-over demands.—and—

1 Turnover of $145,000 of the Retire-ment Funds should be ordered by theCourt pursuant to various statutes,including 11 U.S.C. §§ 541, 542, 548and 550 and 12 Pa.C.S. §§ 5101–5110,5104.

The Complaint filed by the chapter 7trustee has been met with opposition bythe chapter 11 debtor-in-possession. Spe-cifically, the defendant Mr. Hertzberg fileda Motion to Dismiss, contending that own-ership of the $145,000 of RetirementFunds has always been vested in Mr.Hertzberg, and not Mrs. Hertzberg. Assuch, Mr. Hertzberg contends that the$145,000 of Retirement Funds never con-stituted property of the bankruptcy estateof Mrs. Hertzberg, and that the chapter 7trustee fails to plead a cause of action forturnover pursuant to 11 U.S.C. §§ 541 and542.

The defendant also seeks to dismiss theComplaint because the Complaint fails toidentify any pre-bankruptcy ‘‘transfer’’ ofthe Retirement Funds at issue. Absent anallegation of a ‘‘transfer’’ of property, theMotion to Dismiss contends that the chap-ter 7 trustee fails to state a claim underthe Bankruptcy Code’s fraudulent transferprovisions found at 11 U.S.C. §§ 548 and550 and state law fraudulent transfer stat-utes found at 12 Pa.C.S. §§ 5101–5110 etseq.

The defendant further seeks dismissal ofthis adversary proceeding, contending thatthe claims of the chapter 7 trustee arestayed by the statutory injunction found inthe Bankruptcy Code’s automatic stay pro-visions of 11 U.S.C. § 362(a). Alternative-

ly, the debtor-in-possession in this caseseeks to compel the chapter 7 trustee ofthe bankruptcy estate of Mrs. Hertzbergfile a more specific pleading.

On August 11, 2014, the Court heardoral argument on the Motion to Dismiss.Thereafter, the parties filed supplementalbriefs along with various documents at-tached to them on September 18, 2014 andSeptember 22, 2014. This matter is nowripe for decision.

II.

Rule 12(b)(6) of the Federal Rules ofCivil Procedure is incorporated into theBankruptcy Rules through Federal Rule ofBankruptcy Procedure 7012. Pursuant toRule 12(b)(6), a complaint may be dis-missed by the Court for ‘‘failure to state aclaim upon which relief can be granted.’’

In the course of deciding a motion todismiss, the court is to review the com-plaint in the light most favorable to theplaintiff. See Burtch v. Milberg Factors,Inc., 662 F.3d 212, 220 (3d Cir.2011). Inaddition, in Bell Atlantic Corp. v. Twom-bly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167L.Ed.2d 929 (2007), the United States Su-preme Court set forth a ‘‘plausibility stan-dard’’ for overcoming a motion to dismissthat requires the plaintiff to plead ‘‘enoughfacts to state a claim to relief that isplausible on its face.’’ The plausibility re-quirement contemplates ‘‘more than asheer possibility that a defendant has act-ed unlawfully.’’ Ashcroft v. Iqbal, 556 U.S.662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868(2009) (citing Twombly, 550 U.S. at 556,127 S.Ct. 1955).

With these standards in mind, and asdiscussed more fully below, this Court con-cludes that the plaintiff has stated a claimfor relief for turnover of the RetirementFunds pursuant to 11 U.S.C. §§ 541 and542. This Court also concludes that this

103IN RE HERTZBERGCite as 521 B.R. 99 (Bkrtcy.W.D.Pa. 2014)

cause of action should not be stayed by theautomatic stay of 11 U.S.C. § 362. Inaddition, the Court concludes that thechapter 7 trustee has not made sufficientallegations to support a claim for reliefunder applicable fraudulent transfer law,whether it be under federal statutes orstate statutes.

III.

Section 541 of the Bankruptcy Code de-fines exactly what constitutes property of abankruptcy estate. In its broadest sense,property of the estate includes ‘‘all legal orequitable interests of the debtor in proper-ty as of the commencement of the case.’’See 11 U.S.C. § 541(a)(1).

Section 542 of the Bankruptcy Code em-powers a bankruptcy trustee to compel theturnover of property of the estate whensuch property is in the hands of thirdparties. Specifically, this statute states, inpertinent part, that ‘‘an entity, other thana custodian, in possession, custody, or con-trol, during the case, of property that thetrustee may use, sell or lease TTT shalldeliver to the trustee, and account for suchproperty or the value of such proper-tyTTTT’’ See 11 U.S.C. § 542(a).3

In the matter sub judice the chapter 7trustee contends that the $145,000 of Re-tirement Funds constitutes property of thebankruptcy estate of Susan Hertzberg.The debtor-in-possession, however, dis-putes this assertion and avers that, as amatter of law, the $145,000 of RetirementFunds constitute property of the bank-ruptcy estate of Todd Hertzberg.

Both parties rely on the Marital Settle-ment Agreement in support of their re-spective positions. In this regard, thechapter 7 trustee contends that the Mari-tal Settlement Agreement operated to con-

vey an interest in $145,000 of the Retire-ment Funds to Mrs. Hertzberg, and thatthe chapter 7 trustee succeeded to suchinterest when Mrs. Hertzberg commencedher bankruptcy case. Todd Hertzbergcontends that Susan Hertzberg acquiredno property interest in the RetirementFunds and that the Marital SettlementAgreement merely gives rise to a generalunsecured claim by the bankruptcy estateof Mrs. Hertzberg against the bankruptcyestate of Mr. Hertzberg. The outcome ofthese dueling positions turns on the appli-cation of non-bankruptcy law. See Butnerv. United States, 440 U.S. 48, 99 S.Ct. 914,59 L.Ed.2d 136 (1979).

IV.

[1] A fundamental question in this caseis whether, prior to her own bankruptcyfiling, Mrs. Hertzberg obtained a legal orequitable interest in $145,000 of the Re-tirement Funds by virtue of the MaritalSettlement Agreement.

As to the pure legal interest, the partiesappear to concede that the $145,000 ofRetirement Funds at issue have alwaysbeen legally titled in the name of ToddHertzberg. The real issue then to be con-sidered is whether Susan Hertzberg ac-quired an equitable interest in the$145,000 of Retirement Funds that shouldbe recognized by this Court with respectto the chapter 7 trustee’s turnover action.

One of the maxims in equity is thatequity ‘‘regards and treats as done what,in good conscience ought to be done.’’ 2John Norton Pomeroy, A Treatise on Eq-uity Jurisprudence § 364 (1941). If what‘‘ought to have been done’’ in this case wasTodd Hertzberg effectuating a rollover ofthe Retirement Funds to the bankruptcyestate of Susan Hertzberg, then the chap-

3. The term ‘‘entity’’ is defined in the Bank-ruptcy Code to include ‘‘person,’’ and the

term ‘‘person’’ includes ‘‘individual.’’ See 11U.S.C. §§ 101(13) and 101(41).

104 521 BANKRUPTCY REPORTER

ter 7 trustee has an equitable interest thatcan be prosecuted by way of the turnoveraction. A determination of what ‘‘ought tohave been done’’ turns on the plain lan-guage of the Marital Settlement Agree-ment and case law developed under similarcircumstances.

With respect to the Marital SettlementAgreement, it contains a number of provi-sions that delineate the parties rights, titleand interests in the Retirement Funds.Specifically, Article 4 of the Marital Settle-ment Agreement unequivocally conveys toMrs. Hertzberg $145,000 of the Retire-ment Funds and states that the ‘‘Wife shallreceive and retain as her sole and separateproperty, free from any claim of Husband,the following TTT a tax-free rollover fromHusband’s retirement accounts TTT in theamount as set forth in Article 6.’’ SeeMarital Settlement Agreement at Article4(B). Article 6 of the Marital SettlementAgreement then sets forth the $145,000aggregate interest in the RetirementFunds conveyed to Mrs. Hertzberg. Con-sistent with this interpretation of the plainlanguage of the document is the fact thatArticle 5 of the Marital Settlement Agree-ment also unequivocally states that ‘‘Hus-band shall receive and retain as his sepa-rate and sole property, free from any claimof Wife, the following TTT Husband’s re-tirement interests—with the exception ofthe rollover to Wife as set forth in Article6TTTT’’ Id. at Article 5(B). So what isclear by these provisions is that Mrs.Hertzberg was awarded $145,000 of theRetirement Funds.

Notwithstanding this language, thedebtor-in-possession makes a number ofarguments contending that Mrs. Hertz-berg acquired no interest in the Retire-ment Funds. These arguments include:(a) assertions that Mrs. Hertzberg has no

in rem interest, and merely has an unse-cured claim against the estate of ToddHertzberg, because the Marital SettlementAgreement contains various buy-out provi-sions in favor of Todd Hertzberg, and (b)assertions that Mrs. Hertzberg acquiredno interest in the Retirement Funds be-cause the Marital Settlement Agreementhas not been reduced to a judgmentawarding her equitable distribution of theRetirement Accounts. Each of these argu-ments misses the mark.

The Court observes that the chapter 7trustee has attached to her brief a copy ofa divorce decree dated November 8, 2010.While not attached to the complaint, theCourt will take judicial notice of its con-tents. See e.g., Mitchell v. Home, 377F.Supp.2d 361, 368 (S.D.N.Y.2005) (citingTaylor v. Vermont Dep’t of Educ., 313F.3d 768, 776 (2d Cir.2002) (permissible totake judicial notice of public documents,such as a divorce decree)).

This divorce decree undermines the de-fendant’s claim that Mrs. Hertzberg ac-quired no interest in the RetirementFunds. The Court reaches this conclusionbecause the November 8, 2010 divorce de-cree states that the ‘‘[Marital SettlementAgreement] and the conditions, terms, andcovenants contained therein be and arehereby incorporated herein by reference.’’Having reached agreement to the econom-ic terms of their divorce, and having theMarital Settlement Agreement incorporat-ed into a divorce decree (assuming such aprovision is even necessary),4 it is axiomat-ic that Mrs. Hertzberg became vested in$145,000 of the Retirement Funds. SeeMyers v. Myers, 397 Pa.Super. 450, 580A.2d 384, 385 (1990).

That Mrs. Hertzberg acquired an inter-est in the Retirement Funds is further

4. See Lyons v. Lyons, 401 Pa.Super. 271, 585A.2d 42, 45 (1991)(property settlement agree-

ments are enforceable in Pennsylvania justlike any contract).

105IN RE HERTZBERGCite as 521 B.R. 99 (Bkrtcy.W.D.Pa. 2014)

supported by the case of Polliard v. Polli-ard (In re Polliard), 152 B.R. 51 (Bankr.W.D.Pa.1993). In In re Polliard, JudgeBentz held that where equitable distribu-tion is not determined prior to the com-mencement of a bankruptcy case, the non-debtor spouse merely has an unsecuredclaim against the bankruptcy estate. Id.at 53–54.5 Judge Bentz’ opinion thereforesuggests that if economic terms are decid-ed by a domestic relations court, or agreedto by the parties, prior to the commence-ment of the bankruptcy case, the non-debtor spouse would have an in rem inter-est and not merely an unsecured claim.This Court sees no reason why such aresult would not be the case. See e.g.,Verner v. Verner (In re Verner), 318 B.R.778, 787–790 (Bankr.W.D.Pa.2005); Rosh-an v. Nouri (In re Nouri), 304 B.R. 155,160–165 (Bankr.M.D.Pa.2003); see alsoGendreau v. Gendreau (In re Gendreau),122 F.3d 815, 818 (9th Cir.1997); Lowen-schuss v. Selnick (In re Lowenschuss), 170F.3d 923, 930 (9th Cir.1999).

The Court also observes that the MaritalSettlement Agreement contains provisionsthat permit Mr. Hertzberg to essentiallybuy-out Mrs. Hertzberg’s interest in theRetirement Accounts. The debtor-in-pos-session, however, has produced no authori-ty supporting any theory that these buy-out provisions somehow ‘‘knock out’’ thegranting or conveyance provisions setforth in the Marital Settlement Agree-ment; nor has this Court located any casesupporting such a proposition.6

In any event, whether the buy-out provi-sions have been performed or executedremain an issue of fact to be determinedanother day. We are in the pleading stageof this case, and the chapter 7 trustee hasaverred allegations sounding in turnoverthat are ‘‘plausible.’’ As such, the chapter7 trustee has stated in her complaint aclaim for which relief may be granted.

V.

[2] The fraudulent transfer provisionsof the chapter 7 trustee’s complaint areproblematic. Devoid from the complaintare any allegations with respect to a trans-fer of assets away from Todd Hertzberg tothe detriment of Mrs. Hertzberg. Indeed,the crux of the chapter 7 trustee’s com-plaint is that Todd Hertzberg has not ef-fectuated the rollover of Retirement Fundscontemplated by the Marital SettlementAgreement.

To state the obvious, pleading the lackof a transfer cannot be sufficient to pleadthe existence of a transfer (whether fraud-ulent or not). The debtor-in-possession’sMotion to Dismiss in this regard has mer-it. Consequently, the chapter 7 trustee’sfraudulent transfer counts will be dis-missed, without prejudice to the chapter 7trustee’s ability to amend her Complaint.

VI.

[3] Even if the chapter 7 trustee statesa claim for relief for turnover of the

5. See also Brown v. Pitzer, 249 B.R. 303, 308(S.D.Ind.2000), In re Allen, No. 11–27569,2011 WL 5900814 (Bankr.D.N.J. Oct. 17,2011) and In re Trout, No. 05–19591, 2006WL 4452826 (Bankr.D.N.J. Feb. 1, 2006),where, under similar circumstances, thecourts held that the non-debtor spouse had anequitable interest in the subject property andthat the payor spouse held the assets in con-structive trust for the benefit of the payeespouse.

6. A buy-out provision may give rise to aclaim. See Brugger v. Brugger (In re Brugger),254 B.R. 321 (Bankr.M.D.Pa.2000). But, thenon-debtor spouse may also have an in reminterest. Having such an in rem interest isnot, under every circumstance, mutually ex-clusive from having a claim against a bank-ruptcy estate. See Verner, 318 B.R. at 789.

106 521 BANKRUPTCY REPORTER

$145,000 of Retirement Funds, defendantTodd Hertzberg contends that the causesof action asserted by the plaintiff arestayed by the automatic stay of 11 U.S.C.§ 362(a). While the debtor-in-possessionmay be technically correct as to the appli-cation of the stay, this Court concludesthat the stay should not be used by Mr.Hertzberg as a sword that improves hisproperty rights vis-a-viz the bankruptcyestate of Mrs. Hertzberg. Relief from thestay is therefore appropriate under theunique facts of this adversary proceeding.In re Drauschak, 481 B.R. at 346 (bank-ruptcy courts are empowered to suasponte lift the stay).

[4] Acts against the debtor or propertyof the debtor or his estate are stayed byoperation of 11 U.S.C. § 362(a). This istrue even when the property is merely‘‘arguably’’ property of the debtor or hisestate. See Bohm v. Howard (In re How-ard), 422 B.R. 593, 606–607(Bankr.W.D.Pa.2010)(citing In re Leven-stein, 371 B.R. 45, 47 (Bankr.S.D.N.Y.2007)).

[5] The purpose of the stay is to pre-serve the status quo—to provide the debt-or with breathing room while the debtorreorganizes his affairs and pursues thepermanent injunction as to dischargeablein personam claims. The purpose of thestay is also so to avoid unilateral dismem-berment of the estate by rogue creditorsto the detriment of other parties having aninterest in the outcome of a bankruptcy.Mann v. Chase Manhattan Mortg. Corp.,316 F.3d 1, 3 (1st Cir.2003) (‘‘automaticstay provision is designed to forfendagainst the disorderly, piecemeal dismem-

berment of the debtor’s estate outside ofthe bankruptcy proceedings.’’)

What is evident is that the automaticstay is a powerful component of relief af-forded under the Bankruptcy Code. But,the stay does have its limitations.

The law provides that the automatic stayis a temporary injunction. It provides thedebtor with respite from creditor collectionactivity until the earlier of the entry of anorder granting relief from the stay, thedate the case is closed or dismissed, or thedate a debtor is granted a discharge.

Section 362(d) of the Bankruptcy Codealso states that the stay may be lifted for‘‘cause’’ shown. See 11 U.S.C. § 362(d).‘‘Cause’’ is not defined in the BankruptcyCode; therefore it us up to the discretionof the Court to determine whether thetechnical imposition of the stay should re-main in place to bar the instant actionfrom proceeding forward.

Canvassing the totality of the circum-stances,7 this Court concludes that annul-ling the stay to permit this adversary pro-ceeding to go forward is appropriate.

The fact that the chapter 7 trustee hasaverred a prima facie case as to her equi-table interest in $145,000 of the Retire-ment Funds is a significant factor for theCourt’s decision. See e.g., In re Aultman,223 B.R. 481 (Bankr.W.D.Pa.1998) (liftingof the stay is appropriate when the debtorhad bare legal title to property and non-debtor party owned the equitable interestin the subject property). In fact, 11U.S.C. § 362(c)(1) states unequivocallythat the automatic stay is terminated as amatter of law as to property when such

7. In canvassing the totality of the circum-stances to determine whether the automaticstay should be annulled, this Court consideredmany factors including (i) any prejudice suf-fered by the debtor-in-possession and his es-tate if the stay is lifted, (ii) the balancing of

hardships between the parties, and (iii) theprobability of success on the merits if the stayis lifted. In re Peregrine Systems, Inc., 314B.R. 31, 47 (Bankr.D.Del.2004), aff’d in part,rev’d in part on other grounds, 2005 WL2401955 (D.Del. Sept. 29, 2005).

107IN RE HUFFCite as 521 B.R. 107 (Bkrtcy.E.D.N.C. 2014)

property ceases to be property of thebankruptcy estate. This is exactly one ofthe components that the chapter 7 trusteeof the estate of Susan Hertzberg will at-tempt to prove in this adversary proceed-ing vis-a-viz the estate of Todd Hertzberg.

The fact that the filing of a bankruptcydoes not enhance a debtor’s state lawproperty rights in the absence of a specificBankruptcy Code provision providing oth-erwise is another factor favoring the an-nulment of the automatic stay. See e.g.,Gendreau, 122 F.3d at 819 (‘‘Bankruptcyrecognizes state property rights, and filingbankruptcy cannot give a debtor a greaterinterest in an asset than that which heowned pre-bankruptcy.’’)

Finally, the fact that this Court candispose of the litigation and recognize thecompeting interests of the various bank-ruptcy estates and other parties-in-interestis another circumstance supporting annul-ment of the stay.

In essence, the debtor-in-possession suf-fers no real prejudice by the continuationof this adversary proceeding. This Courtis more than capable of overseeing thelitigation to insure that the debtor-in-pos-session can obtain his ‘‘fresh start’’ and notobtain an impermissible ‘‘head start’’ to thedetriment of other parties-in-interest whomay have an enforceable equitable interestagainst the Retirement Funds. Of course,the ultimate determination of the bonafides of any equitable interest in the Re-tirement Funds at issue is left for anotherday. All that the Court is doing herein isannulling the stay to permit this adversaryproceeding to go forward.

VII.

For all of the reasons set forth above,the Court concludes that (a) the chapter 7trustee has stated a claim for turnover of$145,000 of the Retirement Funds, and (b)the chapter 7 trustee has not stated a

claim for relief as to causes of actionsounding in fraudulent transfer (whetherunder the Bankruptcy Code or applicablestate law). As a result, the debtor-in-possession’s Motion to Dismiss shall bedenied as to the chapter 7 trustee’s causeof action for turnover pursuant to 11U.S.C. §§ 541 and 542. The debtor-in-possession’s Motion to Dismiss, however,shall be granted (without prejudice to thechapter 7 trustee’s ability to re-plead) withrespect to the plaintiff’s fraudulent trans-fer causes of action. In addition, the auto-matic stay of 11 U.S.C. § 362 is herebyannulled for purposes of the commence-ment, litigation, trial, and appeal (if any) ofthis adversary proceeding.

An appropriate Order shall be entered.

,

IN RE: William Anthony HUFF andBarbie Angelic Huff, Debtors.

William Anthony Huff and BarbieAngelic Huff, Plaintiffs,

v.

Bernard Gallagher and Patti AnnGallagher, Defendants.

CASE NO. 12–04962–8–SWHADVERSARY PROCEEDING

NO. 13–00069–8–SWH

United States Bankruptcy Court,E.D. North Carolina,

Wilmington Division.

Signed December 5, 2014.

Background: Chapter 13 debtors broughtadversary proceeding, seeking an orderdisallowing the secured claim of, and

IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: ) Case No. 12-70166-JAD)

BOBBI JO S. DIVELY, ) Chapter 7)

Debtor. ) Related to Doc. #45------------------------------------------ X

)JAMES R. WALSH, ESQUIRE, )Trustee of the ) Bankruptcy Estate of )Bobbi Jo S. Dively, )

)Movant, )

)- v - )

)BOBBI JO S. DIVELY, )SEAN DIVELY, FEDEX )CORPORATION, and )HEWITT ASSOCIATES, )LLC, )

)Respondents. )

------------------------------------------- X

MEMORANDUM OPINION

The matter before the Court is a Motion for Authority of Chapter 7 Trustee to

Execute a Qualified Domestic Relations Order to Effectuate Property Settlement

Agreement (the “Motion to Execute QDRO”). The Motion to Execute QDRO is a

core proceeding over which this Court has subject matter jurisdiction pursuant

to 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(E), 157(b)(2)(O) and 1334(b).

For the reasons set forth below, the Court shall enter an order which

essentially defers ruling on the relief set forth in the motion until such time as the

00014325

Chapter 7 Trustee demonstrates to the Court that the bankruptcy trustee has

appropriate standing to recover the pension interests at issue.

I.

As an initial matter, neither the debtor, the debtor’s ex-spouse nor any

creditor has lodged an objection to the trustee’s Motion to Execute QDRO.

However, FedEx Corporation (“FedEx”), who is the employer of the debtor’s ex-

spouse, has lodged an objection.

Specifically, FedEx (as plan administrator of the FedEx Corporation

Employee’s Pension Plan) has interposed two objections to the relief requested.

First, FedEx contends that the relief is not warranted because the trustee is not

an “alternate payee,” and therefore not a “beneficiary” under the FedEx pension

plan pursuant to Sections 1056(d)(3)(j) and (k) of the Employee Retirement Income

Security Act of 1974 (“ERISA”). See 29 U.S.C. §§ 1056(d)(3)(j) and (k). According

to FedEx, since the bankruptcy trustee is neither an “alternate payee” nor a

“beneficiary” as such terms are used in ERISA, it is alleged that the chapter 7

trustee is not permitted to seek the issuance of a QDRO. Second, FedEx contends

that the undistributed funds of her ex-spouse’s ERISA qualified pension plan are

not property of the estate. Therefore, according to FedEx, those funds are beyond

the reach of the trustee in bankruptcy.

II.

Preliminarily, the Court does have some concern over the standing of FedEx

to interject itself into this bankruptcy proceeding. The Court has this concern

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because the record reflects that FedEx is not a creditor of the debtor; nor does

FedEx own the pension funds at issue. Rather, FedEx is merely a plan

administrator, with no pecuniary interest in the outcome of these proceedings.

As such, it is questionable as to whether FedEx may have standing to object to the

trustee’s Motion to Execute QDRO. See In re Global Indus. Tech., Inc., 645 F.3d

201, 210 (3d Cir. 2011))(“party-in-interest” is person or entity that alleges a

“specific, ‘identifiable trifle’ of injury” or a person or entity that has a “personal

stake in the outcome of [the] litigation”)(citations omitted).

Regardless of whether FedEx has standing, this Court has elected to

examine the trustee’s motion even though neither the debtor nor any creditor has

objected to the relief requested. See In re Jasinski, 406 B.R. 653, 656 (Bankr.

W.D. Pa. 2009)(court examined merits of underlying relief even though movant

requested a default judgment for failure of parties-in-interest to object).

III.

During the course of examining the merits of the motion, the Court observed

that the United States District Court for the Western District of Pennsylvania

recently rendered its decision in the case of Urmann v. Walsh (In re Urmann), __

B.R. __, C.A. No. 14-718, 2014 WL 5440736 (W.D. Pa. October 24, 2014).

In In re Urmann, the United States District Court affirmed the Bankruptcy

Court’s approval of a settlement that provided for the liquidation and remittance

of the debtor’s marital interest in a 401(k) plan. In reaching the decision that the

Bankruptcy Court did not abuse its discretion in approving the settlement at

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issue, the District Court in Urmann addressed the trustee’s request for authority

to seek a QDRO. In this regard, the District Court wrote:

Appellant argues that the Bankruptcy Court abused itsdiscretion in approving the settlement with the Trustee being namedas the direct payee under a QDRO . . . Appellant contends thatpursuant to ERISA, only a spouse, former spouse, child or otherdependent of a plan participant can be named as an alternate payee.See 29 U.S.C. § 1056(d)(3)(K). Conversely, the Trustee maintains thatunder 11 U.S.C. § 541, he necessarily “steps into the shoes” of thedebtor as it relates to any and all interests that the debtor possessedas of the bankruptcy filing, including the debtor’s claim for equitabledistribution, and can therefore appropriately be designated as analternate payee. . . . The Court is of the view that the Trustee has thebetter side of the argument.

Pursuant to § 541, the bankruptcy estate includes “all legal orequitable interests of the debtor in property as of the commencement”of the bankruptcy. 11 U.S.C. § 541(a); see also O’Dowd v. Trueger,233 F.3d 197, 202 (3d Cir. 2000). These legal and equitable interestsinclude causes of action. 3 COLLIER ON BANKRUPTCY ¶ 323.02[1](15threv. ed 2001); accord O’Dowd, 233 F.3d at 202-03. A Chapter 7trustee is charged with the duty to “collect and reduce to money theproperty of the estate for which such trustee serves and close suchestate as expeditiously as is compatible with the best interests ofparties in interest ....” 11 U.S.C. § 704(a)(1); Martin, 91 F.3d at 394.“[I]n actions brought by the trustee as successor to the debtor'sinterest under section 541, the ‘trustee stands in the shoes of thedebtor and can only assert those causes of action possessed by thedebtor.’ [Conversely], [t]he trustee is, of course, subject to the samedefenses as could have been asserted by the defendant had the actionbeen instituted by the debtor.’” Official Comm. of UnsecuredCreditors v. R.F. Lafferty & Co., 267 F.3d 340, 356 (3d Cir. 2001)(quoting Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,885 F.2d 1149, 1154 (3d Cir.1989)). The Trustee here stepped intothe shoes of the Appellant in settling the equitable distribution claim.Faced with an estranged spouse and a consistently uncooperativedebtor who failed and refused to execute the necessary documents(findings the Appellant does not dispute), the Bankruptcy Courtappropriately exercised its discretion in finding that the Trusteewould have a greater chance of collection of the estate assets if theTrustee was named as a direct payee in the QDRO. . . . To find

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otherwise would result in an additional litigation burden on theTrustee to collect the pension, running counter to the Trustee's dutyto fulfill his statutory duties expeditiously. Accordingly, the Courtfinds no abuse of discretion with respect to this Martin factor.

In re Urmann, 2014 WL 5440736 at *8 (footnote omitted).

The reasoning in Urmann is persuasive, and this Court finds no reason to

deviate from the holding of the United States District Court. That is, a trustee in

bankruptcy may “stand in the shoes” of the debtor pursuant to 11 U.S.C. § 541,

and assert the debtor’s rights to pursue a QDRO (to the extent that the retirement

funds at issue constitute property of the bankruptcy estate).

This Court’s conclusion is particularly acute since ERISA itself provides that

the provisions of ERISA shall not be “construed to alter, amend, modify,

invalidate, impair, or supercede any law of the United States ....” See 29 U.S.C. §

1144(d). A plain reading of the phrase “any law of the United States” as used in

Section 1144(d) of ERISA includes Sections 323, 541 and 704 of the Bankruptcy

Code. See 11 U.S.C. §§ 323,1 5412 and 704.3

1 Section 323 of the Bankruptcy Code states that:

(a) The trustee in a case under this title is the representative of the estate.(b) The trustee in a case under this title has capacity to sue and be sued.

See 11 U.S.C. § 323.

2 Section 541 of the Bankruptcy Code states, in relevant part, that:

(a) The commencement of a case under . . . this title creates an estate. Such estate iscomprised of all of the following property, wherever located and by whomever held:

(1) Except as provided in subsection (b) and (c)(2) of this section, all legal or(continued...)

-5-00014325

When read together, these statutes provide that: (1) the trustee succeeds to

the debtor’s legal and equitable interests as a general matter (including any of the

debtor’s non-exempt rights under ERISA), see 11 U.S.C. § 541(a)(1); (2) the trustee

has a duty to liquidate assets of the estate for the benefit of creditors (which

includes enforcing those non-exempt rights and interests that the debtor had as

of the commencement of the bankruptcy case), see 11 U.S.C. § 704(a)(1); and (3)

the trustee may bring appropriate legal actions in a court of competent

jurisdiction if necessary to liquidate assets of the bankruptcy estate. See 11U.S.C.

§ 323.

As can be seen by these provisions of the Bankruptcy Code, the fact that a

bankruptcy trustee is not specifically identified as an “alternate payee” or

“beneficiary” in ERISA is of no moment. This is because the Bankruptcy Code fills

in the gap complained of by FedEx, and Section 1144(d) of ERISA preserves the

ability of the Bankruptcy Code to operate in this fashion. Accordingly, the trustee

2(...continued)equitable interests of the debtor in property as of the commencement of the case.

See 11 U.S.C. § 541(a)(1).

3 Section 704 of the Bankruptcy Code states, in relevant part, that:

(a) The trustee shall–

(1) collect and reduce to money the property of the estate for which such trusteeserves, and close such estate as expeditiously as is compatible with the bestinterests of parties in interest; . . .

See 11 U.S.C. § 704(a)(1).

-6-00014325

seeking the issuance of a QDRO is consistent with the statutes referenced above.

In addition, the phrase “any law of the United States” as used in Section

1144(d) of ERISA also includes 11 U.S.C. § 105(a). Section 105(a) of the

Bankruptcy Code empowers bankruptcy courts to issue any “order, process, or

judgment that is necessary or appropriate to carry out the provisions of this title

[which is title 11 of the United States Code].” 11 U.S.C. §105(a).

It is evident that court authorization for the trustee to seek a QDRO is an

“order, process, or judgment” under Section 105(a) of the Bankruptcy Code.

Moreover, ERISA, by virtue of Section 1144(d), does not write Section 105(a) of

the Bankruptcy Code out of existence. In fact, ERISA does the opposite— namely

it plainly states that ERISA does not “alter, amend, modify, invalidate, impair, or

supercede any law of the United States.” See 29 U.S.C. § 1144(d). ERISA therefore

does not preclude the ability of a bankruptcy trustee to seek the entry of a QDRO

if the bankruptcy trustee has succeeded to the debtor’s pension plan interests by

operation of law. At least on this basis, the trustee has standing to pursue the

Motion to Execute QDRO.4

IV.

4 Federal courts have an independent duty to examine their subject matter jurisdiction atall stages of litigation. See e.g., U.S. Express Lines v. Higgins, 281 F.3d 383, 388-389 (3d Cir.2002); see also Mich. Emp’t Sec. Comm’n v. Wolverine Radio Co., (In re Wolverine Radio Co.),930 F.2d 1132, 1137 (6th Cir. 1991). Included in this independent duty is the examination ofstanding of the parties. See Burcena v. Bank One, Civ. No. CV 06-00422 (D. Haw. Oct. 1,2007) citing FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (“federal courts are under anindependent obligation to examine their own jurisdiction, and standing ‘is perhaps the mostimportant of [the jurisdictional] doctrines.’” )

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Finding as a legal matter that a bankruptcy trustee could succeed to a

debtor’s interest as an “alternate payee” or “beneficiary” under ERISA does not

necessarily translate to the entry of an order granting the Motion to Execute

QDRO. The Court reaches this conclusion because the Court has some concerns

regarding the chapter 7 trustee’s standing to liquidate the pension interests

awarded to Ms. Dively.

The record reflects that the debtor’s equitable distribution claim between the

debtor and her ex-husband, Sean Dively, was settled in 2011— which was prior

to the bankruptcy petition date of February 22, 2012. The marital settlement

agreement between Bobbi Jo S. Dively and Sean Dively provided that the debtor

was awarded a 50% interest in Sean Dively’s FedEx pension, and that the pension

award to Ms. Dively was incorporated into an order of the state court dated

October 11, 2011— again, well prior to the commencement of Ms. Dively’s

bankruptcy case.

The preceding undisputed facts therefore reflect that Ms. Dively had a

vested pre-petition interest in the FedEx pension, see Crawford v. Hertzberg (In re

Hertzberg), Adv. No. 14-214, 2014 WL 6382951 at *4 (Bankr. W.D. Pa. Nov. 13,

2014), and the trustee has accepted the present value of her interest as being

$77,646.39 as of the petition date.

That Ms. Dively owned a vested interest in the pension prior to the

bankruptcy filing is important relative to any competing claims of the bankruptcy

trustee. This conclusion is evident because the law provides that Ms. Dively’s

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interest in the pension may, under the right set of circumstances, defeat any claim

of ownership that is made by the trustee. For example, in Patterson v. Shumate,

504 U.S. 753 (1992), the U.S. Supreme Court held that retirement plans

containing a legally enforceable “anti-alienation clause” are not “property of the

estate” pursuant to 11 U.S.C. § 541(c)(2). In addition, as set forth in 11 U.S.C.

§§ 522(b)(3)(C)5, 522(d)(10)(E)6 and 522(d)(12)7, debtors in bankruptcy have the

5 Section 522 (b)(3)(C) of the Bankruptcy Code states, in relevant part, that:

(b) Notwithstanding section 541 . . . an individual may exempt from property of theestate the property listed in . . . paragraph (3). . . .

(3) Property listed in this paragraph is(C) retirement funds to the extent that those funds are in a fund or accountthat is exempt from taxation under . . . the Internal Revenue Code of1986.

See 11 U.S.C. §522(b)(3)(C).

6 Section 522(d)(10)(E) of the Bankruptcy Code states:

(d) The following property may be exempted under subsection (b)(2) of this section: (10) The debtor’s right to receive —

(E) a payment under a stock bonus, pension, profitsharing,annuity, or similar plan or contract on account of illness,disability, death, age or length of service, to the extentreasonably necessary for the support of the debtor and anydependent of the debtor . . .

See 11 U.S.C. §522(d)(10)(E).

7 Section 522(d)(12) of the Bankruptcy Code states:

(d) The following property may be exempted under subsection (b)(2) of this section. (12) Retirement funds to the extent that those funds are in a fund oraccount that is exempt from taxation under . . . the Internal Revenue Codeof 1986.

(continued...)

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right to exempt from the reach of the bankruptcy trustee various retirement funds

and pension plan assets.

The net effect of the operation of Sections 541(c)(2), 522(b)(3)(c),

522(d)(10)(E) and 522(d)(12) of the Bankruptcy Code, and the U.S. Supreme

Court’s decision in Patterson v. Shumate, supra., is that retirement funds in some

instances may be outside the ambit of “property of the estate.” See e.g. Rousey

v. Jacoway, 544 U.S. 320 (2005).

Simply stated, if Ms. Dively’s pension interests fall under the umbrella of 11

U.S.C. §§ 541(c)(2), 522(b)(3)(C), 522(d)(10)(E) or 522(d)(12), the assets would be

excluded from “property of the estate” and the trustee in this case may not make

any claim to the assets for the benefit of creditors. See Nelson v. Ramette (In re

Nelson), 322 F.3d 541 (8th Cir. 2003). Rather, Ms. Dively may retain such funds

to augment her fresh start after her bankruptcy case is administered and closed.

The Court would further note that this case stands in contrast to the cases

of Walsh v. Burgeson (In re Burgeson), 504 B.R. 800 (Bankr. W.D. Pa. 2014) and

Walsh v. Urmann (In re Urmann), supra. In both Burgeson and Urmann, the

trustee was permitted to recover pension or retirement funds titled in the name

of the non-debtor ex-spouse only. The reason why the trustee in those cases was

permitted to liquidate the assets was because the debtors in Burgeson and

7(...continued)See 11 U.S.C. §522(d)(12).

-10-00014325

Urmann had no prepetition vested right to the pension or retirement interests at

issue. This conclusion in Burgeson and Urmann was supported by the fact that

the debtors in those cases had neither a QDRO issued in their favor, nor were they

parties to a marital settlement agreement (or order of court) that provided for the

equitable distribution of the retirement accounts to them as of the filing of their

respective bankruptcy cases. As a result, the debtors in Burgeson and Urmann

merely had a claim for equitable distribution as of the commencement of their

bankruptcy cases. It was these claims for equitable distribution that were

liquidated by the chapter 7 trustees in Burgeson and Urmann because, under the

facts of those cases, such causes of action were not exempted or excluded from

property of the bankruptcy estate under applicable law.

The matter sub judice stands on different footing than Burgeson and

Urmann because this case involves a pre-bankruptcy vested interest by Ms. Dively

in the pension plan. That interest was vested by operation of the marital

settlement agreement, which was, in turn, incorporated into the prepetition

divorce decree.

Since her property interest is an interest in an ERISA qualified pension

plan, Ms. Dively’s interest in the FedEx pension is conceivably outside the scope

of “property of the estate.” If Ms. Dively’s interest in the pension is superior to

the interest of the chapter 7 trustee, the chapter 7 trustee has no claim at all to

the assets at issue. Such a consequence implicates the ability of the trustee to

prosecute the Motion to Execute QDRO because, absent an interest in the FedEx

-11-00014325

plan assets, the trustee would lack either an “injury in fact” or a sufficient

“personal stake” in the outcome of this proceeding so as to warrant the invocation

of this court’s limited federal subject matter jurisdiction. See In re Hertzberg,

supra., at *1-*5. It therefore appears on its face that the determination of the

Motion to Execute QDRO should be deferred until such time as the trustee

demonstrates that he has standing to liquidate Ms. Dively’s pension interests.

V.

The Court recognizes that the debtor has not yet claimed an exemption in

the pension, and therefore the applicability of Section 522 of the Bankruptcy Code

to the pension interests of the debtor may not be ripe at the present moment. The

fact that the debtor not taken an exemption under Section 522 of the Bankruptcy

Code, however, does not obviate the application of 11 U.S.C. § 541(c)(2) and the

holding of Patterson v. Shumate and its progeny to this case. Therefore, whether

Ms. Dively’s interest is not “property of the estate” remains to be determined.

In this regard, the Court would note that 11 U.S.C. § 541(a)(7) provides that

property of the estate includes any “interest in property that the estate acquires

after the commencement of the case.” It does not appear that this provision of the

Bankruptcy Code is applicable because the Motion to Execute QDRO does not cite

any agreement by Ms. Dively to convey her pension interests to the trustee.

Of course, the record does reflect that the U.S. Trustee filed a complaint for

revocation of the discharge of Ms. Dively for her failure to schedule the FedEx

pension. See Adv. No. 13-7017JAD. But, that complaint of the U.S. Trustee was

-12-00014325

withdrawn, no settlement motion was filed pursuant to Fed. R. Bankr. P. 9019,

and the Court is unaware of the existence of any agreement by Ms. Dively to

convey her interest in the proceeds of the FedEx pension to the trustee pursuant

to 11 U.S.C. § 541(a)(7).

A fair reading of the trustee’s Motion to Execute QDRO is that the trustee

is asserting a claim to the pension because it was not scheduled by the debtor.

In essence, the trustee alleges in the Motion to Execute QDRO that the debtor

wrongfully failed to disclose the asset and the consequence is that the trustee can

now surcharge the asset because the debtor somehow forfeited her interest in the

same.

The Court has not found any persuasive authority supporting the trustee’s

position. In fact, the Court’s own research leads it to conclude that such a

surcharge of exempt assets by a trustee has been rejected by the United States

Supreme Court.

In Law v. Siegel, 134 S. Ct. 1188 (2014),8 the Supreme Court found no basis

for a “surcharge” of exempt assets by a bankruptcy trustee as such relief is not

8 The facts of Law v. Siegel dealt with the trustee’s attempted surcharge of assets exemptunder 11 U.S.C. § 522. The issue in Ms. Dively’s case is whether her interest is outside“property of the estate” by operation of both 11 U.S.C. §541(c)(2) and the holdings of cases likePatterson v. Shumate and its progeny. That Law v. Siegel case dealt with “exempt” assets, andthis case deals with assets that are arguably not “property of the estate,” is a distinction without adifference. The Court reaches this conclusion because “exempt” assets are excluded from being“property of the estate.” In addition, none of the provisions of the Bankruptcy Code authorizethe involuntary forfeiture or surcharge of non-estate assets as contemplated by the trustee’sMotion to Execute QDRO.

-13-00014325

contained in the substantive provisions of the Bankruptcy Code. The Law v.

Siegel Court reached this conclusion even though the debtor wrongfully and

improperly failed to disclose the asset at issue because the bankruptcy court’s

equitable powers can only be exercised within the confines of the Bankruptcy

Code. According to the U.S. Supreme Court, the consequences for a debtor failing

to schedule an asset must lie in some other form of sanction (i.e., dismissal of the

case, denial of discharge, monetary sanctions under Fed.R. Bankr. P. 9011, etc.),

and not the forfeiture or surcharge of the undisclosed asset. Given the holding in

Law v. Siegel, the trustee must demonstrate an independent basis for claiming

that the pension interests are property of the estate before the Court can entertain

the Motion to Execute QDRO.

VI.

Making matters more difficult in this case is the fact that counsel to the

debtor previously withdrew from his representation of the debtor. Ms. Dively has

therefore been left unrepresented in these proceedings, even though she

previously filed a letter with the Court (and reiterated in the hearing on counsel’s

motion to withdraw) that (a) she disclosed to counsel her pension interests for

inclusion in the bankruptcy schedules and (b) she made all disclosures required

by law.

Given her unrepresented status, it is not surprising that the debtor filed no

papers in opposition to, or in favor of, the trustees Motion to Execute QDRO. The

Court wonders whether Ms. Dively truly understands the nature of the trustee’s

-14-00014325

motion, and the consequences of the relief sought by the trustee if it were granted

(i.e., that the trustee is seeking to cut-off the debtor’s rights to her marital share

of the FedEx pension). Ms. Dively certainly should be afforded an opportunity to

be heard given the value of the assets in question and the unique circumstances

of this case.

For all of the reasons set forth above, a rule to show cause shall be issued

as to whether the pension interests of Ms. Dively should be excluded from

property of the estate and whether the Motion to Execute QDRO should be denied

for lack of standing by the chapter 7 trustee. At such rule hearing, both the

debtor and the trustee shall be afforded an opportunity to be heard with respect

to the issues highlighted by this Memorandum Opinion.

Applicable law does not authorize the Court to appoint counsel for the

debtor. See e.g., In re Parker, No. 12-10684, 2012 WL 4021144 (Bankr. D. Vt.

Sept. 11, 2012). Consequently, Ms. Dively is encouraged to seek the assistance

of counsel given the complexity of these matters.

An appropriate order shall be issued.

December 4, 2014 /s/ Jeffery A. Deller Jeffery A. DellerChief U.S. Bankruptcy Judge

Case Administrator to Serve:

Kevin Petak, Esq., Counsel to the Chapter 7 Trustee

-15-00014325

Ms. Bobbi Jo. S. Dively, Pro Se

Kenneth P. Seitz, Esq., Former counsel to the Debtor

Timothy P. Palmer, Esq. and Colby Morgan, Esq. Counsel to FedEx Corporation as Plan Administrator to the FedEx Corporation Employees’ Pension Plan

Office of the U.S. Trustee

-16-00014325

IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: ) Case No. 12-70166-JAD)

BOBBI JO S. DIVELY, ) Chapter 7)

Debtor. ) Related to Doc. #45------------------------------------------ X

)JAMES R. WALSH, ESQUIRE, )Trustee of the ) Bankruptcy Estate of )Bobbi Jo S. Dively, )

)Movant, )

)- v - )

)BOBBI JO S. DIVELY, )SEAN DIVELY, FEDEX )CORPORATION, and )HEWITT ASSOCIATES, )LLC, )

)Respondents. )

------------------------------------------- X

ORDER SETTING RULE TO SHOW CAUSE

AND NOW, this 4th day of December, 2014, for the reasons set forth in the

Court’s Memorandum Opinion issued contemporaneously herewith, the Court

hereby ORDERS, ADJUDGES and DECREES that:

1. A rule to show cause as to why the trustee’s Motion for Authority ofChapter 7 Trustee to Execute a Qualified Domestic Relations Order toEffectuate Property Settlement Agreement (the “Motion to ExecuteQDRO” ) should not be denied for lack of subject-matter jurisdictionis hereby issued.

2. The rule hearing shall be heard on January 6, 2015 at 10:00 a.m. inCourtroom D, U.S. Bankruptcy Court, 54th Floor, US Steel Building,

00014333

Pittsburgh, PA. 15219.**

3. To the extent the chapter 7 trustee contends that he is the properparty having standing to prosecute this action (i.e., that the FedExpension interest of Ms. Dively is property of the bankruptcy estate),the trustee shall file an answer to the rule identifying all facts andapplicable law supporting his claim that the FedEx pension isproperty of the estate.

4. The trustee’s written answer shall be filed, and served on the debtornot less than ten (10) days prior to the first date set for the rulehearing.

5. The debtor may file and serve a written reply, if any, to the trustee’sanswer. Any written filing of the debtor shall be filed with the Courtprior to the first date set for the rule hearing.

December 4, 2014 /s/ Jeffery A. Deller Jeffery A. DellerChief U.S. Bankruptcy Judge

Case Administrator to Serve:

Kevin Petak, Esq., Counsel to the Chapter 7 Trustee

Ms. Bobbi Jo. S. Dively, Pro Se

Kenneth P. Seitz, Esq., Former counsel to the Debtor

Timothy P. Palmer, Esq. and Colby Morgan, Esq. Counsel to FedEx Corporation as Plan Administrator to the FedEx Corporation Employees’ Pension Plan

Office of the U.S. Trustee

** Videoconferencing equipment has been installed in Courtroom B in Johnstown,Pennsylvania and in Courtroom D in Pittsburgh, Pennsylvania. The parties mayappear before the Court in either location.

200014333

570 551 BANKRUPTCY REPORTER

§ 327(a), the Defendant’s disinterested-ness was not at issue before the Court atthe time the Defendant was retained.Therefore, whether the Defendant re-ceived preferential transfers was not rele-vant to the Court’s determination of ap-proving the Defendant’s retention. Thus,the doctrines of res judicata and the law ofthe case do not preclude the causes ofaction set forth in the complaint, and theMotion is denied.

,

James R. WALSH, Trustee of theBankruptcy Estate of Bobbie

Jo S. Dively, Appellant,

v.

Bobbie Jo S. DIVELY, Sean Dively,FedEx Corporation, HewittAssociates, LLC, Appellees.

CIVIL ACTION NO. 3:15-45

United States District Court,W.D. Pennsylvania.

Filed 02/08/2016

Background: Chapter 7 trustee filed mo-tion for authority to execute qualified do-mestic relations order (QDRO) to recoverfunds of debtor’s former spouse’s ERISA-qualified pension plan. The BankruptcyCourt, Jeffery A. Deller, Chief Judge, 522B.R. 780, denied motion, and trustee ap-pealed.

Holdings: The District Court, Kim R.Gibson, J., held that:

(1) vested interest that Chapter 7 debtorpossessed in her ex-husband’s ERISA-qualified pension on petition date wasexcluded from ‘‘property of the estate,’’by virtue of anti-alienation provisions

included in plan for tax qualificationpurposes, and

(2) bankruptcy court did not abuse its dis-cretion in denying Chapter 7 trustee’smotion for authority to execute QDRO.

Affirmed.

1. Bankruptcy O3784, 3786

Bankruptcy court’s factual findingsare reviewed for clear error and its exer-cise of discretion for abuse thereof. Fed.R. Bankr. P. 8013.

2. Bankruptcy O3780, 3782

Bankruptcy court’s legal determina-tions are reviewed de novo, while determi-nations on mixed questions of fact and lawmust be differentiated and reviewed underthe appropriate standard for each compo-nent.

3. Labor and Employment O596

Prior to filing for Chapter 7 relief, andprior to entry of qualified domestic rela-tions order (QDRO) in her favor, debtoralready held vested interest in her ex-husband’s ERISA-qualified pension planby operation of marital settlement agree-ment, as incorporated into prepetition di-vorce decree; QDRO was not only meansby which debtor could obtain vested inter-est in pension. Employee Retirement In-come Security Act of 1974, § 2 et seq., 29U.S.C.A. § 1001 et seq.

4. Bankruptcy O2548

Vested interest that Chapter 7 debtorpossessed in her ex-husband’s ERISA-qualified pension on petition date was ex-cluded from ‘‘property of the estate,’’ byvirtue of anti-alienation provisions includedin plan for tax qualification purposes; theseanti-alienation provisions qualified as re-strictions on transfer enforceable underapplicable nonbankruptcy law. 11U.S.C.A. § 541(c)(2); Employee Retire-

571WALSH v. DIVELYCite as 551 B.R. 570 (W.D.Pa. 2016)

ment Income Security Act of 1974, § 2 etseq., 29 U.S.C.A. § 1001 et seq.

5. Bankruptcy O2548, 3009Bankruptcy court did not abuse its

discretion in denying Chapter 7 trustee’smotion for authority to execute qualifieddomestic relations order (QDRO) with re-gard to the 50% interest in ERISA-quali-fied pension awarded to debtor by divorcecourt, where trustee had no ability to ad-minister debtor’s 50% interest in pension,which was excluded from property of es-tate by virtue of anti-alienation provisionsincluded in pension. 11 U.S.C.A.§ 541(c)(2); Employee Retirement IncomeSecurity Act of 1974, § 2 et seq., 29U.S.C.A. § 1001 et seq.

James R. Walsh, Kevin J. Petak,Spence, Custer, Saylor, Wolfe & Rose,LLC, Johnstown, PA, for Appellant.

Bobbi Jo S. Dively, Garrett, PA, pro se.

Sean Dively, Etters, PA, pro se.

Colby S. Morgan, David P. Knox, Feder-al Express Legal Department, Memphis,TN, Mitchell S. Bober, FedEx Ground,Moon Township, PA, Timothy P. Palmer,Buchanan Ingersoll & Rooney PC, Pitts-burgh, PA, for Appellees.

MEMORANDUM OPINIONAND ORDER

KIM R. GIBSON, UNITED STATESDISTRICT JUDGE

I. INTRODUCTION

This matter comes before the Court onAppellant’s Notice of Appeal of the Bank-ruptcy Court’s January 7, 2015, order de-nying Appellant’s motion for authority toexecute a qualified domestic relations or-der for want of subject-matter jurisdiction.(ECF No. 1; see also Walsh v. Dively, 2015

Bankr. LEXIS 124 (Bankr.W.D.Pa. Jan. 7,2015).) Appellant appealed the BankruptcyCourt’s decision on February 18, 2015,(ECF No. 1), and filed a brief in support ofits appeal on March 4, 2015 (ECF No. 2).Appellee FedEx Corporation filed its briefin opposition to Appellant’s appeal on April10, 2015, (ECF No. 7), and this matter isnow ripe for disposition. For the reasonsset forth below, this Court will deny Ap-pellant’s appeal and will affirm the Bank-ruptcy Court’s decision denying Appel-lant’s motion for authority to execute aqualified domestic relations order.

II. JURISDICTION

This Court has jurisdiction to hear ap-peals from the Bankruptcy Court pursuantto 28 U.S.C. § 158(a), which provides:

The district courts of the United Statesshall have jurisdiction to hear appeals(1) from final judgments, orders, anddecrees TTT of bankruptcy judges en-tered in cases and proceedings referredto the bankruptcy judges under section157 of this title. An appeal under thissubsection shall be taken only to thedistrict court for the judicial district inwhich the bankruptcy judge is serving.

28 U.S.C. § 158(a). The appeal in this caseis taken from the decision rendered by theBankruptcy Court of the Western Districtof Pennsylvania. This Court therefore hasjurisdiction to hear the appeal from theBankruptcy Court’s decision. See In reMichael, 699 F.3d 305, 308 n. 2 (3d Cir.2012) (‘‘[A] district court sits as an appel-late court to review a bankruptcy court.’’);see also In re Professional Management,285 F.3d 268 (3d Cir.2002) (a districtcourt’s jurisdiction is proper as an appealof the final order of the bankruptcy courtunder 28 U.S.C. § 158(a)).

III. BACKGROUND

A. Factual Background

The Court adopts the facts as set forthin the Bankruptcy Court’s December 4,

572 551 BANKRUPTCY REPORTER

2014, memorandum opinion. See Walsh v.Dively, 522 B.R. 780, 784–85 (Bankr.W.D.Pa.2014). This case arose out of amarital settlement agreement that wasreached in 2011 between Debtor Bobbi JoS. Dively and Sean Dively. Id. at 784. Theagreement awarded Ms. Dively a 50% in-terest in Mr. Dively’s FedEx pension, andthe pension award was incorporated intothe state court’s October 11, 2011, order.Id. at 785. Ms. Dively filed a bankruptcypetition on February 22, 2012. Id. at 784.Appellant has accepted the present valueof Ms. Dively’s interest as being $77,646.39as of the petition date. Id. at 785. On April29, 2014, Appellant filed a motion seekingauthority to execute a qualified domesticrelations order (‘‘QDRO’’) in an effort toliquidate Ms. Dively’s interest in the pen-sion benefits. See id. at 781.

B. The Bankruptcy Court’s Decision

Relying upon Urmann v. Walsh, 523B.R. 472 (W.D.Pa.2014), the BankruptcyCourt first determined that Appellant hadstanding to succeed to Ms. Dively’s inter-est because ‘‘a trustee in bankruptcy may‘stand in the shoes’ of the debtor pursuantto 11 U.S.C. § 541, and assert the debtor’srights to pursue a QDRO (to the extentthat the retirement funds at issue consti-tute property of the bankruptcy estate).’’Dively, 522 B.R. at 783 (quoting Urmann,523 B.R. at 482). Specifically, the Bank-ruptcy Court explained that, when readtogether, Sections 323, 541, and 704 of theBankruptcy Code provide that: (1) ‘‘thetrustee succeeds to the debtor’s legal andequitable interests as a general matter;’’(2) ‘‘the trustee has a duty to liquidateassets of the estate for the benefit of credi-tors;’’ and (3) ‘‘the trustee may bring ap-propriate legal actions in a court of compe-tent jurisdiction if necessary to liquidateassets of the bankruptcy estate.’’ Id. at 784(citing 11 U.S.C. § 541(a)(1); 11 U.S.C.§ 704(a)(1); 11 U.S.C. § 323). The Bank-

ruptcy Court determined that although abankruptcy trustee is not specifically iden-tified as an ‘‘alternate payee’’ or ‘‘beneficia-ry’’ in ERISA, a trustee seeking the issu-ance of a QDRO is consistent with thestatutes discussed above. Id. (‘‘ERISA TTTdoes not preclude the ability of a bank-ruptcy trustee to seek the entry of aQDRO if the bankruptcy trustee has suc-ceeded to the debtor’s pension plan inter-ests by operation of law.’’).

After determining that a bankruptcytrustee has standing to succeed to a debt-or’s interest as an ‘‘alternate payee’’ or‘‘beneficiary’’ under ERISA, the Bankrupt-cy Court next analyzed whether a Chapter7 trustee has standing to liquidate thepension interests awarded to the debtor.Id. The Bankruptcy Court noted that theSupreme Court has held that retirementplans containing a legally enforceable‘‘anti-alienation clause’’ are not ‘‘propertyof the estate’’ pursuant to 11 U.S.C.§ 541(c)(2). Id. at 785 (citing Patterson v.Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119L.Ed.2d 519 (1992)). The BankruptcyCourt also explained that, pursuant to theBankruptcy Code, ‘‘debtors in bankruptcyhave the right to exempt from the reach ofthe bankruptcy trustee various retirementfunds and pension plan assets.’’ Id. (citing11 U.S.C. §§ 522(b)(3)(C), 522(d)(10)(E),and 522(d)(12)).

In analyzing Patterson and Sections541(c)(2), 522(b)(3)(C), 522(d)(10)(E), and522(d)(12) of the Bankruptcy Code, theBankruptcy Court determined that ‘‘retire-ment funds in some instances may be out-side the ambit of ‘property of the estate.’ ’’Id. (citing Rousey v. Jacoway, 544 U.S.320, 125 S.Ct. 1561, 161 L.Ed.2d 563(2005)). In relation to the instant case, theBankruptcy Court reasoned that ‘‘if Ms.Dively’s pension interests fall under theumbrella of 11 U.S.C. §§ 541(c)(2),522(b)(3)(C), 522(d)(10)(E) or 522(d)(12),

573WALSH v. DIVELYCite as 551 B.R. 570 (W.D.Pa. 2016)

the assets would be excluded from ‘proper-ty of the estate’ and the trustee in thiscase may not make any claim to the assetsfor the benefit of creditors.’’ Id. (citingNelson v. Ramette, 322 F.3d 541 (8th Cir.2003)). In applying the facts, the Bank-ruptcy Court found that Ms. Dively had apre-bankruptcy vested interest in the pen-sion plan and that her interest was vestedby operation of the marital settlementagreement, which was incorporated intothe prepetition divorce decree. Id. at 786.Because Ms. Dively’s property interestwas in an ERISA qualified pension plan,the Bankruptcy Court opined that her in-terest in the FedEx pension ‘‘is conceiv-ably outside the scope of ‘property of theestate.’ ’’ Id. Specifically, the BankruptcyCourt stated that if Ms. Dively’s interest inthe pension is superior to the interest ofthe Chapter 7 trustee, then the Chapter 7trustee would have no claim to the assetsand would lack an ‘‘injury in fact’’ or asufficient ‘‘personal stake’’ in the outcomeof the proceeding to warrant the invocationof the Bankruptcy Court’s limited federalsubject-matter jurisdiction. Id. As a result,the Bankruptcy Court concluded that thedisposition of the motion to execute QDROshould be deferred until the Chapter 7trustee demonstrated that he had standingto liquidate Ms. Dively’s pension interests.Id.

The Bankruptcy Court recognized thatMs. Dively had not claimed an exemptionin the pension but noted that Ms. Divelydid not agree to convey her interest in theproceeds of the FedEx pension to the trus-tee. Id. at 786–87. The Bankruptcy Courtstated that it was unable to find any per-suasive authority supporting the trustee’sargument that he could surcharge the pen-sion because Ms. Dively wrongfully failedto disclose it and therefore forfeited herinterest in it. Id. at 787. Instead, the Bank-ruptcy Court’s own research revealed thatthe Supreme Court has found no basis for

a surcharge of exempt assets by a bank-ruptcy trustee, even in instances where thedebtor wrongfully failed to disclose theasset, because such relief is not included inthe Bankruptcy Code. Id. (citing Law v.Siegel, ––– U.S. ––––, 134 S.Ct. 1188, 188L.Ed.2d 146 (2014)). The BankruptcyCourt therefore concluded that the trusteemust demonstrate ‘‘an independent basis’’for claiming that the pension interests areproperty of the estate before it would con-sider the trustee’s motion to executeQDRO. Id.

Finally, the Bankruptcy Court notedthat Ms. Dively disclosed to her counselher pension interests for inclusion in thebankruptcy schedules and made all disclo-sures required by law. Id. Because Ms.Dively’s counsel withdrew his representa-tion, Ms. Dively did not file a brief inresponse to the trustee’s motion to executeQDRO. Id. The Bankruptcy Court rea-soned that Ms. Dively may not have under-stood the consequences of the trustee’smotion and found that she should be af-forded an opportunity to be heard. Id. at787–88. As a result, the Bankruptcy Courtordered the issuance of a rule to showcause as to whether Ms. Dively’s pensioninterests should be excluded from theproperty of the estate and whether themotion to execute QDRO should be deniedfor lack of standing by the Chapter 7trustee. Id. at 788. Following the show-cause hearing, the Bankruptcy Court de-nied the trustee’s motion to execute QDROfor want of subject-matter jurisdiction. SeeDively, 2015 Bankr. LEXIS 124, at *1.

IV. STANDARD OF REVIEW

[1] This Court may exercise appellatejurisdiction over final judgments, orders,and decrees entered by bankruptcy courts.28 U.S.C. § 158(a)(1). In reviewing a bank-ruptcy court’s decision, a district courtmust apply several standards of review.

574 551 BANKRUPTCY REPORTER

First, a bankruptcy court’s factual findingsare reviewed for clear error and its exer-cise of discretion for abuse thereof. In reTrans World Airlines, Inc., 145 F.3d 124,131 (3d Cir.1998). A factual finding is‘‘clearly erroneous’’ if the reviewing courtis ‘‘left with a definite and firm convictionthat a mistake has been committed.’’ In reW.R. Grace & Co., 729 F.3d 311, 319, n. 14(3d Cir.2011). Under the clearly erroneousstandard, ‘‘it is the responsibility of anappellate court to accept the ultimate fac-tual determination of the fact-finder unlessthat determination either (1) is completelydevoid of minimum evidentiary supportdisplaying some hue of credibility, or (2)bears no rational relationship to the sup-portive evidentiary data.’’ Coalition toSave Our Children v. State Bd. of Educ.,90 F.3d 752, 759 (3d Cir.1996) (internalquotations omitted).

[2] Second, a bankruptcy court’s legaldeterminations are reviewed de novo. SeeIn re Ruitenberg, 745 F.3d 647, 650 (3dCir.2014); see also Am. Flint Glass Work-ers Union v. Anchor Resolution Corp., 197F.3d 76, 80 (3d Cir.1999). Third, mixedquestions of fact and law must be differen-tiated and reviewed under the appropriatestandard for each component. See In reMontgomery Ward Holding Corp., 326F.3d 383, 387 (3d Cir.2003). Fourth, abankruptcy court’s exercise of discretionmust be reviewed for abuse. In re Fried-man’s Inc., 738 F.3d 547, 552 (3d Cir.2013). A bankruptcy court abuses its dis-cretion when its ruling rests upon an errorof law or a misapplication of law to thefacts. In re O’Brien Envtl. Energy, Inc.,188 F.3d 116, 122 (3d Cir.1999).

V. ANALYSIS

A. The Bankruptcy Court’s FactualFindings

As noted above, the Court cannot dis-turb the factual findings of the Bankruptcy

Court unless they are ‘‘clearly erroneous.’’In re W.R. Grace & Co., 729 F.3d at 319, n.14. The only factual findings that weremade by the Bankruptcy Court concernedthe procedural history of Mr. and Ms.Dively’s marital settlement agreement, Ms.Dively’s bankruptcy petition, and Appel-lant’s motion to execute a QDRO. SeeDively, 522 B.R. at 784–85. The parties’briefs reiterate the facts as set forth bythe Bankruptcy Court, (see ECF No. 2 at6-8; ECF No. 7 at 5-6), and the documentsattached to Appellant’s appeal confirmthese facts, (see ECF No. 1). The Courttherefore cannot conclude that the Bank-ruptcy Court’s factual findings are ‘‘com-pletely devoid of minimum evidentiary sup-port displaying some hue of credibility’’ or‘‘bear[ ] no rational relationship to the sup-portive evidentiary data.’’ DiFederico v.Rolm Co., 201 F.3d 200, 208 (3rd Cir.2000).Accordingly, the Court may not disturbthe Bankruptcy Court’s factual findings.

B. The Bankruptcy Court’s LegalConclusions

[3, 4] As discussed above, this Courtexercises plenary, or de novo, review overany legal conclusions reached by the Bank-ruptcy Court. In re Ruitenberg, 745 F.3dat 650 (3d Cir.2014); Am. Flint GlassWorkers Union, 197 F.3d at 80. The Courtmust ‘‘exercise plenary review of thecourt’s interpretation and application of[the] facts to legal precepts.’’ In re NortelNetworks, Inc., 669 F.3d 128, 137 (3d Cir.2011).

In his brief in support of his appeal,Appellant argues that Ms. Dively’s interestin the pension became property of theestate upon commencement of the case.(ECF No. 2 at 9.) Appellant asserts thatthe Bankruptcy Court erred by holdingthat Ms. Dively owned a vested interest inthe pension prior to her bankruptcy filing.(Id. at 10.) Specifically, Appellant ‘‘candid-

575WALSH v. DIVELYCite as 551 B.R. 570 (W.D.Pa. 2016)

ly admits’’ that if Ms. Dively had obtaineda QDRO before filing her petition, then theinterest in the pension would not be theestate’s property. (Id.) However, becauseMs. Dively did not ‘‘perfect’’ her interest inthe pension by seeking a QDRO in statecourt before filing her bankruptcy petition,Appellant argues that the pension is theestate’s property. (Id. at 10–11.)

In support of his argument, Appellantcontends that the Bankruptcy Court im-properly distinguished Walsh v. Burgeson,504 B.R. 800 (Bankr.W.D.Pa.2014), be-cause the Bankruptcy Court in Burgesonconcluded that a QDRO ‘‘provides the ba-sis for a spouse to assert an entitlement toa benefit under an ERISA-qualified pen-sion.’’ (Id. at 12–13 (quoting Burgeson, 504B.R. at 833).) Appellant further relies uponClark v. Rameker, ––– U.S. ––––, 134 S.Ct.2242, 189 L.Ed.2d 157 (2014), which heldthat an inherited IRA could not be claimedas exempt because allowing such an ex-emption would constitute a ‘‘free pass.’’(Id. at 14 (quoting Clark, 134 S.Ct. at 2248(internal quotations omitted).) In applyingthis rationale to the instant case, Appellantargues that allowing Ms. Dively to obtain aQDRO to effectuate the property settle-ment agreement after the discharge andclosing of her bankruptcy petition ‘‘wouldclearly result in a ‘free pass’ and a windfallto [her].’’ (Id. at 14–15.)

Appellant discusses ERISA’s provisionsand asserts that Ms. Dively is not an ‘‘al-ternate payee’’ because she failed to obtaina QDRO and therefore cannot be consid-ered to be a ‘‘beneficiary’’ under the pen-sion. (Id. at 16–18.) Appellant contendsthat the Bankruptcy Court’s reliance uponPatterson, 504 U.S. 753, 112 S.Ct. 2242,119 L.Ed.2d 519, and Rousey, 544 U.S.320, 125 S.Ct. 1561, 161 L.Ed.2d 563, wasmisplaced because Patterson involved apension plan that contained anti-alienationprovisions for tax qualification, and Rousey

involved an IRA. (Id. at 18.) Appellantfurther claims that the Bankruptcy Courterred by holding that Ms. Dively pos-sessed a vested interest in the pension as aresult of the entry of the property settle-ment agreement because ‘‘with the entryof the [agreement], [Ms. Dively] was mere-ly granted rights as against [Mr. Dively];the [agreement] itself, did not conferrights vis-a-vis third parties, in this in-stance the [p]ension.’’ (Id. at 19–20.)

In response, FedEx argues that thestate court’s divorce decree fully vestedMs. Dively in her portion of the pensionbenefits. (ECF No. 7 at 8.) Relying uponCrawford v. Hertzberg, No. 13–23753–JAD,2014 WL 6382951, 2014 Bankr. LEXIS4692 (Bankr.W.D.Pa. Nov. 13, 2014), Fe-dEx asserts that the marital settlementagreement awarded Ms. Dively a portionof the pension benefit, and this award wasincorporated into the divorce decree. (Id.at 9-10.) FedEx contends that Ms. Divelytherefore had a fully vested interest in thepension benefits upon entry of the divorcedecree. (Id. at 10–11.)

Regarding the absence of a QDRO, Fe-dEx argues that ‘‘[w]hile a QDRO is cer-tainly a way to obtain a vested interest inpension benefits, thereby excluding themfrom a bankruptcy estate, it is by nomeans the only way such an interest isobtained.’’ (Id. at 12.) In support of itsargument, FedEx explains that in Patter-son, the Supreme Court concluded thatnonbankruptcy laws, which include statelaws, exist to create the necessary interestto exclude property from the estate. (Id. at12–13.) Because the divorce decree wasentered pursuant to Pennsylvania statelaw, FedEx contends that the absence of aQDRO is irrelevant and that Ms. Dively’sinterest in the pension benefits vestedmonths before she filed her bankruptcypetition. (Id. at 13–14.)

Having conducted a de novo review ofthe law, the Court concludes that the

576 551 BANKRUPTCY REPORTER

Bankruptcy Court did not err in denyingAppellant’s motion to execute QDRO. Inconducting its de novo review, the Courtfinds the reasoning in the recent decisionof Crawford v. Hertzberg, No. CV 15–240,2015 WL 9304509, 2015 U.S. Dist. LEXIS170724 (W.D.Pa. Dec. 22, 2015) (Bissoon,J.), to be persuasive. In Crawford, Mr. andMs. Hertzberg both filed for bankruptcyafter reaching a marriage-settlementagreement. Id. 2015 WL 9304509 at *1,2015 U.S. Dist. LEXIS 170724 at *2. Thetrustee sought to recover funds that wereheld in an ERISA-qualified retirement ac-count and that were owed to Ms. Hertz-berg under the marriage settlement agree-ment. Id. 2015 WL 9304509 at *1, 2015U.S. Dist. LEXIS 170724 at *2. Relyingupon Patterson, the Bankruptcy Court rec-ognized that retirement funds properlymay be excluded from the property of abankruptcy estate and scheduled a show-cause hearing. Id. 2015 WL 9304509 at *1,2015 U.S. Dist. LEXIS 170724 at *2–3.After the trustee was unable to explainwhy the Patterson exclusion did not apply,the Bankruptcy Court dismissed the trus-tee’s proceeding. Id. 2015 WL 9304509 at*1, 2015 U.S. Dist. LEXIS 170724 at *3.

On appeal, the trustee argued, for thefirst time, that Ms. Hertzberg’s interest inthe funds was unperfected because aQDRO was not entered in the state-courtproceedings. Id. 2015 WL 9304509 at *1–2,2015 U.S. Dist. LEXIS 170724 at *4. Afterfinding that the trustee had waived thisargument, the District Court determinedthat the trustee’s argument ‘‘brushes overone incredibly important fact in this case,namely, that there existed a Court Order,entered prior to both TTT BankruptcyCases, which approved and incorporatedthe terms of the Marriage SettlementAgreement.’’ Id. 2015 WL 9304509 at *2,2015 U.S. Dist. LEXIS 170724 at *6 (inter-nal quotations and alterations omitted).The District Court explained that ‘‘a

‘QDRO or divorce decree’ pre-dating thebankruptcy petition is sufficient to invokethe Patterson exclusion’’ and concludedthat ‘‘[t]he Court of Common Pleas’s di-vorce decree, entered well before eitherex-spouse filed a bankruptcy petition,brings this case within the confines of Pat-terson, and the ERISA-plan proceeds per-missibly were excluded from her bankrupt-cy estate.’’ Id. 2015 WL 9304509 at *2–3,2015 U.S. Dist. LEXIS 170724 at *6–7(citing Urmann, 523 B.R. at 477; In reBurgeson, 504 B.R. at 804).

In the instant case, Ms. Dively had apre-bankruptcy vested interest in the pen-sion plan. Her interest was vested by oper-ation of the marital settlement agreement,which was incorporated into the prepeti-tion divorce decree. Because Ms. Dively’sproperty interest was in an ERISA quali-fied pension plan, her interest in the Fe-dEx pension invokes the Patterson exclu-sion. The Bankruptcy Court thereforeproperly excluded the ERISA-plan pro-ceeds from Ms. Dively’s bankruptcy estate.

C. The Bankruptcy Court’s Exerciseof Discretion

[5] Finally, the Court reviews a bank-ruptcy court’s exercise of discretion forabuse. In re Friedman’s Inc., 738 F.3d at552. A bankruptcy court abuses its discre-tion when its ruling rests upon an error oflaw or a misapplication of law to the facts.In re O’Brien Envtl. Energy, Inc., 188F.3d at 122. Because the Court concurswith the Bankruptcy Court’s application ofthe relevant law to Appellant’s motion forauthority to execute a QDRO, no error oflaw or misapplication of the law to thefacts is present in the Bankruptcy Court’sdecision. Accordingly, the Court finds thatthe Bankruptcy Court did not abuse itsdiscretion.

VI. CONCLUSION

For the foregoing reasons, the Courtwill deny Appellant’s appeal and will af-

577IN RE TRUSTEES OF CONNEAUT LAKE PARK, INC.Cite as 551 B.R. 577 (W.D.Pa. 2016)

firm the decision of the Bankruptcy Court,as memorialized in Walsh v. Dively, 522B.R. 780, 784–85 (Bankr.W.D.Pa.2014), andWalsh v. Dively, 2015 Bankr. LEXIS 124(Bankr.W.D.Pa. Jan. 7, 2015).

An appropriate order follows.

ORDERAND NOW, this 8th day of February,

2016, upon consideration of Appellant’sappeal (ECF No. 1), Appellant’s brief insupport of his appeal (ECF No. 2), andAppellee FedEx Corporation’s brief in op-position to Appellant’s appeal (ECF No.7), IT IS HEREBY ORDERED that Ap-pellant’s appeal is DENIED. IT IS FUR-THER ORDERED that the decision ofthe Bankruptcy Court, as memorialized inWalsh v. Dively, 522 B.R. 780, 784-85(Bankr. W.D. Pa. 2014), and Walsh v.Dively, 2015 Bankr. LEXIS 124 (Bankr.W.D.Pa. Jan. 7, 2015), is AFFIRMED.

,

IN RE TRUSTEES OF CONNEAUTLAKE PARK, INC., Debtor

Park Restoration, LLC, Appellantand Cross-Appellee,

v.

Summit Township, a municipal corpora-tion; the Trustees of Conneaut LakePark, a charitable trust, Appellee andCross Appellant; Crawford County, apolitical subdivision, the Tax ClaimBureau of Crawford County; and theConneaut School District, Appellees.

CIVIL ACTION No. 1:16-cv-00006-BJR

United States District Court,W.D. Pennsylvania.

Signed May 4, 2016Background: Company that, pursuant towritten management agreement with debt-

or, operated historic beach club and hadelected to insure debtor’s interest as feeowner of club brought adversary proceed-ing, seeking declaratory judgment regard-ing the relative rights of company, debtor,and certain tax creditors of debtor as tofire insurance proceeds of $611,000. Par-ties cross-moved for summary judgment.The United States Bankruptcy Court forthe Western District of Pennsylvania, Jef-fery A. Deller, Chief Judge, 543 B.R. 193,determined that taxing authorities wereentitled to $478,260.75 of the proceeds aspayment for outstanding property taxesand that company was entitled to remain-ing principal balance of the proceeds afterpayment to taxing authorities. Cross-ap-peals were taken.

Holdings: The District Court, BarbaraJacobs Rothstein, J., held that:

(1) company did not agree to assume debt-or’s tax liability simply by purchasingan insurance policy on debtor’s proper-ty;

(2) Pennsylvania statute requiring fire in-surer to satisfy municipality’s claimsfor delinquent taxes and assessmentsbefore paying named insured appliesonly in those situations where the in-sured party owns the insured propertyand, as such, any outstanding tax liabil-ity is the responsibility of the propertyowner;

(3) under Pennsylvania law, company wasnot required to have a possessory in-terest in the beach club in order tohave an insurable interest in the struc-ture; and

(4) debtor was not entitled to any portionof the insurance proceeds.

Affirmed in part and reversed in part.

1. Guaranty O1It is a fundamental underpinning of

this nation’s legal system that individuals