In re Okrepka

• Decision Date: 04 March 2015
• Docket Number: Case No. 13–21559
• Parties: In re : Oleksandra M. Okrepka, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas

533 B.R. 327

In re : Oleksandra M. Okrepka, Debtor.

Case No. 13–21559

United States Bankruptcy Court, D. Kansas.

Signed March 4, 2015

James W. Lusk, Lenexa, KS, for Debtor.

MEMORANDUM OPINION AND ORDER GRANTING CREDITOR'S OBJECTION TO PLAN CONFIRMATION, DENYING DEBTOR'S CLAIM OBJECTION, AND GRANTING CREDITOR'S MOTION TO LIFT THE AUTOMATIC STAY

Robert D. Berger, United States Bankruptcy Judge

Comes on for hearing Creditor Ivan Kepych's objection to confirmation of Debtor Oleksandra Okrepka's chapter 13 plan, Debtor's claim objection, and Creditor's motion to lift the automatic stay.¹ The parties agreed that this matter may be submitted on the pleadings and exhibits.² The Court, having reviewed the pleadings and counsel's arguments, grants Ivan's objection to confirmation, denies Oleksandra's claim objection, and grants Ivan's motion to lift the automatic stay.

The Court finds that Oleksandra's divorce obligation to make an equalization payment to Ivan is a property settlement obligation under 11 U.S.C. § 523(a)(15) and is not a domestic support obligation (DSO) because it did not have the purpose and effect of providing support for Ivan.³ However, because of the divorce court judgment, Ivan holds an in rem interest in the marital residence for which Oleksandra's plan does not provide treatment. Ivan's motion to lift the automatic stay is granted for cause under § 362(d)(1) because there is not a reasonable likelihood Oleksandra can propose a confirmable plan.

This Court has jurisdiction under 28 U.S.C. §§ 157 and 1334 to decide the matter in controversy.⁴ This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B), (G), and (L). The pleadings do not contest the core nature of this proceeding. Venue is proper pursuant to 28 U.S.C. §§ 1408.

FACTS

Oleksandra and Ivan married on October 16, 1999, and divorced on October 3, 2007. On July 12, 2004, they purchased a home at 8400 W. 149th Terrace, Overland Park, Kansas (the “Marital Residence”). In May 2006, Oleksandra gave birth to their son (the “Minor Child”). During the marriage, Ivan's annual income from Embarq was approximately $80,000 while Oleksandra was a student with no income.

Ivan filed for divorce on July 7, 2007. Oleksandra did not appear at the divorce proceedings and was found in default. On October 3, 2007, the Johnson County District Court for Kansas (the “Divorce Court”) entered its decree of divorce (the “Divorce Decree”).⁵ Ivan and Oleksandra were granted joint custody of the Minor Child. Ivan was granted residential custody while Oleksandra was granted reasonable parenting time. Ivan was ordered to pay Oleksandra $800 a month commencing October 1, 2007, until the: (a) expiration of 12 months; (b) the death of either party; or (c) Oleksandra's remarriage or cohabitation with an adult, non-relative male in a marriage-like relationship for substantially consecutive periods of time in excess of 30 days (the “Maintenance”). The following was assigned to Ivan: (a) the real property located at 220 Jackson Road, Quenemo, Kansas 66528;⁶ (b) the VISA credit card debt; (c) a 2005 Dodge Grand Caravan; (d) all checking and savings accounts held jointly or individually; (e) one half of the parties' personal property divided by their agreement; and (f) Ivan's ownership interest in all his retirement plans, stocks, bonds, IRAs, life insurance policies, and other intangible assets in his name. The following was assigned to Oleksandra: (a) the previously unencumbered Marital Residence valued at approximately $165,000; (b) all student loans; (c) a 2002 Mitsubishi Lancer; (d) one half of the parties' personal property divided by their agreement; and (e) Oleksandra's ownership interest in all her retirement plans, stocks, bonds, IRAs, life insurance policies, and other intangible assets in her name. The Marital Residence was assigned to Oleksandra, subject to Ivan's right to remain in the residence for 120 days from the date of the Divorce Decree. Oleksandra was ordered to pay $55,000 to Ivan within 90 days of Oleksandra's college graduation or the expiration of 12 months, whichever was sooner (the “Equalization Payment”).

Additionally, the Divorce Decree included the following clause:

That all property and monies received or retained by the parties pursuant hereto shall be the separate property of the respective parties, free and clear of any right, title or interest in the other party, and each party shall have the right to deal with and dispose of his or her separate property as fully and effectively as if the parties had never been married....

[T]his Decree itself shall constitute an actual grant, assignment and conveyance of property and rights and in such manner, and with such force and effect, as shall be necessary to effectuate the terms hereof.⁷

Subsequent to the parties' divorce, the Marital Residence became the subject of litigation between Ivan and Oleksandra. In October 2008, Oleksandra failed to make the Equalization Payment. In 2012, Ivan filed a Motion in Contempt and for attorney's fees. In October 2012, the Divorce Court appointed a special master to facilitate the sale of the Marital Residence due to Oleksandra's failure to either refinance or sell the Marital Residence to satisfy the Equalization Payment. Oleksandra failed to cooperate with the special master and comply with the related Divorce Court orders on multiple occasions and was held in contempt. This bankruptcy case stayed enforcement of all state court orders.

On June 19, 2013, Oleksandra filed a chapter 13 voluntary petition for relief and proposed chapter 13 plan.⁸ Ivan filed an objection to confirmation of Oleksandra's chapter 13 plan on August 9, 2013.⁹ Ivan argued Oleksandra's plan was not feasible and lacked good faith because she incorrectly reported her income and failed to accurately record her monthly expenses. On August 24, 2013, Oleksandra responded, arguing that: (a) her income is sufficient to complete her plan payments; and (b) the Equalization Payment is not in the nature of support and therefore dischargeable under § 523(a)(15).¹⁰

On August 12, 2013, Ivan filed Claim 8–1 in the amount of $73,251, claiming that he is the joint owner and holds a judgment lien on the Marital Residence.¹¹ On August 27, 2013, Oleksandra objected to Claim 8–1, asserting that there is not a mortgage or lien on the Marital Residence and her obligation to Ivan is dischargeable under § 523(a)(15).¹² On September 10, 2013, Ivan responded, stating that he is a joint owner and holds an equitable lien in the real property.¹³

On September 16, 2013, Ivan filed a motion requesting relief from the automatic stay under § 362(d) to continue pursing satisfaction of the Equalization Payment in state court.¹⁴ Ivan maintained that the debt owed to him is a DSO and because of his equitable lien, Oleksandra should satisfy his claim. Ivan also argued that the Divorce Decree controls whether the debt is a DSO. Oleksandra responded to the motion on September 26, 2013, asserting that: (a) the Divorce Decree sets the Marital Residence over to her; (b) Ivan is not a joint tenant of the Marital Residence; (c) she does owe a debt to Ivan, but the debt is in the nature of a property division, not a DSO; (d) it is for this Court to decide under § 523(a)(5) if the debt is a DSO or property division; and (e) her penurious circumstances should allow her to continue to reside in the Marital Residence.

On March 6, 2014, Oleksandra, Ivan, and the Chapter 13 Trustee, William H. Griffin, appeared before the Court. The parties presented arguments concerning the stay relief motion, Oleksandra's claim objection, and plan confirmation.¹⁵ Due to Ivan and Oleksandra's acrimonious relationship, the parties submitted briefs and the Court took the matter under advisement.

LAW

Under § 1328(a), a debtor is entitled to a discharge after full compliance with his or her chapter 13 plan. However, § 1328(a) specifies that certain debts cannot be discharged. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendment to § 523(a)(15) provides that a property settlement under § 523(a)(15) is nondischargeable.¹⁶ However, § 523(a)(15) debts are not excepted from discharge in a full compliance chapter 13 case because the § 523(a)(15) exception was not incorporated into § 1328(a). Section 523(a)(15) provides for the nondischargeability of debts that do not constitute DSOs¹⁷ arising from family law proceedings.¹⁸ Section 523(a)(5) “departs from the general policy of absolution, or ‘fresh start,’ ” to “enforce an overriding public policy favoring the enforcement of familial obligations.”¹⁹ In § 523(a)(5), Congress provided the non-filing former spouse the opportunity to breach certain bankruptcy protections and render nondischargeable the debtor's obligations to a former spouse that are in the nature of support. Here, if the Debtor receives a full compliance discharge under § 1328(a), a property settlement under § 523(a)(15) would be dischargeable, while a DSO under § 523(a)(5) would not.

ANALYSIS

Debtor asserts the wrong test to determine whether the Equalization Payment to Creditor is a debt under § 523(a)(15).

Oleksandra seeks a discharge of the Equalization Payment as a property settlement under § 523(a)(15). She argues that § 523(a)(15) :

...excepts from discharge debts incurred through a divorce proceeding other than those covered by 11 U.S.C. § 523(a)(5), unless the debtor can show an inability to pay the debt or that discharging the debt will provide benefits to the debtor that outweighs [sic] any detrimental effects on the former spouse and/or children of the debtor.²⁰

However, this characterization regarding the burden of proof analysis under § 523(a)(15) is outdated. Originally enacted in 1994, § 523(a)(15) excepted from discharge debts arising from divorce or separation unless either: (a) the debtor lacked the ability to pay the debt; or (b) discharging the debt would confer a benefit to the debtor that outweighed the detrimental...