In re Becker

• Decision Date: 03 February 1992
• Docket Number: Bankruptcy No. 90-35421.
• Citation: 136 BR 113
• Parties: In re Joseph M. BECKER, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

136 B.R. 113 (1992)

In re Joseph M. BECKER, Debtor.

Bankruptcy No. 90-35421.

United States Bankruptcy Court, D. New Jersey.

February 3, 1992.

Kathleen McCormick Campi, Harris, Dickson, Buermann, Camp, Ashenfelter & Boyd, Upper Montclair, N.J., for Joan T. Becker.

Theodore Liscinski, Jr., Lanfrit, Liscinski & Rosenwasser, Somerset, N.J., for trustee.

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

Joan T. Becker filed a motion for leave to proceed in the Superior Court of New Jersey with equitable distribution of assets which Joseph M. Becker owned when he filed a bankruptcy petition and in which Mrs. Becker claims an equitable interest. Theodore Liscinski, Jr., the debtor's bankruptcy trustee, objected. On March 4, 1991, this court denied the motion for the reasons set forth in this opinion. This court has jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (O). This shall constitute the court's findings of fact and conclusions of law.

I.

The following facts are undisputed for purposes of this motion.

On December 4, 1990, Mr. Becker filed a petition for relief under chapter 7 of title 11, United States Code ("Bankruptcy Code" or "Code"), 11 U.S.C. § 101 et seq.

On March 2, 1990, Mrs. Becker filed a complaint for divorce in the Superior Court of New Jersey. Mr. and Mrs. Becker were married in 1955. Their four children are emancipated. Mrs. Becker was a full time wife and mother. She has not worked outside the home since 1959. Mr. Becker has been ordered to pay pendente lite support to Mrs. Becker. Those payments are her only source of income, and he is in arrears.

Mr. and Mrs. Becker separated and sold the marital residence in 1986. The net proceeds of sale were $92,000, all of which Mr. Becker kept and used to purchase his current residence, a condominium. At the time of separation, Mr. and Mrs. Becker also possessed investment accounts worth more than $500,000 with brokerage firms. Mr. Becker controlled these accounts. He has certified to the superior court that since the separation he has lost everything in these accounts through gambling and investing in options. In addition, the mortgages which Mr. Becker has placed on his new residence apparently exceed its value. Mrs. Becker and the trustee agree that the debtor's only remaining assets as of the filing of the bankruptcy petition are his pension and profit sharing plans worth approximately $85,000, and his residence. Because there is no equity in Mr. Becker's residence, Mrs. Becker alleges that the pension and profit sharing plans are the only assets which can be equitably distributed. The trustee responds that the unsecured claims against Mr. Becker are approximately $200,000. The trustee's objection to the subject motion is based on his concern that because Mr. Becker squandered approximately $592,000 from the investment accounts and the equity in their marital residence, the superior court may award the entire value of the pension and profit sharing plans to Mrs. Becker, leaving Mr. Becker's unsecured creditors without recourse since they are not parties to the divorce action.

Trial of the matrimonial action was scheduled for March 19, 1991, approximately two weeks after the return date of this motion.

II.

The filing of a bankruptcy petition creates an estate under Code section 541 which consists essentially of all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541. The debtor's interest in property which is jointly owned with a nondebtor spouse therefore becomes property of the bankruptcy estate upon the filing of a bankruptcy petition. Under 28 U.S.C. § 1334(d), the district court, and hence the bankruptcy court, as a unit of the district court, has exclusive jurisdiction over all property of the estate. Bankruptcy Code sections 362(a)(1) and (3) operate as an automatic stay of judicial proceedings to recover prepetition claims against the debtor, and of acts to exercise control over property of the estate. Thus, the filing of a bankruptcy petition stays equitable distribution in a divorce case of a debtor's interest in marital assets.

However, Code section 362(b)(2) provides that the filing of a bankruptcy petition does not operate as a stay of proceedings to collect alimony, maintenance or support from property that is not property of the estate. Under Code section 541(a)(6), postpetition earnings from services performed by an individual debtor are not property of the estate in a chapter 7 or chapter 11 case. Thus, proceedings to collect alimony, maintenance or support from a debtor's postpetition earnings in a chapter 7 or 11 are not subject to the automatic stay.¹ A complaint for divorce is also not subject to the automatic stay. In re Schok, 37 B.R. 399 (Bankr.D.N.D.1984); In re Cunningham, 9 B.R. 70 (Bankr.D.N.M. 1981).

To summarize, the filing of a bankruptcy petition stays the determination in a divorce case of the interests of a debtor in property of the estate, any exercise of control over such property, and any monetary claims against a debtor other than for alimony, maintenance or support. Other aspects of a divorce case, such as the dissolution of the marriage, child custody issues, and collection of alimony, maintenance and support from postpetition earnings in a chapter 7 or 11 case, are not stayed.

III.

Mrs. Becker relies on Kohn v. Hursa (In re Hursa), 87 B.R. 313 (Bankr. D.N.J.1988), which held that 28 U.S.C. § 1334(c)(2) requires that bankruptcy courts abstain from determining property interests of debtor and nondebtor spouses where state courts can determine such interests under principles of equitable distribution in pending divorce proceedings.

For mandatory abstention under 28 U.S.C. § 1334(c)(2) to apply, the proceeding in question must be a noncore, related proceeding. See, e.g., In re Tidwell Industries, Inc., 87 B.R. 345, 348 (Bankr.E.D.Pa. 1988); In re Baptist Medical Center, 80 B.R. 637, 645 (Bankr.E.D.N.Y.1987); and In re Allegheny, 68 B.R. 183, 192 (Bankr. W.D.Pa.1986). For the following reasons, it is the opinion of this court that an action to determine the interests of a bankruptcy estate in property is a core proceeding.

Core proceedings are those which arise under the Bankruptcy Code, or which arise in bankruptcy cases. 28 U.S.C. § 157(b)(1); In re Wood, 825 F.2d 90 (5th Cir.1987). Core proceedings "include most matters which are integral to the adjudication of bankruptcy or were traditionally before the bankruptcy court." Gaslight Club v. Official Creditors Committee, 46 B.R. 209, 211 (N.D.Ill.1985). Proceedings "arising under" the Bankruptcy Code are those which would not arise but for the Bankruptcy Code. In re S.E. Hornsby & Sons Sand and Gravel Co., 45 B.R. 988, 995 (Bankr.M.D.La.1985). Such proceedings include actions under the avoiding powers of the Code. Id. See also 1 Collier on Bankruptcy ¶ 3.011ciii, at 3-24 (15th Ed.1983). Proceedings "arising in" bankruptcy cases are generally stated to be those which would arise only in bankruptcy cases, such as proceedings to determine claims against the bankruptcy estate or the dischargeability of debts. In re Wood, 825 F.2d at 96. See also 1 Bankruptcy Service — L.Ed. § 2C:11, at 17-18 (1989).

Property interests are generally created and defined by state law. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). However, the question of what constitutes property of a bankruptcy estate is ultimately a federal question. In re Loughnane, 28 B.R. 940, 942 (Bankr.D.Colo.1983). This is in part because the Bankruptcy Code gives a trustee certain rights which do not exist outside of bankruptcy. Those rights include the rights of a hypothetical judgment creditor who has levied on the debtor's property as of the date the bankruptcy petition is filed, whether or not any such creditor exists. 11 U.S.C. §§ 544(a)(1) and (2); In re Blease, 605 F.2d 97 (3d Cir.1979). The trustee's rights under the avoiding powers in Code sections 544 through 551 are property of the estate. Thus, the bankruptcy estate's interest in property is not necessarily limited to the extent of the debtor's interest in such property. It can often be supplemented by rights which only a bankruptcy trustee possesses. In re Great Plains Western Ranch Co., 38 B.R. 899, 903 (Bankr.C.D.Cal.1984). The determination of the extent of a bankruptcy estate's interest in property in which the debtor had an interest therefore arises under the Bankruptcy Code. It also arises only in bankruptcy cases. For both reasons, such a determination is a core proceeding.

Moreover, core proceedings include, but are not limited to, proceedings to sell property of the estate, proceedings to turn over property of the estate, and other proceedings affecting liquidation of the assets of the estate. 28 U.S.C. § 157(b)(2)(E), (N) and (O). As part of such proceedings, bankruptcy courts must necessarily determine whether property is property of the estate, and to what extent. Bankruptcy courts make such determinations virtually every business day. If such determinations are not core proceedings which can be made by the bankruptcy courts under 28 U.S.C. § 157(b), the ability of the bankruptcy courts to administer bankruptcy estates effectively and expeditiously would cease.

Since the determination of the bankruptcy estate's interest in property is a core proceeding, mandatory abstention under 28 U.S.C. § 1334(c)(2) does not apply. This court declines to follow Hursa to the extent that it held otherwise.

IV.

However, the fact that this court is not required by 28 U.S.C. § 1334(c)(2) to abstain from determining the bankruptcy estate's interest in property which was jointly owned by a debtor and nondebtor spouse is not dispositive. The next question is whether this court should exercise its discretion to abstain under 28 U.S.C. § 1334(c)(1), which states:

Nothing in this section prevents a district court in the interest of

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