In re Christensen, Bankruptcy No. 86-04464

• Decision Date: 17 October 1988
• Docket Number: Adv. No. 87-0860.,Bankruptcy No. 86-04464
• Citation: 95 BR 886
• Parties: In re Iris P. CHRISTENSEN, Debtor. Iris P. CHRISTENSEN, Plaintiff, v. STATE of New Jersey, DIVISION OF MOTOR VEHICLES, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

95 B.R. 886 (1988)

In re Iris P. CHRISTENSEN, Debtor Iris P. CHRISTENSEN, Plaintiff, v. STATE of New Jersey, DIVISION OF MOTOR VEHICLES, Defendant.

Bankruptcy No. 86-04464, Adv. No. 87-0860.

United States Bankruptcy Court, D. New Jersey.

October 17, 1988.

Magargee, Youngblood, Franklin & Corcoran, P.A. by Brian S. Thomas, Pleasantville, N.J., for debtor.

W. Cary Edwards, Atty. Gen. of New Jersey by Louis T. DeLucia, Deputy Atty. Gen., Trenton, N.J., for State of N.J. Div. of Motor Vehicles.

Hudson County Legal Services Corp. by Neil J. Fogarty, Jersey City, N.J., amicus curiae.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

The matter before the court arises from a complaint filed on September 9, 1987 by Iris P. Christensen, the debtor herein ("debtor"), against the State of New Jersey, Division of Motor Vehicles ("DMV") seeking a determination that a surcharge imposed upon the debtor by the DMV pursuant to N.J.S.A. 17:29A-35(b)(2) for violation of N.J.S.A. 39:4-50.4a is a dischargeable debt. Alternatively, the debtor requests that if this court determines that the surcharge is nondischargeable, she be permitted to amend her Chapter 13 schedule to include the DMV as a creditor and thereby increase payments under her plan to the Chapter 13 Standing Trustee.

The facts of this case are not in dispute. On August 2, 1984, the debtor was convicted of refusal to submit to a chemical test (breathalizer) in violation of N.J.S.A. 39:450.4a.¹ Under the New Jersey Merit Rating Plan, N.J.S.A. 17:29A-35(b)(2), the DMV is required to levy annually for a three-year period Merit Rating Plan surcharges of not less than $1,000.00 per year, on all New Jersey licensees convicted of refusal to submit to a chemical test. Accordingly, on October 12, 1985 the DMV surcharged the debtor $1,000.00 for the surcharge period beginning in 1985. The DMV's records reveal that the debtor has paid 1985's surcharge in full.

On July 21, 1986, the debtor filed a voluntary Chapter 13 petition under the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984 (hereinafter "Code" or "Bankruptcy Code").

On October 12, 1986, the 1986 surcharge period began, obligating the debtor to another $1,000.00 surcharge based on her 1984 violation. Under the Merit Rating Plan the debtor is also subject to a plan surcharge of $1,000.00 in 1987. According to the Affidavit of Maurice Guadagno, Assistant Manager of DMV's Bureau of Insurance Surcharge and Collection filed on November 6, 1987, for the surcharge year 1987 the debtor was billed $175.00 due November 14, 1987. However, payments for the 1986 and 1987 surcharge periods have not been made.

The Chapter 13 Statement and Schedules filed by the debtor did not list the DMV as a creditor, nor did they refer to the surcharge. The debtor's Chapter 13 plan, filed with her petition, proposed to make a 20% payment to general unsecured creditors over a period of five years.

On October 8, 1986, a confirmation hearing was held regarding the debtor's proposed plan. The debtor's plan was confirmed by an order entered by this court on October 30, 1986 providing for payment to the Standing Trustee at a rate of $77.00 a month for thirty-six months, or three years. On December 15, 1986, the debtor filed a request to amend her Schedule A-2 to include the DMV as an unsecured creditor and list the $3,000.00 surcharge as an undisputed unsecured debt. The amendment was permitted by an order entered by this court on December 18, 1986.

On October 9, 1987, the DMV filed an answer to the debtor's complaint. The DMV asserted six affirmative defenses, which include:

(1) the complaint fails to set forth a cause of action upon which relief can be granted;

(2) this court lacks subject matter jurisdiction;

(3) the defendant (DMV) acted with good faith and without any fraud or malice;

(4) the Merit Rating Plan surcharges levied pursuant to N.J.S.A. 17:29A-35 are not debts and are therefore nondischargeable;

(5) the complaint fails to state the grounds upon which this court has jurisdiction pursuant to F.R.C.P. 8(a) and Bankruptcy Rule 7008(a); and

(6) in the event this court determines that the insurance surcharge is a debt, it is nondischargeable under 11 U.S.C. §§ 523(a)(7) and 523(a)(9).

On October 9, 1987, at the request of the debtor's attorney, the DMV put a "hold" on the proposed suspension of the debtor's New Jersey driving privileges for failure to pay the surcharge pursuant to N.J.S.A. 17:29A-35(b)(2), pending resolution of this adversary complaint.

On December 7, 1987, a hearing on the instant adversary proceeding was conducted by this court. Thereafter, additional briefs and affidavits were filed by the respective parties. On May 27, 1988, Hudson County Legal Services Corporation filed a motion to permit the filing by it of a brief as amicus curiae. On July 6, 1988, this court entered an order permitting Hudson County Legal Services Corporation to file an amicus curiae brief. Additionally, the DMV filed two affidavits in support of its position; the affidavit of J. Richard Boer, Chief of the Rating Bureau in the New Jersey Department of Insurance's Division of Actuarial Services — Property & Liability Insurance, filed January 14, 1988; and the affidavit of Patrick J. Hughes, Special Deputy Commissioner of the New Jersey Department of Insurance, filed February 4, 1988.

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(a) and § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

The broad discharge granted to a Chapter 13 debtor who successfully completes a Chapter 13 plan is set forth in 11 U.S.C. § 1328(a), which states:

(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this Chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt —

(1) provided for under section 1322(b)(5) of this title; or

(2) of the kind specified in section 523(a)(5) of this title.

The only exceptions to discharge under § 1328(a) are for long-term debts and for alimony and child support. In re Newton, 15 B.R. 708, 709 (Bankr.W.D.Ga.1981). Thus, the contention by the DMV that the surcharge levied against the debtor to the extent it is determined to be a debt is nondischargeable under §§ 523(a)(7) and 523(a)(9) is simply without merit because these provisions do not apply to Chapter 13 cases. This principle, if not clear from a reading of the Code itself, is emphasized by case law, which states, generally that

... debts under § 523(a)(6) another section of 11 U.S.C. § 523(a) are not included in the list of debts which are not dischargeable under § 1328(a). The law is clear therefore that debts which fall within the scope of § 523(a)(6) may still be discharged pursuant to § 1328(a).

In re DeSimone, 25 B.R. 728, 729 (E.D.Pa. 1982), cited in In re Johnson-Allen, 69 B.R. 461, 464-65 (Bankr.E.D.Pa.1987).

Accordingly, if a surcharge imposed under N.J.S.A. 17:29A-35(b)(2) creates a debt cognizable under the Bankruptcy Code, that debt would be dischargeable under Chapter 13 of the Code in the same way debts which are not dischargeable under a Chapter 7 are dischargeable in a Chapter 13 case. In re Newton, supra, 15 B.R. at 709, citing Matter of Lambert, 10 B.R. 223 (Bankr.E.D.N.Y.1981). The threshold issue in the instant complaint is whether the surcharge is a "debt" cognizable under the Bankruptcy Code.

Section 101(11) of the Bankruptcy Code provides that the word "debt" means liability on a claim. "Claim" is defined in Section 101(4) of the Bankruptcy Code as:

(A) right to payment, whether or not such right is reduced to a 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.

In enacting Section 101(4), Congress sought the "broadest possible definition of a claim," intending that virtually all obligations to pay money be amenable to treatment in bankruptcy proceedings. See H.Rep. No. 95-595, 95th Cong., 1st Sess. 309 (1977) 1978 U.S.Code Cong. & Ad.News 5787. The Third Circuit Court of Appeals dealt with the determination of when a claim arises in bankruptcy in the case of Matter of M. Frenville Co., Inc., 744 F.2d 332, 337 (3d Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed.2d 925 (1985). In Frenville, the Third Circuit held that the threshold determination of whether a claim existed depended on if there was a "right to payment." Frenville, supra, 744 F.2d at 336. Recognizing that the Bankruptcy Code did not define "right to payment" the Third Circuit held that "while federal law controls which claims are cognizable under the Code, the threshold question of when a right to payment arises, absent overriding federal law, `is to be determined by reference to state law.'" Frenville, supra, 744 F.2d at 337, citing, Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 161, 67 S.Ct. 237, 239, 91 L.Ed. 162 (1946). The Frenville court did not find any overriding federal law in its case, and therefore applied state law to determine when the right to payment arose.

Thus, whether or not the DMV has a right to payment is dependent upon state law. State law must be used to decide whether or not a claim exists. Vanston Bondholders, supra, 67 S.Ct. at 239. Once the existence of the claim is established, questions concerning whether the claim will be administered through the bankruptcy estate are determined by federal law. Vanston Bondholders, s...