In re Heilman
| Decision Date | 26 April 2010 |
| Docket Number | Bankruptcy No. 05-08319-PCW.,BAP No. EW-09-1150-HMoPa.,Adversary No. 08-80093-PCW. |
| Citation | 430 B.R. 213 |
| Parties | In re Nicholas P. HEILMAN, Debtor. Pam Heilman, Appellant, v. Nicholas P. Heilman, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Timothy W. Durkop, Spokane Valley, WA, for Pam Heilman.
Erik S. Bakke, Johnson, Gaukroger, Drewelow & Woolett, Wenatchee, WA, for Nicholas Heilman.
Before: HOLLOWELL, MONTALI and PAPPAS, Bankruptcy Judges.
The parties to this appeal are former spouses. Approximately six months prior to their divorce, Nicholas Heilman (the Debtor) filed, individually, for chapter 71 bankruptcy relief and received a discharge. Pam Heilman (Heilman) later sought a declaratory judgment against the Debtor to declare that the Debtor was obligated, by the terms of their dissolution decree, to hold Heilman harmless on a prepetition community debt owed to Heilman's parents. The bankruptcy court held that the loan to Heilman's parents had been discharged and therefore, Heilman could not be held harmless for a nonexistent obligation. For the reasons given below, we AFFIRM.
The Debtor and Heilman were married in April 2002. During their marriage, from March through December 2004, Heilman's parents, Richard and Laurel Beyer (the Beyers), loaned Heilman approximately $42,000 for the primary purpose of supporting Heilman's daughter (the Beyer Loan).
On October 3, 2005, the Debtor filed an individual chapter 7 bankruptcy petition. A review of the bankruptcy case docket and underlying bankruptcy schedules reveals that the Debtor did not list the Beyer Loan on his schedules or include the Beyers on the creditor mailing matrix.2 The Debtor's case was a no-asset case and he received a discharge on January 11, 2006.
Approximately seven months later, on June 9, 2006, Heilman filed a Petition for Dissolution of Marriage in Washington State Superior Court for Lincoln County. The marriage was dissolved by an agreed Decree of Dissolution on September 19, 2006 (the Dissolution Decree). The Dissolution Decree allocated certain debts to the Debtor. It identified the Beyer Loan as one of four "Community Liabilities to be Paid by the Husband." The Dissolution Decree did not allocate any community liabilities to Heilman. The separate liabilities for each spouse were described only as those obligations that were incurred prior to the marriage or after Heilman and the Debtor separated. The Dissolution Decree also contained a provision that each spouse would hold the other harmless from any collection action relating to the separate or community liabilities that were allocated to the parties in the Dissolution Decree (the Hold Harmless Provision).
On August 15, 2008, Heilman filed an adversary proceeding against the Debtor seeking a declaratory judgment that the Hold Harmless Provision obligated the Debtor to indemnify her for any demands made on her to pay the Beyer Loan.
Heilman filed a motion for summary judgment on February 3, 2009. On March 17, 2009, the Debtor filed a Memorandum of Authorities in Support of Answer to Complaint for Declaratory Judgment Regarding Discharge of Debt. The bankruptcy court heard the matter on March 24, 2009, and denied the motion for summary judgment on March 25, 2009. The parties subsequently agreed to have the bankruptcy court decide the matter on pleadings and a trial was vacated. On April 23, 2009, the bankruptcy court entered an Order Dismissing the Adversary Proceeding and issued its decision finding that the community obligations referenced in the Dissolution Decree had been discharged and the Hold Harmless Provision could not revive a discharged debt. Heilman v. Heilman (In re Heilman), 2009 WL 1139468 (Bankr.E.D.Wash.2009). Heilman timely appealed.3
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(1). We have jurisdiction under 28 U.S.C. § 158.
Does the Dissolution Decree obligate the Debtor to pay the Beyer Loan or to hold Heilman harmless for the Beyer Loan?4
We review a bankruptcy court's legal conclusions, including its interpretation of the bankruptcy code and state law, de novo. Hopkins v. Cerchione (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009). We may affirm the bankruptcy court on any basis supported by the record. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir.1998).
Heilman contends that the Dissolution Decree ordered the Debtor to pay the Beyer Loan as well as to hold her harmless should the Beyers seek collection from her on the loan. She asserts the Hold Harmless Provision of the Dissolution Decree created a postpetition claim to her that was not discharged in the Debtor's bankruptcy case.5
After analyzing the nature of the Beyer Loan and the effect the bankruptcy discharge had on the parties' liability for the Beyer Loan, we conclude the Dissolution Decree did not create a postpetition claim, but rather attempted to revive a discharged debt.
The Debtor and Heilman resided in Washington when the Debtor's bankruptcy petition was filed; therefore, whether the Beyer Loan is a community debt is determined by Washington law. Fed. Deposit Ins. Corp. v. Soderling (In re Soderling), 998 F.2d 730, 733 (9th Cir.1993).6 Under Washington law, a debt incurred by either spouse during marriage is presumptively a community debt. Seattle First Nat'l Bank v. Marusic (In re Marusic), 139 B.R. 727, 731 (Bankr.W.D.Wash.1992); Burman v. Homan (In re Homan), 112 B.R. 356, 360 (9th Cir. BAP 1989).
One rather constant theme is the solicitude with which the Washington court has viewed the community property position, manifested in various rules and presumptions: acquisitions by a spouse are presumptively community property; separate property commingled with community property becomes community property by operation of law; obligations incurred by a spouse are presumptively community in character; separate property agreements between spouses must be established by a higher standard of proof than that required to establish community property agreements, and so forth.
Harry M. Cross, The Community Property Law in Washington, 61 Wash. L.Rev. 13, 19 (1986).
Furthermore, debts incurred by either spouse are considered to be community debts if, at the time of the transaction, there was a potential material benefit to the community. Grayson v. Platis, 95 Wash.App. 824, 836, 978 P.2d 1105 (Wash. Ct.App.1999); In re Marusic, 139 B.R. at 731. The Beyers loaned money to Heilman during the marriage to help care for their grandchild. The Beyer Loan provided a material benefit to the community because it alleviated the community's financial burden of providing support for that child. Neither party has argued otherwise. Thus, in the absence of any evidence to the contrary, the Beyer Loan was a community debt.
The community's liability on expenses "of the family and the education of the children, including step-children," including those items required for sustenance, support and ordinary requirements of a family, is joint and several. RCW 26.16.205 (); Sunkidd Venture, Inc. v. Snyder-Entel, 87 Wash. App. 211, 216, 941 P.2d 16 (Wash.Ct.App. 1997).
Divorce courts are "charged with making a just and equitable disposition of the parties' property and liabilities after considering all relevant factors." In re Marriage of Thomas, 63 Wash.App. 658, 660, 821 P.2d 1227 (Wash.Ct.App.1991); RCW 26.09.050(1) & 26.09.080. Absent the Debtor's bankruptcy, the divorce court could have properly assigned the community's liability for the Beyer Loan to the Debtor and protected Heilman from payment on the Beyer Loan through the Hold Harmless Provision. However, the entry of the Debtor's discharge bars such a result.
In bankruptcy, community claims are defined as claims that "arose before the commencement of the case concerning the debtor for which property of the kind specified in § 541(a)(2) is liable." 11 U.S.C. § 101(7). Property specified in § 541(a)(2) includes all interests of the debtor and debtor's spouse in community property liable for an allowable claim against the debtor and the debtor's spouse. 11 U.S.C. § 541(a)(2). Because the Debtor and Heilman's marital community was liable for the Beyer Loan, the Beyers held a community claim against the Debtor, which was subject to his bankruptcy discharge.
Additionally, because the obligation was joint and several, at the time the Debtor and Heilman incurred the debt, Heilman was entitled to a contribution claim from the Debtor. Sunkidd Venture, 87 Wash. App. at 217, 941 P.2d 16. Thus, on the petition date, Heilman held a contingent claim against the Debtor for contribution on the Beyer Loan.7 11 U.S.C. § 101(5).
Section 727(b) provides that (except for non-dischargeable debts listed in § 523(a))8 a discharge under § 727(a) discharges a debtor from all debts that arose before bankruptcy (regardless of whether, in the instance of a no-asset chapter 7 case, the debt was listed in a debtor's schedules). 11 U.S.C. § 727(b); Beezley v. Cal. Land Title Co. (In re Beezley), 994 F.2d 1433, 1434 (9th Cir.1993). The bankruptcy discharge releases the debtor from liability on debts and enjoins any creditor's effort to collect a discharged debt as a personal liability of the debtor. 11 U.S.C. § 727(b) and § 524(a)(1), (a)(2); see also Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158, 163-64 (9th Cir. BAP 2005). As a result, the Debtor's liability for community...
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