In re Miller

• Decision Date: 14 November 2013
• Docket Number: No. 13–16178 ELF.,13–16178 ELF.
• Citation: 501 B.R. 266
• Parties: In re John R. MILLER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

501 B.R. 266

In re John R. MILLER, Debtor.

No. 13–16178 ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

Nov. 14, 2013.

Shawn J. Lau, Lau & Associates, Reading, PA, Paul J. Winterhalter, Law Offices of Paul J. Winterhalter, P.C., Philadelphia, PA, for Debtors.

OPINION

ERIC L. FRANK, Chief Judge.

I. INTRODUCTION

Many personal bankruptcy cases that are filed involve creditors who hold claims against the debtor for spousal or child support or other types of obligations arising out of a marital or parental relationship. It is commonplace for such creditors either to:

(a) take the position that the automatic stay does not apply to them and forge ahead in state court; or

(b) seek a determination from the bankruptcy court that the automatic stay does not apply, or if it does, should be lifted to allow them to proceed in the nonbankruptcy forum.

As the present case illustrates, the determination of the scope of the automatic stay when bankruptcy law and family law collide in this way requires a careful review of both the factual record in the case and the text of several provisions of the Bankruptcy Code.

Debtor John R. Miller (“the Debtor”) filed a chapter 13 bankruptcy case in this court on July 15, 2013. On October 7, 2013, Joanne Miller (“Ms. Miller”), the Debtor's former spouse, filed the Motion for Relief from the Automatic Stay (“the Motion”).

Ms. Miller wishes to proceed in state court to enforce her rights under a marital settlement agreement. In the Motion, she asserts that the automatic stay is inapplicable by virtue of 11 U.S.C. § 362(b)(2). In the alternative, she seeks relief from the stay pursuant to § 362(d).

The Debtor filed a response to the Motion on October 21, 2013. A hearing on the Motion was held and concluded on October 31, 2013.

At the hearing, neither party called any witnesses. Instead, they introduced into evidence certain documents in support of their respective positions:

(1) the parties' marital settlement agreement (“the MSA”);

(2) three (3) motions filed by Ms. Miller and three (3) orders entered in the parties' divorce proceedings in the Court of Common Pleas, Montgomery County, PA (“the State Court”);

(3) the Debtor's Schedules A, B and C and chapter 13 plan filed in this court; and

(4) a Single Premium Structured Settlement Annuity Contract, which lists the Debtor as the payee.

The parties filed post-hearing memoranda on November 7, 2013 and the matter is ready for decision.

For the reasons explained below, I conclude that Ms. Miller has not invoked any provision of the Bankruptcy Code that would justify a determination that the automatic stay does not apply to the collection actions she wishes to pursue in the State Court. See11 U.S.C. § 362(b)(2). However, I also conclude that she has established that cause exists to grant her relief from the automatic stay pursuant to 11 U.S.C. § 362(d) to pursue most, but not all, of the remedies available to her for enforcement of the MSA in the State Court.

II. FACTS

A. The Marital Settlement Agreement (the MSA)

The Debtor and Ms. Miller were married in 1990. They had three children, born in 1991, 1993 and 1994. The parties separated in 2005. They entered into the MSA on September 11, 2009. They were divorced by decree entered July 20, 2010.

The recital to the MSA states that the agreement was intended to adjust and resolve all matters relating to: the parties' ownership of real and personal property; past, present and future support and alimony; and all possible claims between them.

The MSA provided, inter alia:

• in a section titled “ Child Support,” for:

• the Debtor to pay Ms. Miller $680.00 per month in support of the parties' then two (2) minor children, with the first payment being deferred until the month following the sale of the marital residence with the payments continuing until a child reaches the age of 18 and has completed high school (whichever is later); ¹

• the calculation of the support obligation to be “revisit[ed]” in the event of a significant change in the parties' earnings;

• Ms. Miller to pay the first $250.00 in the children's medical expenses each year, after which the Debtor is to pay 40% of the expenses;

• the Debtor to provide medical insurance for the children so long as it is available under his existing disability benefit;

• the parties to divide equally extracurricular and camp expenses for the children, provided they agree after consultation;

• in a separate section titled, “ College Education,” for

• Ms. Miller to pay 60% and the Debtor to pay 40% of college tuition (after deduction for financial aid) at Montgomery County Community College for the eldest son Calvin (“Calvin”);

• the Debtor to pay, in addition, $8,000.00 toward the tuition, that amount representing the amount of money the Debtor borrowed from an account in Calvin's name to purchase an automobile for the Debtor's own use;

• in a section titled “ Real Estate,” for

• the marital residence (“the Residence”) to be placed on the market for sale no later than January 2, 2010, prior to which the Debtor would move into the Residence and Ms. Miller would reside elsewhere;

• the Debtor to pay all of the expenses for the Residence after September 2009, pending its sale;

• the sale price to be agreed by the parties or, if they are unable to agree, by a real estate broker and thereafter, with the price thereafter to be lowered by up to 30% absent further agreement or order of court;

• division of the net proceeds equally;

• in a section titled Alimony, Alimony Pendente Lite and/or Spousal Support,that the parties waived their right to alimony, alimony pendente lite and/or spousal support and that the “clause is not modifiable;” ²

• in a provision titled “ Bankruptcy,” that

(a) the debtor spouse waives any right to claim any exemption to any property and “assigns ... to the creditor-spouse an interest in all of the debtor's exempt property sufficient to meet all obligations ... set forth [in the Agreement]; and

(b) “[n]o obligation created by this Agreement shall be discharged or dischargeable, regardless of federal or state law to the contrary, and each party waives any and all right to assert that any obligation hereunder is discharged or dischargeable.” ³

(Ex. M–1).

B. The Pre–Petition State Court Proceedings

On January 17, 2012, Ms. Miller filed a Petition for Contempt and to Enforce Marital Settlement Agreement in the State Court (“the Contempt Petition”). (Ex. M–2). In the Contempt Petition, Ms. Miller alleged that the Debtor failed to list the Residence for sale and to cooperate in the sale process and failed to pay various financial obligations under the MSA including: child support, medical expenses, education expenses, the $8,000 he borrowed from Calvin's bank account, mortgage and tax obligations on the Residence. ( Id.).

By order dated January 9, 2013, the State Court granted the Contempt Petition. The court ordered the Debtor to, inter alia:

• maintain the sale listing of the Residence and cooperate in the sale process;

• timely pay the mortgage and real estate tax obligations on the Residence;

• pay ongoing child support on a timely basis.

• pay past due child support of $18,360.00 within sixty (60) days;

• pay Calvin $8,000.00, plus interest, within thirty (30) days;

• pay Ms. Miller $3,500.00 on account of her attorney's fees, within thirty (30) days.

(Ex. M–3).

In the January 9, 2013 order, the State Court also stated that “any decrease in the value of the marital residence” due to the Debtor's failure to list it “shall be addressed at the time of equitable distribution.” ( Id.). By Amended Order dated January 30, 2013, the State Court clarified any ambiguity in its prior order by providing that:

upon the sale of [the Residence], counsel may petition or apply to the Court to determine the value of the residence thereby preserving the issue of division of equity in the home's proceeds. A hearing on this issue will be scheduled if necessary.

( Id.).

On or about April 13, 2013, Ms. Miller filed an Amended Petition for Contempt (“the Amended Contempt Petition”), alleging that the Debtor failed to comply with the State Court's January 30, 2013 order. (Ex. M–4). In her request for relief, Ms. Miller requested that the Debtor be ordered to:

(1) take certain actions designed to facilitate the sale of the Residence and preserve the value of Ms. Miller's equitable distribution interest in the property (e.g., keep it in good condition, pay ongoing and delinquent mortgage payments);

(2) pay ongoing child support, “to be enforced through the Montgomery County Domestic Relations Office”;

(3) pay all past due child support ($18,360.00) forthwith;

(4) pay Calvin Miller $8,000.00 forthwith;

(5) pay Ms. Miller's attorney's fees of $3,500.00.

( Id.).⁴

On June 4, 2013, Ms. Miller filed a Second Petition for Contempt (“the Second Contempt Petition”), reasserting many of the same claims as alleged in the Amended Contempt Petition. (Ex. M–5). On August 1, 2013, the State Court scheduled a hearing on the Second Contempt Petition for November 18, 2013. (Ex. M–6).

C. The Debtor's Bankruptcy Filing

The Debtor filed a chapter 13 bankruptcy petition on July 15, 2013. He filed his bankruptcy schedules and chapter 13 plan on August 8, 2013.

In Schedule A, the Debtor listed the Residence as his sole real property. Schedule A states that the property's value is $385,000.00 ($425,000.00 fair market value minus $40,000.00 for repairs), subject to secured claims of $387,751.64. (Ex. M–7).

In Schedules B and C, the Debtor disclosed ownership of and claimed exemptions in a modest amount of cash, bank accounts and personal property (totaling less than $7,000.00 and a 2008 Subaru automobile with a value of less than $16,000.00 (encumbered by a $3,200.00 lien)). He also disclosed his interest in a Genworth Annuity (“the Annuity”), which he described as payable at $2,344.44 per month, guaranteed until Jan. 2020.⁵ He claimed the Annuity as exempt under 11...