In re Morris
| Decision Date | 13 July 1982 |
| Docket Number | Adv. No. 80-0191.,Bankruptcy No. 80-01031 |
| Citation | 21 BR 816 |
| Parties | In re Richard E. MORRIS, Debtor. IOWA STATE DEPT. OF SOCIAL SERVICES, Plaintiff, v. Richard E. MORRIS, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Iowa |
ORDER Vacating Order of April 15, 1981, in part;
ORDER Finding That Law to be Applied is Law in Effect at Time Bankruptcy Proceedings Were Commenced;
ORDER Denying Motion for Adjudication of Law Points;
ORDER Directing Pre-trial Conference on Remaining Issues be Scheduled by Separate Order.
The matter before the Court is the question of the dischargeability of the support payments owing from the Debtor to his ex-spouse that have been assigned to the state. When the Bankruptcy Reform Act of 1978 became effective on October 1, 1979, Section 523(a)(5)1 provided that the debts for alimony, support, or maintenance payments, although not dischargeable as a rule, would be dischargeable once they had been assigned to any third person or entity. The Iowa State Department of Social Services initially brought this action, contesting the constitutional validity of 11 U.S.C. § 523(a)(5) (1976 ed. Supp. III) insofar as it discharged support obligations that had been assigned to a state governmental unit. At the time this constitutional issue was submitted to the Court, it was understood that, after the Court had ruled on the constitutional issue, the Debtor's ex-spouse would be joined as a necessary party because of the uncertainty surrounding the question of the exact amount of support payments she had assigned to the State.2 The Court upheld the constitutional validity of this section. In re Morris, 10 B.R. 448, 455, 456 (Bkrtcy.N.D.Iowa, 1981).3 The Debtor's ex-spouse was then joined as a necessary party.
Prior to a trial being held on the question of the exact amount of support payments that the Debtor's ex-spouse had assigned to the state, however, the amendment to 11 U.S.C. § 523(a)(5) was enacted.4 This statute amended 11 U.S.C. § 523(a)(5) to make support payments assigned to the state pursuant to § 402(a)(26) of the Social Security Act5 nondischargeable.6 The amendment, by its terms, became effective on the day of its enactment,7 which was August 13, 1981.
The terms of the amendment, however, do not state the manner in which the statute is to be applied to 11 U.S.C. § 523(a)(5) dischargeability complaints in bankruptcy proceedings that have been commenced prior to the effective date of such amendment.8 The Iowa State Department of Social Services filed a Motion for Adjudication of Local Points, arguing that the Court should apply the law in effect at the time the Court renders its decision on the dischargeability question. In its Motion, the Movant further argued that, because the Court would necessarily render its decision after the effective date of the amendment, the Court should find that the support payments assigned to the State by the Debtor's ex-spouse are nondischargeable pursuant to the amendment to 11 U.S.C. § 523(a)(5). The parties were heard on the Motion. Robert R. Huibregtse, Assistant Attorney General for the State of Iowa, and Christian R. Smith, Assistant County Attorney, represented the Iowa Department of Social Services, and Attorney Peter J. Klauer represented the Debtor. The matter was then taken under advisement. The Court, being fully advised, now makes the following Findings of Fact, Conclusions of Law, and Orders.
There is no dispute as to the facts of the case. The Debtor filed his bankruptcy petition before the effective date of the amendment to 11 U.S.C. § 523(a)(5). If the Court applies the law in effect at the time his bankruptcy petition was filed, the support payments to his ex-spouse that she has assigned to the State are dischargeable. If the Court applies the law in effect at the time it renders this decision, these assigned support payments are not dischargeable.
Thus, the question before the Court is solely a legal one: which version of 11 U.S.C. § 523(a)(5) should be applied to dischargeability complaints in bankruptcy proceedings that have been commenced prior to the effective date of the amendment to 11 U.S.C. § 523(a)(5)? This question has been addressed by other courts. One group of decisions has held that the law to be applied is the law in effect at the time the court renders its decision on the dischargeability question. See e.g., In re Leach, 15 B.R. 1005, 8 B.C.D. 587 (Bkrtcy.D.Conn., 1981).9 Another group of decisions has held that the law to be applied is the law in effect at the time the bankruptcy proceedings were commenced, i.e., the date the bankruptcy petition was filed. See, e.g., In the Matter of Flamini, 19 B.R. 303, 8 B.C.D. 1289 (Bkrtcy.E.D.Mich., 1982). The Court elects to follow In the Matter of Flamini, supra. In the words of Judge Brody, the holdings found in the In re Leach, supra, line of cases "ignore traditional principles of statutory construction and do violence to the concepts of discharge and dischargeability." In the Matter of Flamini, supra 19 B.R. at 305, 8 B.C.D. at 1290.
There is a presumption against the retroactive application of new legislation. In the Matter of Flamini, supra 19 B.R. at 305, 8 B.C.D. at 1290 (citing Greene v. United States, 376 U.S. 149, 160, 84 S.Ct. 615, 621, 11 L.Ed.2d 576 (1964)),10 and the presumption cannot be said to have been overcome in the enactment of the amendment to 11 U.S.C. § 523(a)(5).11 Furthermore, substantial policy considerations exist that support the presumption against the retroactive application of this amendment:
It must be presumed that a decision to begin a bankruptcy proceeding is not made lightly. The decision to file a petition is reached by a debtor after consultation with his attorney as to the advantages and disadvantages of such action. The single most important factor in this decision is the scope of the discharge: which of the debtor\'s obligations will be dischargeable and which will have to be paid. The debtor files a bankruptcy petition in reliance upon existing law. The right to a discharge and the right of a discharge of any individual debt are important substantive rights conferred by the Bankruptcy Code. Section 523(a)(5), as originally enacted, conferred on debtors who filed petitions in bankruptcy the right to discharge a designated class of obligations. Whether as a matter of policy the right to discharge this class of obligations should have been bestowed is not in issue. What is relevant is that this significant right no longer exists by virtue of the amendment of August 13, 1981. Absent any express indication that Congress intended the August 13th amendment to apply retroactively, the reasonable expectations of debtors who acted in reliance on existing legislation should not be frustrated. For the foregoing reasons, it is the opinion of this court that the August 13th amendment should be given prospective application only.
Id. 19 B.R. at 306, 8 B.C.D. at 1291. The reasoning of the Flamini Court is particularly applicable to the facts of the instant case. The Debtor's bankruptcy petition was filed over fifteen months before the amendment to 11 U.S.C. § 523(a)(5) became effective. Neither the Debtor nor his attorney could have been reasonably expected to anticipate that that section would be amended over a year later and to further anticipate that such an amendment would be applied retroactively. The Debtor's expectations that the support payments that had been assigned to the state were dischargeable pursuant to the then-11 U.S.C. § 523(a)(5) were certainly reasonable, and to retroactively apply this amendment would certainly frustrate those expectations.
Id. 19 B.R. at 307, 8 B.C.D. at 1291 (footnotes omitted). In the instant case, the Court has already held that the assigned support payments involved herein are dischargeable, In re Morris, supra, at 449 (Conclusion of Law, # 2), 456. The only question remaining in this case, until the enactment of the amendment to 11 U.S.C. § 523(a)(5), was the exact amount of the support payments that had been assigned by the Debtor's ex-spouse to the State.12 In essence, by filing the present motion, the State is attempting to "negate the effect of Section 523(a)(5) as originally enacted." Allowing the State to...
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