In re Paneras
| Decision Date | 29 April 1996 |
| Docket Number | Bankruptcy No. 95 B 00864. Adversary No. 95 A 00437. |
| Citation | 195 BR 395 |
| Parties | In re John V. PANERAS a/k/a Ioanis V. Paneras, Debtor. Teresa J. STERNA f/k/a Teresa J. Paneras, Plaintiff, v. John V. PANERAS a/k/a Ioanis V. Paneras, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Mary L. Walker, Northbrook, IL, for Teresa J. Sterna.
M. Scott Michel, United States Trustee, Chicago, IL.
Martin Y. Joseph, Chicago, IL, for John V. Paneras.
This matter comes before the Court on the third amended complaint filed by Teresa J. Sterna ("Teresa") against John V. Paneras ("John") to determine whether two debts are nondischargeable under 11 U.S.C. § 523(a)(5) (Count I); 11 U.S.C. § 523(a)(15) (Count II); and 11 U.S.C. § 523(a)(2)(A) (Count III). For the reasons set forth below, the Court holds that the debts are dischargeable under § 523(a)(5) as they are not in the nature of maintenance and support obligations. The Court also holds that the debts are dischargeable under § 523(a)(15) because the evidence showed that John does not have the ability to pay the debts at the present time, or in the reasonably foreseeable future. Discharging the debts in this case will result in a benefit to John that outweighs the detriment to Teresa because those debts were previously satisfied by her and released by those creditors. The Court further holds that Teresa has sustained her burden of proof under § 523(a)(2)(A). Hence, the debts are nondischargeable thereunder. Accordingly, judgment will be entered in favor of Teresa on Count III, and in favor of John on Counts I and II of the complaint.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. It is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
Teresa and John married on February 23, 1991. Both had been previously married. One of the problems that led to the failure of their marriage was that John's prior marriage was not finally terminated in Greece until February 18, 1993. See Plaintiff's Exhibit No. 20. Notwithstanding John's bigamy pro tempore, the parties continued to live together and cohabitate until a separation resulted in a marital dissolution action filed in 1993. Their marriage was dissolved on November 22, 1994. See Plaintiff's Exhibit No. 5. A marital settlement agreement (the "Agreement") was entered into on that date. Id. The Agreement contained various terms and provisions, including those for the two debts which are the subject of this matter: a $20,000.00 installment note dated July 21, 1992, secured by a trust deed on Teresa's residence in Northbrook, Illinois, in favor of S & S Investments (Plaintiff's Exhibit No. 23); and a $21,500.00 promissory note dated February 28, 1994, secured by a second mortgage on Teresa's residence, in favor of George Kalkounos ("Kalkounos") (Plaintiff's Exhibit No. 24). Both notes, the trust deed, and second mortgage were executed by Teresa and John. Teresa contends that the proceeds of the loan from S & S Investments were used to pay for attorney's fees for John. He denies this and claims all the proceeds were used for Teresa's benefit. It is undisputed that John had the full benefit from the proceeds of the Kalkounos loan.
Pursuant to the Agreement, Teresa was to pay the debt owed to S & S Investments, and John was to pay the debt to Kalkounos by January 16, 1995. If John did not pay by that date, however, he would also be responsible for the S & S Investments debt. See Agreement, Article V, ¶ 1; Plaintiff's Exhibit Nos. 2 and 3. The parties expressly agreed, by a marginal note on the last referenced exhibit, that the Kalkounos debt was "NOT DISCHARGEABLE IN BANKRUPTCY." See Plaintiff's Exhibit No. 2.
The parties' dissolution of marriage only legally terminated their marital relationship, it did not solve their respective financial problems. John paid neither the Kalkounos nor the S & S Investments debts, but instead filed a Chapter 7 case on January 13, 1995. Creditors were pressing Teresa for payment of the debts with the result that she sold her home on March 22, 1995, to avoid its foreclosure. Teresa netted no cash or equity from the sale. See Plaintiff's Exhibit No. 7. The S & S Investments debt was paid from the closing proceeds and thus satisfied. The Kalkounos debt was not paid in full. Kalkounos, however, released his lien and Teresa for partial satisfaction of the debt out of the sale proceeds.
Teresa's financial situation worsened with the result that she filed a Chapter 13 case on August 15, 1995. The case was assigned to the Honorable Erwin I. Katz. See Defendant's Exhibit No. 2. A review of the docket reveals that the case was converted to a Chapter 7 proceeding on November 9, 1995; the Chapter 7 case trustee filed a no asset report on December 29, 1995; and the time for creditors to object to her discharge expired on February 20, 1996, with no such complaints filed.1 In due course Teresa will likely receive her discharge in that case.
Teresa filed the original complaint in this matter on April 28, 1995, alleging that the subject debts are nondischargeable as support or maintenance obligations under § 523(a)(5) (Count I), or alternatively, as nondischargeable property settlement obligations under § 523(a)(15) (Count II). In defense of the claim under § 523(a)(5), John relies on Article III of the Agreement which provides that Teresa waives all other maintenance and alimony. In defense of the claim under § 523(a)(15), John argues that the debts, though in the nature of property settlement, are ones that he cannot pay and that in balancing his circumstances compared to Teresa's, the equities weigh more in favor of his discharge from the obligations than the detriment to Teresa if they are not discharged. At the trial, John testified that he had been unemployed since October 1995, and had received gifts from a friend to live on so he would not be evicted from his apartment and his Mercedes automobile would not be repossessed. At the time of trial, Teresa was gainfully employed in a management capacity for a major insurance company.
Teresa amended the complaint to add a third theory. In Count III she alleges that the two debts were incurred by John's fraudulent acts, and thus, should be found nondischargeable under § 523(a)(2)(A). Teresa maintains that John fraudulently misrepresented many things to her, including that he was supposedly divorced from his prior spouse at the time he induced Teresa into their marriage. Teresa contends that had she known that John's prior marriage had not been finally terminated at the time of the S & S Investments loan, she would not have agreed to become indebted on that obligation with him. She contends she only agreed to become liable on the Kalkounos debt because John represented to her that he would have funds available to repay it in a few days after it was incurred. Teresa alleges that John fraudulently failed to fully disclose his income and assets and that he thereby induced her into consenting to the Agreement terms with respect to both debts. John defends that at the time of their marriage, his prior marriage had been civilly ended in Greece, although his canon divorce was not final. He denies that he misrepresented anything to Teresa or committed any fraud.
The trial concluded on April 2, 1996, and the parties were given until April 16, 1996 to complete their post-trial submissions. The matter was then taken under advisement.
The party seeking to establish an exception to discharge bears the burden of proof. First Federated Life Ins. Co. v. Martin (In re Martin), 698 F.2d 883, 887 (7th Cir.1983). The burden of proof under § 523 is a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-287, 111 S.Ct. 654, 659-60, 112 L.Ed.2d 755 (1991). The discharge provisions of § 523 are construed strictly against the creditor and liberally in favor of the debtor. Domino's Pizza, Inc. v. Pochel (In re Pochel), 64 B.R. 82, 84 (Bankr. C.D.Ill.1986).
Teresa claims that the debts are nondischargeable under § 523(a)(5), which states in pertinent part:
A debt owed to a former spouse or a debt to be paid to a third party in the nature of alimony, maintenance, or support pursuant to a divorce decree is nondischargeable in bankruptcy under § 523(a)(5). See In re Coil, 680 F.2d 1170, 1171 (7th Cir.1982); Maitlen v. Maitlen (In re Maitlen), 658 F.2d 466, 468 (7th Cir.1981); Bradaric v. Bradaric (In re Bradaric), 142 B.R. 267, 269 (Bankr. N.D.Ill.1992). The determination of whether a debt is in the nature of alimony, maintenance or support is a matter of federal bankruptcy law rather than state law. Haas v. Haas (In re Haas), 129 B.R. 531, 536 (Bankr. N.D.Ill.1989); Smith v. Barbre (In re Barbre), 91 B.R. 846, 848 (Bankr.S.D.Ill.1988); Seidel v. Seidel (In re Seidel), 48 B.R. 371, 373 (Bankr.C.D.Ill.1984). In determining whether an obligation is a liability for support, the Court must look to the substance of the obligation and not to labels imposed by state law. See In re Woods, 561 F.2d 27, 29 (7th Cir.1977); Maitlen, 658 F.2d at 468; Nichols v. Hensler, 528 F.2d 304, 307 (7th Cir.1976); Doss, Puchalski, Keenan...
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