In re Phile

• Decision Date: 27 September 2011
• Docket Number: No. 11–12017.,11–12017.
• Parties: In re Nicholas PHILE, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

490 B.R. 250

In re Nicholas PHILE, Debtor.

No. 11–12017.

United States Bankruptcy Court,

S.D. Ohio,

Western Division.

Sept. 27, 2011.

David J. Hoff, David A. Kruer, David Kruer & Co., LLC, West Chester, OH, for Debtor.

ORDER REGARDING CONFIRMATION OF CHAPTER 13 PLAN

BETH A. BUCHANAN, Bankruptcy Judge.

The Debtor seeks to use plan confirmation as a final determination that he owes no domestic support obligation to his former spouse and that any debt that the Debtor may owe to his former spouse as a result of the parties' divorce decree and separation agreement is in the nature of property division and, therefore, is dischargeable debt. This Court finds that the proposed plan and the record before this Court do not provide sufficient evidence for this Court to determine that no “domestic support obligation” is owed by the Debtor to the Debtor's former spouse as the Debtor avers in his proposed plan. Further, this Court concludes that plan confirmation is not the mechanism contemplated by the Bankruptcy Code and the Bankruptcy Rules to determine the dischargeabilityof debts of this nature.¹

I. Background.

This matter is before this Court for confirmation of the Debtor's proposed First Amended Chapter 13 Plan [Docket Number 28] (the “ Proposed Plan ”). Paragraph 30(e) of the Debtor's Proposed Plan, provides as follows:

e. No domestic support obligation under 11 U.S.C. 101(14A) is owed by the Debtor to the Creditor, the Debtor's former spouse, Katherine Lea Phile, because: 1) the Divorce Decree (a full copy filed of record at Doc DR1000317 expressly states at Paragraph IV that “each party waives any and all right to receive present and future spousal support from the other. The Court shall not retain continuing jurisdiction to modify support in the future”); and 2) the hold harmless obligations of the Debtor created in the property division section of the separation agreement are not in the nature of alimony, maintenance, or support, but rather are a division of marital property and/or marital debt. Such a result is consistent with the holding of Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1109 (6th Cir.1983) which dealt with hold harmless provisions of a divorce decree and 11 U.S.C. 101(14A)(B) being viewed as one of the four required elements for a domestic support obligation to arise. See In re Cuzzone, S. Dist. Ohio Bankruptcy case no: 09–15408 (Judge Perlman, 1/28/2010); In re Schweitzer, 370 B.R. 145 (Bankr.S.D.OH, June 2007); In re Lopez, 405 B.R. 382, 384 (Bankr.S.D.FL, April 2009); In re Tinnell, 2009 WL 1664581 (Bankr.D.Neb., June 2009); In re Greco, 397 B.R. 102, 106 (Bankr.N.D.IL, Nov. 2008). As a consequence, any obligation described above and owed by the Debtor to the subject Creditor shall be classified as a general unsecured claim and discharged upon successful completion of the plan of reorganization.

This Court, sua sponte, set confirmation of the Debtor's Proposed Plan for hearing. The Debtor was asked to address whether plan confirmation is the appropriate means to determine whether the debt described is Paragraph 30(e) of the Proposed Plan is dischargeable, and whether further evidence is required to be presented to make such determination.² A hearing was held on July 19, 2011. Counsel for the Debtor and the Chapter 13 Trustee appeared at the hearing.

The Debtor and the Chapter 13 Trustee both support including a provision such as Paragraph 30(e) of the Proposed Plan or similar language in a Chapter 13 plan where potential domestic support obligations may be at issue. They contend that plan provisions of this nature facilitate the chapter 13 process by encouraging a former spouse or domestic support obligee to “come to the table” during the plan confirmation stage to resolve potential disputes relating to priority and dischargeability of debts arising from a dissolution or divorce proceeding. The Debtor and the Chapter 13 Trustee argue that a provision such as Paragraph 30(e) of the Proposed Plan would be binding on a former spouse or domestic support obligee pursuant to Section 1327(a) of the Bankruptcy Code upon confirmation of a plan. Accordingly, they posit that a provision such as Paragraph 30(e) of the Proposed Plan brings greater certainty to the plan process by avoiding later claims by a former spouse or domestic support obligee of non-dischargeable priority domestic support obligations, which claims could disrupt the Debtor's ability to complete payments under the plan or otherwise alter the distributions to non-priority unsecured creditors.

The Debtor further contends that the Proposed Plan can be confirmed because it meets the requirements of Section 1325(a) of the Bankruptcy Code, notwithstanding that the dischargeability of the debt to the Debtor's former spouse will not be adjudicated in an adversary proceeding as required by the Bankruptcy Rules 4007 and 7001(6). The Debtor asserts that Section 1325(a) of the Bankruptcy Code requires only compliance with the Bankruptcy Code and not the Bankruptcy Rules.

II. Discussion.

Even though no party in interest—including the Debtor's former spouse—objected to the terms of Paragraph 30(e) in the Proposed Plan, this Court has an affirmative obligation to independently review the Proposed Plan to ensure that the terms of the Proposed Plan comply with the applicable provisions of the Bankruptcy Code. “[T]he [Bankruptcy] Code makes plain that bankruptcy courts have the authority—indeed, the obligation—to direct a debtor to conform his plan to the requirements of [the Bankruptcy Code]. [Specifically,] Section 1325(a) [of the Bankruptcy Code] ... requires bankruptcy courts to address and correct a defect in a debtor's proposed plan even if no creditor raises the issue.” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 130 S.Ct. 1367, 1381 and n. 14, 176 L.Ed.2d 158 (2010); see also, In re Carlton, 437 B.R. 412, 417 (Bankr.N.D.Ala.2010) ( “After Espinosa there can be no doubt about a bankruptcy court's authority and responsibility to deny confirmation of an offending plan although the creditor who would suffer the consequences of confirmation fails to object.”).

In this context, Paragraph 30(e) of the Proposed Plan raises two questions for this Court's consideration. The first query is substantive—can this Court determine that no domestic support obligation is owed by the Debtor to the Debtor's former spouse as the Debtor states in the Proposed Plan based on the information provided in the Proposed Plan and the record before this Court? The second is procedural—does making such determination through the plan confirmation process comport with the letter and spirit of the applicable provisions of the Bankruptcy Code and the Bankruptcy Rules relating to dischargeability determinations for obligations arising out of a marital relationship or in the course of a divorce or separation?

A. Determination Regarding The Existence (Or Lack Thereof) Of A Domestic Support Obligation

Domestic support obligations are excepted from discharge in a Chapter 13 proceeding. See11 U.S.C. §§ 523(a)(5) and 1328(a)(2). In general terms, a “domestic support obligation” is an obligation arising out of a marital relationship or in the course of a divorce or separation that is in the nature of alimony, maintenance and support. ³ 4–523 Collier on Bankruptcy ¶ 523.11 (2011). In contrast, other types of obligations arising out of marital relationship or in the course of a divorce or separation—commonly referred to as property settlement obligations—while non-dischargeable in cases under Chapters 7, 11 and 12 of the Bankruptcy Code ⁴ ordinarily are dischargeable debts in a Chapter 13 proceeding. See11 U.S.C. § 1328(a)(2); but see11 U.S.C. § 1328(c)(2) (as pertains to a hardship discharge under § 1328(b) of the Bankruptcy Code). Furthermore, a debtor cannot receive a discharge unless the debtor certifies that all amounts due and payable with respect to a domestic support obligation upon completion of the confirmed plan have been paid. See11 U.S.C. § 1328(a). Accordingly, the distinction between a domestic support obligation and other types of obligations arising out of a marital relationship or in the course of a divorce or separation may have significant consequences in a Chapter 13 proceeding.

The determination of whether an obligation is a domestic support obligation is one of federal bankruptcy law, although state law should be consulted for guidance. See Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1107–08 (6th Cir.1983). To determine whether obligations not specifically designated as alimony, maintenance or support are in the nature of alimony, maintenance or support, this Court must conduct the following four-step analysis:

First, the obligation constitutes support only if the state court or parties intended to create a support obligation. Second, the obligation must have the actual effect of providing necessary support. Third, if the first two conditions are satisfied, the court must determine if the obligation is so excessive as to be unreasonableunder traditional concepts of support. Fourth, if the amount is unreasonable, the obligation is dischargeable to the extent necessary to serve the purposes of federal bankruptcy law.

Fitzgerald v. Fitzgerald (In re Fitzgerald), 9 F.3d 517, 520 (6th Cir.1993) (citing Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1109–10 (6th Cir.1983)).⁵

In determining the intent to create a support obligation, a bankruptcy court may look to traditional state law indicia that are consistent with support obligations, including, but not limited to:

(1) a label such as alimony, support, or maintenance in the decree or agreement, (2) a direct payment to the former spouse, as opposed to the assumption of a third-party debt, (3) payments that are contingent upon such events as death, remarriage, or eligibility for Social Security benefits, (4) the nature of the obligations assumed; (5) the structure and language of ...