In re Pittman
| Decision Date | 20 February 2020 |
| Docket Number | Case No. 19-41057 |
| Parties | In re: Shelly Nichole Pittman, Debtor. |
| Court | U.S. Bankruptcy Court — District of Kansas |
Designated for online use but not print publication
This Chapter 13 case was filed shortly after the divorce of Debtor Shelly Nichole Pittman ("Debtor" or "Shelly") and Dennis J. Pittman ("Dennis"). As part of the divorce proceeding, the parties entered into a Separation and Property Settlement Agreement and Parenting Plan ("Settlement Agreement"). If Debtor's Chapter 13 plan is confirmed, multiple terms of the Settlement Agreement that benefit Dennis will be abrogated. Dennis therefore objects to confirmation. He also moves for relief from stay to return to state court to enforce a term of the Settlement Agreement whereby under certain circumstances he is entitled to a qualified domestic relations order (QDRO) with respect to Debtor's exempt pension plan asset.
Trial on the Motion for Relief from Stay1 was held on December 19, 2019.2 At the close of the evidence and after hearing the arguments of counsel, the Court ordered that the record remain open and continued the matter for further consideration at the hearing on Dennis Pittman's Objection to Confirmation of Chapter 13 Plan.3 Thereafter, the parties agreed that the record contained all of the evidence they would offer at a hearing on the objection to confirmation, but requested that the neither the motion for relief from stay nor the objection to confirmation be placed under advisement until after completion of additional briefing. These briefs have now been filed, and the Court is ready to rule. For the reasons examined below, the Court grants Dennis's Motion for Relief from Stay and overrules the Objection to Confirmation of Chapter 13 Plan.I. Findings of Fact
Dennis filed a petition for divorce in Shawnee County District Court on May 11, 2018. Both he and Shelly were represented by counsel. Both an Agreed Decree of Divorce and the Settlement Agreement were executed by Shelly on July 9, 2019 and by Dennis on July 12, 2019. The divorce decree was filed on July 16, 2019. It recites that "the Separation and Property Settlement Agreement executed by . . . the parties on the 12th day of July, 2019 . . . is incorporated into this Decree as though fully set forth herein and is made apart hereof and does become the Order, Judgment and Decree of the Court."4 The Settlement Agreement was not filed until August 19, 2019. There is no evidence that the Settlement Agreement was reviewed by the court or found just and equitable.
Paragraph G of Article IV provides: "The debts and obligation assigned herein above are in the nature of alimony, maintenance or support, and are 'domestic support obligations' as defined by Section 101 (14A) of the United States Bankruptcy Code."
On or about March 20, 2019, several months before the agreed divorce was granted but after the initial terms of the Settlement Agreement were negotiated, Shelly contacted an attorney's office regarding bankruptcy. She gave data for preparation of schedules to office staff, but she did not consult with an attorney. Her credit counseling certificate is dated April 1, 2019.
Thereafter, the Settlement Agreement was refined by the parties with the assistance of their separate counsel. The parties had agreed in March that as part of the division of debts Shelly would owe Dennis $35,000, but theparagraphs addressing discharge in bankruptcy and Dennis's being granted an interest in Shelly's TSP6 retirement fund if she defaulted in her payments to him were added between March and July.
Based upon the Settlement Agreement, Dennis believed that he would be protected if Shelly filed for bankruptcy. Shelly shared this belief until she met with her bankruptcy attorney on August 21, the date her Chapter 13 petition was filed. The parties now agree that the events of this case do not create a binding agreement about discharge and that Shelly's $35,000 debt to Dennis is dischargeable on completion of a confirmed Chapter 13 plan.
Debtor has four dependant children. She has been employed by her current employer for ten years and also has a part time job. Debtor's schedules report that she has no real property, that her personal property is comprised of two unencumbered vehicles worth $16,000, retirement funds of $64,000 (comprised of a 401k TSP account of $59,000 and a 401k FERS account of $3,843.68), and miscellaneous exempt personal and household items. She has no secured debts. Her unsecured debts include $110,000 in student loans and $86,000 in other nonpriority unsecured debts, which include $40,000 owed to Dennis. Her monthly income is $4,293.42. After subtraction of expenses, her monthly net income is $100.00.
Debtor's Chapter 13 plan proposes to pay $100 per month for three years. Administrative fees of $3,155 are to be paid through the plan. A nonstandard provision of the plan addresses the $35,000 obligation of Shelly to Dennis and the reference to discharge in the Settlement Agreement. It states:
Upon confirmation of the plan, any obligation owed by Debtor to Mr. Pittman under the SPSA [Settlement Agreement] is dischargeable upon completion of the instant case. Further, any obligation to pay a creditor or third party on any debt Debtor was assigned to pay under SPSA, regardless of whether the debt is owed by Debtor alone or jointly by Debtor and Mr. Pittman is dischargeable upon completion of the instant case. Further, Paragraph 26 of the SPSA is unenforceable upon completion of the instant case.
III. Conclusions of Law
Dennis objects to confirmation of Debtor's Chapter 13 plan. He does not challenge the plan provision regarding discharge. Rather he contends that the bankruptcy was filed in bad faith and only for the purpose of invalidating the Settlement Agreement. As evidence of bad faith he relies upon the fact that the bankruptcy was filed only two days after the Settlement Agreement was filed in the divorce proceeding. It is noted that it was Dennis's lawyer who did not file the Property Settlement until more than a month after the divorcewas granted.
The Court finds that any inference of bad faith which might arise from the timing is refuted when the broader circumstances are considered. Shelly made arrangements to file for bankruptcy before the Settlement Agreement was fully negotiated. She agreed with Dennis to include provisions in the Settlement Agreement to protect his claim against her from discharge. Shelly, like Dennis, believed those provisions would be effective. She learned this was not true only after meeting with her bankruptcy counsel on the date she filed her Chapter 13 petition, after the Settlement Agreement had been filed. Further, Shelly's finances are such that she has need to file for bankruptcy relief independent of her agreement to pay Dennis $35,000.
Dennis's objection to confirmation based upon the contention that the case as filed in bad faith is denied.
Dennis also moves for relief from stay to return to state domestic court for amendment or reconsideration of the judgment, which incorporates the Settlement Agreement, to obtain a QDRO granting him an interest in Shelly's TSP retirement account as contemplated in Article IV, D(26) of the Settlement Agreement. Dennis is not seeking relief from stay to obtain payment from Shelly personally.
A TSP is a defined contribution plan offered to federal employees that operates similarly to 401(k) plans offered by private employers.7 Funds held in a TSP, like funds in plans subject to ERISA, are excluded from the Bankruptcy estate by § 541(c)(2).8 This Court therefore has no jurisdiction to determine interests in the TSP.
Dennis contends that cause for relief from stay exists under 11 U.S.C. § 362(d)(1). It provides, "On request of a party in interest and after notice and hearing, the court shall grant relief from the stay . . . (1) for cause, including the lack of adequate protection of an interest in property of such party in property." The statute provides that cause includes lack of adequate protection, but cause "is not so limited."9 "Because there is no clear definition of what constitutes 'cause,' discretionary relief from the stay must be determined on a case by case basis."10
Cause to lift the stay "encompasses a broad category of issues,"11 including returning to domestic relations court to divide marital property.12 In Carbaugh,13 the Tenth Circuit BAP affirmed an order granting relief from stay a former spouse to return to Kansas district court to obtain a valid QDRO. The property settlement agreement granted the debtor's ex-spouse a one-half interest in his ERISA qualified retirement plan, but there was no QDRO becasue the divorce had been granted in...
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