In re Rose

Decision Date10 January 2022
Docket Number21-10094
PartiesIN RE: PAUL ROSE Debtor.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas

Chapter 13

ORDER GRANTING MOTION FOR RELIEF FROM STAY

Mitchell L. Herren United States Bankruptcy Judge

This Chapter 13 case was filed several years after the divorce of Paul Rose ("Debtor") and Nicole Elam ("Creditor"). The divorce decree awarded the couple's house and Debtor's 401(k) fund to Debtor and directed him to be responsible for and indemnify and hold Creditor harmless for obligations on their joint credit card. It directed the parties to cooperate in seeing that the credit card account was transferred solely to the person responsible for the debt.

Creditor alleged that she performed her obligations under the decree but Debtor did not, leaving Creditor holding the bag for Debtor's credit card obligations. Creditor moved for relief from the bankruptcy automatic stay in order to return to state court to seek to modify the divorce decree. In briefing, she also alleged that Debtor had violated child-support provisions of the decree and asserted that relief from stay is appropriate to provide the state court an opportunity to provide a remedy for those violations.[1]

The Court held an evidentiary hearing on Creditor's motion and then allowed the parties to provide additional briefing.[2] It is premature for this Court to decide the ultimate dischargeability of liabilities that are not yet finally established, and it is a matter for the Kansas state court to decide if the underlying divorce decree can or should be modified. Creditor Elam's motion for relief from stay is therefore granted to this limited extent.[3]

I. Background and Facts

Debtor Paul Rose filed this Chapter 13 case on February 15, 2021.[4] Five years prior, Debtor and Elam divorced.[5] No discharge has been entered in the case.

As part of the divorce decree issued by the Sedgwick County domestic court, Debtor was awarded all the equity in his 401(k) account and the couple's marital home.[6] Another provision of the decree required Debtor to be responsible for all debts on the joint USAA Credit Card and indemnify and hold Creditor harmless from the monthly obligations on that indebtedness and for all debts incurred by Debtor since the filing of the divorce.[7] At the time of the divorce decree the credit card debt was around $12, 000. The balance as of the date the bankruptcy petition was filed was over $24, 000 as a result of additional charges by Debtor. The decree further provided, "[t]he parties will cooperate in seeing that the credit card account is transferred solely to the [Debtor]."[8]

Creditor Elam alleged that she fulfilled her obligations under the divorce decree by, among other things, immediately quit claiming her interest in the house to Debtor. Creditor accused Debtor of not only refusing to pay the credit card debt, but alleged that he also charged approximately $12, 000 more to the credit card after the divorce decree and then failed to pay that balance, leaving Creditor responsible as the joint account holder. Creditor testified the credit card company refused to honor her request to remove her from the account unless Debtor agreed, but that he refused to cooperate to transfer the card to his sole ownership.[9]

Prior to Debtor's bankruptcy filing, in October of 2020, Elam filed a motion in the family law department of the state court seeking to compel Debtor to comply with the divorce decree and requesting that he be held in contempt for failing to do so.[10] The domestic court held a hearing after which it entered an order on January 6, 2021, that appeared to confirm most of Creditor's allegations but continued the matter to a later date to allow Debtor to consult with counsel.[11] The day before the continued hearing, Debtor filed this bankruptcy.[12] At the time of filing, Debtor had neither paid the debt on the credit card, nor transferred the account to his name alone.[13]

Despite the bankruptcy automatic stay, the state court held the scheduled hearing on February 16, 2021, the day after the bankruptcy filing.[14] Both parties appeared with counsel, unlike the previous hearing in which both appeared pro se.[15]The state court issued its order on April 23, 2021, holding Debtor in "indirect civil contempt," finding that he committed "fraud on the [Creditor]" that was "not protected by the bankruptcy code" and threatening incarceration if Debtor did not purge the contempt by September 15, 2021.[16] All of this state court activity after February 15, 2021, violated the automatic stay and, as such, is void.[17]

Creditor moved in this Court for relief from stay to return to state court to modify the divorce decree to ensure an equitable division of marital property, arguing that the state court could award Creditor an interest or lien in the house or in the 401(k) account in light of the Debtor's failure to live up to his obligations under the original decree. In briefing, she also alleged that Debtor had violated child-support provisions of the divorce decree and asserted that relief from stay was appropriate to have the state court provide a remedy for those violations.[18]

Debtor does not dispute most of the allegations about how the credit card account and house ownership have been handled but argues that under state law it is too late to amend the divorce decree, that Creditor holds no lien in the house or retirement account, and that the debt Creditor seeks to hold Debtor responsible for is an unsecured, in personam debt that is dischargeable in a Chapter 13 bankruptcy.

II. Analysis
A. Jurisdiction

A creditor's motion to modify the automatic stay for cause under § 362(d)(1)[19]and Rule 4001(a) is a core proceeding under 28 U.S.C. § 157(b)(2)(G), over which this Court has exclusive jurisdiction under 28 U.S.C. § 1334.

B. The Stay

The automatic stay is found in § 362. It provides in relevant part:

(a) …a petition filed under section 301… operates as a stay, applicable to all entities, of-- (1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
C. Obtaining Relief From Stay

The stay remains in effect under circumstances such as those in this bankruptcy until the debtor is granted a discharge or the case is closed or dismissed, [20] or until the Court, on request of a party in interest and after notice and a hearing, grants relief from the stay by terminating, annulling, modifying or conditioning the stay for one of many reasons, one of which is "for cause."[21] Cause is determined by the Court exercising its discretion on a case-by-case basis.[22] The movant bears the initial burden to demonstrate cause exists to lift the stay, after which the burden shifts to the Debtor to demonstrate why the stay should remain in place.[23] Bankruptcy courts often evaluate "cause" using a set of twelve factors outlined in In re Curtis.[24] The Court finds these factors to be helpful, and will analyze the applicable factors in considering the stay-relief request at hand. Specifically, the Court will weigh the following relevant factors: (1) whether relief will result in a partial or complete resolution of the issues; (2) whether movant's success in the divorce proceeding would result in an avoidable judicial lien; (3) whether there is a lack of connection to or interference with the bankruptcy case; (4) whether relief is in the interest of judicial economy; (5) whether the divorce proceedings are ripe for trial; and (6) the impact of the stay on the parties and the "balance of hurt."

1. Will relief result in a partial or complete resolution of the issues?

This factor captures many aspects of the dispute between the parties. Debtor makes the argument in a number of different forms that granting relief from the stay would be futile, because no meaningful action could be taken by the state court that would change the dischargeability of the credit card debt and Debtor's obligation to indemnify and hold Creditor harmless. These arguments boil down to two main contentions: (1) the state court cannot modify its decree because Creditor's motion was not made within a reasonable time as required by state law, and (2) any modification made by the state court is moot as Creditor seeks modification of dischargeable debt. The Court will consider each of these arguments in turn.

First as an initial bar, Debtor claims that too much time has passed for the state court to modify its decree under Kan. Stat. Ann. § 60-260(b). Debtor argues that under Kansas law, such a motion must be filed within a "reasonable time," and that under such a standard the divorce court now lacks jurisdiction.[25] This argument is unpersuasive for two reasons. One, what is or is not a reasonable time under these circumstances and Kansas law...

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