In re Schorr

• Decision Date: 05 September 2003
• Docket Number: Bankruptcy No. 00-20119 BM.,Adversary No. 02-02666 BM.
• Citation: 299 B.R. 97
• Parties: In re Ronald L. SCHORR, Debtor. Ronald L. Schorr, Plaintiff, v. Deborah L. Schorr, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

299 B.R. 97

In re Ronald L. SCHORR, Debtor.

Ronald L. Schorr, Plaintiff, v. Deborah L. Schorr, Defendant.

Bankruptcy No. 00-20119 BM.

Adversary No. 02-02666 BM.

United States Bankruptcy Court, W.D. Pennsylvania.

September 5, 2003.

Mary Bower Sheats, Esq., for Plaintiff.

John K. Foster, Esq., Pittsburgh, PA, for Defendant.

MEMORANDUM OPINION

BERNARD MARKOVITZ, Bankruptcy Judge.

Debtor seeks a determination that a request for equitable distribution of marital property which was made in their divorce proceeding by his estranged spouse, defendant Deborah Schorr, prior to the filing of debtor's bankruptcy petition constituted a "claim" for bankruptcy purposes. As a consequence, debtor avers, the resultant "debt" was discharged when he received a bankruptcy discharge. In addition, debtor seeks a determination that defendant consequently is enjoined from further pursuing her request for equitable distribution in their ongoing divorce proceeding.

Defendant denies that her request for equitable distribution qualified as a "claim" for bankruptcy purposes and insists that no pre-petition "debt" resulted which was affected by the discharge debtor received.

We conclude for reasons set forth below that defendant's pre-petition request for equitable distribution qualified as a "claim" for bankruptcy purposes and that the resultant "debt" for equitable distribution owed by debtor to defendant was discharged in debtor's bankruptcy case. Defendant consequently is prohibited from further pursuing her quest for equitable distribution in their ongoing divorce proceeding.

— FACTS —

Debtor and defendant in this adversary action are husband and wife, respectively. They have been estranged since at least September of 1999.

Debtor commenced a divorce proceeding against defendant in state court on September 14, 1999. Defendant requested equitable distribution of marital property in her answer and counterclaim to the complaint, which was filed on October 4, 1999.

Neither a divorce decree nor an order of equitable distribution was entered in the divorce proceeding prior to January 6, 2000.

Debtor filed a voluntary chapter 7 petition on January 6, 2000, thereby automatically staying adjudication by the state court of defendant's pending request for equitable distribution. To date defendant's request for equitable distribution has not been adjudicated.

The schedules accompanying debtor's bankruptcy petition listed assets with a total declared value of $17,200.00 and liabilities totaling $37,975.20. Included among debtor's assets were two pensions characterized as having "no cash value" which debtor claimed as exempt in their entirety. No objection was raised to these claimed exemptions. The bankruptcy schedules list defendant as having a contingent, unliquidated and disputed general unsecured claim in an "uncertain" amount arising out of her request for equitable distribution of marital property.

The § 341 meeting of creditors was held on April 7, 2000, after which the chapter 7 trustee reported that debtor's bankruptcy was a no-asset case.

Although she was listed on the schedules and received notice of debtor's bankruptcy filing, defendant chose not to participate in debtor's bankruptcy case. She neither requested relief from the automatic stay to continue her pursuit of equitable distribution in the divorce proceeding pending in state court nor filed a proof of claim in debtor's bankruptcy case. Moreover, she did not object pursuant to 11 U.S.C. § 523(a)(15) to the discharge of any debt for equitable distribution owed to her by debtor.

On April 24, 2000, after the bar date had passed without any objection to debtor's general discharge or to the discharge of any particular pre-petition debt he owed, debtor received a discharge. The bankruptcy case was closed on May 26, 2000, after a final decreed had issued.

Equitable distribution proceedings, which were automatically stayed during debtor's bankruptcy, resumed in earnest in state court after the bankruptcy case was closed. In his opposition to defendant's request for equitable distribution, debtor asserted that defendant's request for equitable distribution constituted a "debt" that had been discharged in his bankruptcy case and that defendant therefore was prohibited by federal bankruptcy law from pursuing the matter in their divorce proceeding.

The learned judge in the divorce proceeding issued an order on September 18, 2002, directing debtor to reopen his bankruptcy case and to obtain a determination from this court concerning the effect, if any, his discharge had on defendant's request for equitable distribution.

On October 22, 2002, after oral argument was heard on debtor's motion to reopen his case, we issued an order reopening the case.

On November 1, 2002, debtor commenced the above adversary action. Debtor asserts in the complaint that defendant's claim arising out of her request for equitable distribution constituted a "debt" that was discharged in his bankruptcy case and that she therefore is enjoined by the Bankruptcy Code from further pursuing in the divorce proceeding her request for equitable distribution.

Defendant denies in her answer to the complaint that her request for equitable distribution was discharged in debtor's bankruptcy case and asserts that the discharge injunction therefore does not apply. Her request for equitable distribution, she maintains, was not affected by debtor's discharge and therefore may now be adjudicated in the divorce proceeding.

Trial in this matter was scheduled for August 4, 2003, wherein each party was permitted to offer any and all evidence deemed appropriate.

The issue now before us in this case is whether, for bankruptcy purposes, defendant had a "claim" against debtor prior to the commencement of his bankruptcy case on January 6, 2000. If she did, the resultant "debt" owed by debtor arising out of her "claim" for equitable distribution was discharged. If she did not, there was no "debt" owed to her by debtor to be discharged when debtor received a general discharge.

The United States Court of Appeals for the Third Circuit has not decided whether a pre-petition request for equitable distribution that is unresolved when a debtor spouse against whom the request is made receives a bankruptcy discharge constitutes a "claim" for purposes of the Bankruptcy Code. There is a difference of opinion among the courts of this circuit that have addressed the issue.

At least one court fearing potential collusion has held that such a request constitutes a pre-petition claim and may be dischargeable. See Polliard v. Polliard (In re Polliard), 152 B.R. 51, 54 (Bankr.W.D.Pa.1993)(spouse requesting equitable distribution prior to bankruptcy filing has a general unsecured "claim" for an amount representing any equitable distribution award of an interest in debtor's property).

The Polliard court undoubtedly was concerned about avoiding an abusive practice, which can, and frequently does, occur when a chapter 7 debtor is embroiled in a protracted, and sometimes acrimonious, divorce proceeding. Such debtors may be in a position where they stand to "lose everything" either to their creditors in bankruptcy or to their spouse in the divorce proceeding. Moreover, if debtor's assets are distributed to creditors in accordance with the Bankruptcy Code, debtor still may not obtain a divorce. Faced with this dilemma, a chapter 7 debtor might agree to give most, if not all, of their assets to their spouse in order to finally obtain a divorce and leave other creditors with nothing.

Others have held that such a request for does not constitute a pre-petition "claim" and consequently that no "debt" for equitable distribution arises that is subject to discharge. E.g., Scholl v. Scholl (In re Scholl), 234 B.R. 636, 641-45 (Bankr.E.D.Pa.1999)(request for equitable distribution did not give rise to a "claim" or to a "debt" owed by the debtor spouse in debtor's later-filed bankruptcy).

Debtor urges us to adopt In re Polliard and to find that debtor owed a "debt" to defendant that was discharged in his bankruptcy case. Defendant urges us to adopt In re Scholl and to find that her request for equitable distribution did not give rise to a debt owed to her by debtor that was discharged in debtor's bankruptcy case.

We will consider in detail the reasoning set forth in In re Scholl and shall use it as a vehicle for resolving the issue presented in this adversary action.

The non-debtor spouse in Scholl commenced a divorce proceeding against debtor spouse in December of 1993 and thereafter requested equitable distribution of marital property. Before the matter was resolved, debtor spouse filed a bankruptcy petition in October of 1997, thereby automatically staying equitable distribution proceedings in the divorce case. Non-debtor spouse was listed on the bankruptcy schedules as an unsecured pre-petition creditor with "possible debt arising from marriage, not including possible or actual support or alimony, in the amount of $135,000." No equitable distribution order had issued in the divorce proceeding and the parties had not come to an agreement concerning equitable distribution prior to the bankruptcy filing. Scholl, 234 B.R. at 637-38.

In contrast to the case at hand, non-debtor spouse requested and was granted relief from stay in March of 1999 to allow the equitable distribution proceedings to move forward in state court. Unfortunately, that court took no action on her request. Also, in contrast to the case at hand, non-debtor spouse then commenced a timely adversary action [before debtor received a bankruptcy discharge] seeking, among other things, a determination that she did not possess a "claim" for bankruptcy purposes and that debtor did not owe her a "debt" that was subject to discharge in his bankruptcy case. Thereafter non-debtor spouse brought a motion for summary judgment in the adversary action which was granted. Id., 234 B.R. at 637.

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