In re Wodark, BAP No. CO-09-049.

• Citation: 425 B.R. 834
• Decision Date: 22 March 2010
• Docket Number: Bankruptcy No. 07-16394.,BAP No. CO-09-049.,Adversary No. 09-01161.
• Parties: In re Glennette Leann WODARK, also known as Glennette L. Stough, Debtor. Thaddeus P. Wodark, Plaintiff-Appellee, v. Glennette Leann Wodark, Defendant-Appellant.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit

425 B.R. 834

In re Glennette Leann WODARK, also known as Glennette L. Stough, Debtor Thaddeus P. Wodark, Plaintiff-Appellee, v. Glennette Leann Wodark, Defendant-Appellant.

BAP No. CO-09-049. Bankruptcy No. 07-16394. Adversary No. 09-01161.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

March 22, 2010.

W. Robert Montgomery, Lakewood, CO, for Appellant.

John H. Barrett of Balis & Barrett, P.C., Boulder, CO, for Appellee.

Before CORNISH, Chief Judge, NUGENT, and KARLIN, Bankruptcy Judges.

OPINION

NUGENT, Bankruptcy Judge.

Debtor Glennette Leann Wodark ("Glennette") appeals from a summary judgment order holding that a marital debt to a third party assumed by her in a separation agreement is excepted from her discharge by 11 U.S.C. § 523(a)(15).¹ After oral argument and careful review of the record, we AFFIRM.²

I. Appellate Jurisdiction and Standard of Review

This Court has jurisdiction over this appeal. Appellant timely filed her notice of appeal from the bankruptcy court's final order and the parties have consented to this Court's jurisdiction because they have not elected to have the appeal heard by the United States District Court for the District of Colorado.³

We review the bankruptcy court's order de novo because there are no factual disputes and the issues on appeal pertain to the proper application of bankruptcy statutes and interpretation of case law.⁴

II. Factual Background

Appellant Thaddeus P. Wodark ("Thaddeus") and Glennette were legally separated in Colorado on June 28, 2006. In paragraph 6 of their Decree of Legal Separation ("Separation Decree"), the state court referenced the Wodarks' separation agreement, found it to be "not unconscionable," and incorporated it into the decree. The agreement was made on a check-the-box and fill-in-the-blanks form promulgated by the Colorado state courts. The form contains a series of sections related to maintenance, various types of property ownership, and debts. Each section has an introductory provision for the parties to indicate whether the parties agree or do not agree on an issue. After that initial statement, the parties may then check various boxes stating that the parties have no such property or that it has been satisfactorily divided between them. Spaces are given for expanding on the nature and extent of these agreements.

The separation agreement was dated on or about March 6, 2006.⁵ In each section, the Wodarks checked the "both parties agree on this issue" box. As to real estate, vehicles, personal property, and accounts, they checked the subsidiary box stating that they owned no such property. Only section 6 relating to debts is different. There, the parties checked the "both parties agree" box. The agreement then provides subsidiary boxes to be checked; one indicating the parties have no unpaid marital debt and the other indicating that the marital debts are to be paid by specific parties as set forth thereunder. The Wodarks checked neither of these boxes. Below the boxes are spaces marked "Husband" and "Wife" where the debts to be paid by each are to be described by the name of the creditor. Nothing is written in the space by "Husband." By "Wife," however, someone hand-printed the following:

HOME EQUITY LINE OF CREDIT CHASE ACC# ********** 6720 BAL. 44,803.22 PAYMENT 500.00 MONTH

This is the only interlineated language on the entire separation agreement. Below "Wife" is the sentence: "The party responsible for the debts will will not (check one) indemnify the other party and hold him/her harmless for those debts." The Wodarks checked neither box.⁶

Glennette filed her Chapter 7 petition on June 19, 2007 and received a discharge on September 27, 2007. Glennette stopped paying the Chase debt after February 26, 2007 and Thaddeus has been paying it ever since. Thaddeus filed this adversary proceeding on March 23, 2009, seeking a determination that Glennette's obligation to pay Chase was a nondischargeable debt to him under § 523(a)(15). In her answer, Glennette claimed that she owed Chase the debt, not Thaddeus, and that her obligation to Chase had been discharged.

The bankruptcy court granted Thaddeus's motion for summary judgment and relied on another Colorado bankruptcy court decision, In re Burckhalter.⁷ The bankruptcy court concluded that even though Chase was owed the debt, because the ex-spouse was the intended beneficiary of Glennette's payments to Chase and because her obligation to Thaddeus was fully enforceable by a Colorado domestic court, it was a debt to a former spouse that is excepted from discharge by § 523(a)(15). This appeal followed.

III. Discussion

The issue on appeal is whether an agreement to pay a pre-existing marital debt owed to a third party that is embodied in a domestic court order, but omits an express hold harmless or indemnification agreement, is a debt "to a former spouse" that is excepted from discharge by § 523(a)(15). Glennette argues the bankruptcy court erred in finding that the agreement created a debt that she owed to her former spouse. Instead, she maintains that she has no obligation to Thaddeus for the debt because no one checked the indemnity/hold harmless box, and both she and Thaddeus incurred the debt to Chase, not one another. She argues the plain language of § 523(a)(15) requires that the debt be owed "to a spouse." She contends the Burckhalter decision is misguided because it may lead to unintended consequences.⁸ In addition, she complains that the bankruptcy court further erred when it did not set limits to the relief that Thaddeus or other parties could seek in the judgment entered below.⁹ We disagree.

A. BAPCPA's Amendments to §§ 523(a)(5) and (a)(15)

Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), courts were divided on the matter of whether debts delegated to divorcing/separating spouses in separation agreements or divorce decrees without express hold harmless or indemnification provisions were excepted from discharge under § 523(a)(15). Some courts held that an express hold harmless clause must be present to create direct liability from the debtor to the former spouse.¹⁰ Other courts held that separation agreements created an obligation on the part of the debtor to the non-debtor spouse even in the absence of an express indemnity or hold harmless clause.¹¹

Glennette argues that the addition of the words "to a spouse" to § 523(a)(15) is significant because all of the cases that held such obligations nondischargeable without indemnification or hold harmless provisions predate BAPCPA.¹² We discount the significance Glennette attributes to the language change in §§ 523(a)(5) and (15).¹³ On its face, § 523(a)(15) merely excepts from discharge marital obligations that are owed by a debtor to her non-debtor spouse. What matters in a § 523(a)(15) case is (1) the nature of the debt; and (2) whether the debt was incurred in the course of a divorce or separation.¹⁴ The fact that the underlying obligation was payable to Chase does not mean that Glennette did not incur a separate obligation to Thaddeus that is, in itself, a nondischargeable debt.

One of Congress's overarching themes in enacting BAPCPA was to redefine and reinforce the ability of non-debtor former spouses to recover both support and property settlement obligations from debtors in bankruptcy. The amendments to the § 523(a)(15) language cannot be viewed in a vacuum because the remedy provided in that subsection was formerly tied to the language of § 523(a)(5).

Former § 523(a)(5) excepted from a debtor's discharge debts—

to a spouse ... for alimony to, maintenance for, or support of such spouse ... in connection with a separation agreement....

Former § 523(a)(15) excepted from discharge a debt—

not of a kind described in paragraph (5) that is incurred by the debtor in ... connection with a separation agreement....

If the non-debtor spouse could demonstrate that the debtor could pay the debt or that the benefit the debtor received by obtaining a discharge would be outweighed by the harm to the non-debtor if the debtor did not pay, the debt was excepted from discharge. While it is true that former § 523(a)(15) did not contain the words "to a spouse," the subsection referenced debts "to a spouse" that were not "of the kind described in paragraph (5)"—in other words, debts that were neither support nor maintenance. It did, as it does today, refer to non-support debts that the debtor incurred in connection with a separation agreement.

The current version of § 523(a)(5) simply excepts from discharge debts "for a domestic support obligation," a very broad term that is specifically defined at length in § 101(14A) and includes support debts that are "owed to or recoverable by a spouse" and "established" in a separation agreement. The current version of § 523(a)(15) excepts from discharge a debt—

to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce ... in connection with a separation agreement....

With the expansive change in § 523(a)(5), Congress needed to add the words "to a spouse" to § 523(a)(15) because that language had been stricken from (a)(5). Nothing in § 523(a)(15) addresses the presence or absence of indemnification provisions.

B. The Burckhalter Analysis

We agree with the bankruptcy court that the analysis in Burckhalter is applicable to this case, not least because the facts are nearly identical. In Burckhalter, the debtor and non-debtor spouse executed the same "check-the-box" form separation agreement the parties used in this case. The agreement was incorporated into their Separation Decree. In the agreement, the debtor agreed to pay a joint credit card debt, but neither the debtor nor the non-debtor checked the hold harmless box.

The Burckhalter court concluded that because separation agreements become a part of the...