In re Zoglman, Bankruptcy No. WU7-86-00502

• Decision Date: 26 June 1987
• Docket Number: Adv. No. 86-0144-7.,Bankruptcy No. WU7-86-00502
• Parties: In re Martin J. ZOGLMAN, Debtor. Emily GARTON, Plaintiff, v. Martin J. ZOGLMAN, Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Western District of Wisconsin

78 B.R. 213 (1987)

In re Martin J. ZOGLMAN, Debtor.

Emily GARTON, Plaintiff, v. Martin J. ZOGLMAN, Defendant.

Bankruptcy No. WU7-86-00502, Adv. No. 86-0144-7.

United States Bankruptcy Court, W.D. Wisconsin.

June 26, 1987.

Michael G. Trewin, Terrence J. Byrne, Wausaw, Wis., for plaintiff.

Michael M. Rajek, Eau Claire, Wis., for debtor.

MEMORANDUM OPINION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW

THOMAS S. UTSCHIG, Bankruptcy Judge.

Emily Garton (plaintiff), by Michael G. Trewin and Terrence J. Byrne, has initiated this adversary proceeding pursuant to 11 U.S.C. § 523(a) and Bankruptcy Rule 4007 seeking to except a debt from discharge. The debtor appears by Michael M. Rajek and contests the complaint. A trial was scheduled in this proceeding on April 15, 1987, and the issues have been submitted to the court for determination through briefs.

The parties to this proceeding were divorced by a judgment of divorce dated June 13, 1984. The judgment of divorce provided, in part, that:

THREE: The Respondent shall hold the Petitioner harmless from any Federal or State tax assessments including assessed by the Federal and State Government against the Parties for the period 1977 through 1981 with the exception of an amount of $2,000.00. In the event the Internal Revenue Service or the state tax authority seeks to recover an amount from the Petitioner, the Petitioner shall proceed against the Respondent for all amounts of money she pays on any of these obligations in excess of $2,000.00.

The IRS began demanding payment from the plaintiff; and, on or about June 25, 1984, she paid the IRS $12,420.31. The plaintiff sought recovery against the debtor for the amount that the debtor was to hold her harmless, pursuant to the judgment of divorce, and took judgment against the debtor on November 12, 1984, for such amount. The plaintiff then commenced garnishment actions against the debtor to collect on her judgment.

The debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on March 4, 1986. The debtor's schedules indicated total liabilities of $24,543.55. Of this amount $10,420.31 was owed to the plaintiff and $9,541.99 was owed to the Wisconsin Department of Revenue.

The plaintiff argues that the debt owed to her by the debtor should be declared non-dischargeable on the basis of subrogation. She asserts that if she would not have paid the IRS, the debtor's obligation to the IRS would have been excepted from discharge under § 523(a) of the Bankruptcy Code. Hence, the plaintiff argues that she should be subrogated to the claim of the IRS. The plaintiff also argues that the debt should be excepted from discharge because it is in the nature of alimony, maintenance, or support. 11 U.S.C. § 523(a)(5).

The debtor argues that the plaintiff paid the IRS as a volunteer and is therefore not entitled to be subrogated to the claim of the IRS. The debtor further argues that the plaintiff is precluded from using the doctrine of subrogation because she reduced her claim to judgment prior to the bankruptcy filing.

It is necessary to first examine the jurisprudence behind the doctrine of subrogation.

§ 1. Definitions.

Subrogation may be broadly defined as the substitution of one person in the place of another with reference to a lawful claim or right. It is sometimes referred to as substitution. It is a device adopted by equity to compel the ultimate discharge of an obligation by him who in good conscience ought to pay it. It is the machinery by which the equities of one man are worked out through the legal rights of another.

§ 7. Doctrine as favored.

Subrogation has been characterized as an eminently just doctrine, a pure unmixed equity, one of the benevolences of the law, created, fostered, and enforced in the interest and for the promotion of equity and justice, and to prevent injustice. Being founded on principles of natural reason and justice, it is a highly favored doctrine, which is to be given a liberal application, and which the courts are inclined to extend rather than to restrict. Perhaps no doctrine of equity jurisprudence is more beneficient in its operation, and perhaps none stands in higher favor.

17 Am.Jur.2d Subrogation, §§ 1 and 7 (1974).

The Bankruptcy Code under § 509 specifically provides for subrogation of claims. It is apparently not disputed that the IRS would have had a non-dischargeable claim against the debtor in this bankruptcy case, had the plaintiff not paid the IRS. See, 11 U.S.C. §§ 523(a) and 507. It is well established that a party who is subrogated to the claim of a taxing entity is also subrogated to the right of the taxing entity to have the...