NO. 84-443 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

STATE OF MONTANA, ex rel., JOSEPH 

DUANE ROUGH, 

Relator, 

THE DISTRICT COUFT OF THE EIGHTH 

JUDICIAL DISTRICT, et. al., 

Respondents. 

ORIGINAL PROCEEDING: 

COUNSEL OF RECORD: 

For Relator: 

LaRue Smith, Great Falls, Montana 

For Respondent: 

Clary & Clary, Great Falls, Montana 

Submitted on Briefs: July 11, 1985 

Decided: December 5, 1985 

Filed: DEC-51985 

*# 

Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

Relator, Joseph Duane Rough, petitioned this Court to 

review by writ of certiorari an order of the Cascade County 

District Court holding him in contempt. We reverse and 

remand. 

The issues on appeal are: 

1. Did the District Court have subject matter 

jurisdiction to enforce an obligation allegedly discharged by 

the United States Bankruptcy Court? 

2. Did the District Court err in concluding that the 

credit union debt was excepted from discharge? 

In 1977, Joseph Rough married Nancy Rough. In July 

1982, they co-signed a promissory note for $2,394.20 to the 

Malmstrom Federal Credit Union. Nancy Rough also signed a 

separate guarantee agreement. 

On December 30, 1982, Nancy and Joseph Rough were 

divorced. The District Court incorporated into the 

dissolution decree the parties' property division and support 

agreement. Under the decree, Joseph Rough contributed 

$250.00 per month child support but no maintenance. In 

addition, he was to pay the debt owed to Malmstrom Federal 

Credit Union. 

In July 1983, Joseph Rough filed a petition for 

bankruptcy. He listed Malmstrom Federal Credit Union as an 

unsecured creditor. Nancy Rough was not listed as a 

creditor, even though she was a co-debtor and guarantor on 

the debt. On November 16, 1-983, Joseph Rough received a 

general discharge of his debts by order of the United States 

Bankruptcy Court for the District of Montana. Shortly 

thereafter, First Liberty Federal Credit Union, successor in 

interest to Malmstrom Federal Credit Union, commenced a 

collection suit against Nancy Rough in Justice Court. 
Nancy Rough moved the District Court to enforce the 

terms of the dissolution decree and require Joseph Rough to 

make appropriate arrangements to release her from any 

obligation due and owing to the credit union. Following a 

hearing on the motion, the District Court conclud.ed: 

That the bankruptcy discharged the Respondent of 

his own obligation to pay the Credit Union, but did 

not discharge his obligation under the Decree of 

Dissolution to pay the indebtedness due the Credit 

Union for which the Petitioner was held liable. 

That by his failure to pay the Malmstrom Federal 

Credit Union obligation, the Respondent is in 

contempt of the Court's Decree of Dissolution and 

the Agreement between the parties. 

The court held Joseph Fough in contempt but stayed the 

iudgrnent, contingent on satisfactory arrangements being made 

to pay the credit union and Nancy Rough's attorney's fees. 

Upon Joseph Rough' s failure to make satisfactory 

arrangements, the District Court ordered him to serve 5 days 

in jail and execute an allotment authorizing $250 per pay 

period to Nancy Rough in order that she might pay the debt 

owed the credit union, attorney's fees, and interest. The 

order stated that the jail term was suspended for ten days 

and that if Joseph Rough executed the allotment, the sentence 

would be suspended. 

Joseph Rough filed a. petition for writ of certiorari 

asking this Court to review the contempt order and money 

judgment. The petition was granted and this Court stayed 

further contempt proceedings. 

Did the District Court have subject matter jurisdiction 

to enforce an obligation allegedly discharged by the United 

States Bankruptcy Court? 

Nancy Rough contends that the District Court has 

jurisdiction to determine whether obligations under a 
dissolution decree are enforceable and whether a debt is 

excepted from discharge because it was neither listed nor 

scheduled. 

Joseph Rough argues that a discharge in bankruptcy wipes 

clean a.11 previous debts. We disagree. Under Title 11 U.S.C. 

5 523, some debts flow through the bankruptcy unaffected even 

though the debtor is granted a general discharge. Title 11 

U.S.C. 5 523 (a) (3) and (5) specifically except from discharge 

unlisted creditors and debts in the nature of alimony, 

maintenance or support. 

The Bankruptcy Court has concurrent but not exclusive 

jurisdiction to determine whether debts are excepted from 

discharge under S 523(a) (3) and (5). 

[Dlebts that fall within section 523(a) (3) are of 

the type which the bankruptcy court has concurrent 

but not exclusive jurisdiction. Should a creditor 

bring suit in a court other than the bankruptcy 

court on a debt which he contends is excepted from 

discharge under section 523(a) (3), the local court 

would determine the question of dischargeability. 

Section 523 (a) (5) does not fa]-1 within the terms of 

section 523 (c) which discharges debts specified in 

section 523 (a) (2) , (4) or (6) unless the creditor 

requests the court for a hearing to determine 

dischargeability of such debts. In effect, the 

determination of whether debts within subsection 

(a) (2) , (4) or (6) are dischargeable under section 

523 (a) falls within the exclusive jurisdiction of 

the bankruptcy court, and only as a matter of 

concurrent jurisdiction with respect to other types 

of debts. . . 

Thus, debts falling within other clauses of section 

523 (a) may have the issue of dischargeability tried 

in courts other than those of bankruptcy unless a 

complaint is filed by either the creditor or the 

debtor in the bankruptcy court. 

3 Collier - on Bankruptcy ¶4[ 523.13[9] & 523.15[6] (15th ed. 

1985). See also In re Mattern (Rankr. S.D. Ala. 1983), 33 

B.R. 566 and Loyko v. Loyko (N.J. Super. Ct. App. Div. 1985), 
We hold the District Court had jurisdiction to determine 

whether the debt was excepted from discharge. 

Did the District Court err in concluding that the credit 

union debt was excepted from discharge? 

In substance, the court ruled that the obligation under 

the dissolution decree was not dischargeable. Under Title I1 

U.S.C. S 523 (a) (5) , only debts constituting alimony, 

maintenance or support are excepted from discharge. 

An indebtedness for a former spouse for alimony, 

maintenance, or support of the spouse or the 

couple's children which is memorialized in the 

divorce decree is not discha.rgeable in bankruptcy. 

11 U.S.C. S 523 (a) (5). An indebtedness in the 

divorce decree that merely divides the marital 

property, however, is dischargeable. 

Matter of Coil (7th Cir. 1982), 680 F.2d 1170, 1171. 

"The issue of when an assumption of joint debts is in 

'the nature of alimony, maintenance or support' as opposed to 

a division of communal property is to be determined by 

federal bankruptcy law [and not state law] .'I In re Calhoun 

(6th Cir. 1983), 715 F.2d 1103, 1107. The District Court 

made no findings of fact or conclusions of law with respect 

to the nature of the debt, and for that reason we remand this 

issue for further proceedings. 

The mere fact a debt is labeled a property division or 

support payment is not controlling. A "well-established 

principle of bankruptcy law [is] that dischargeability must 

be determined by the substance of the liability rather than 

its form." In re Spong (2d Cir. 1981), 661 F.2d 6, 9. 

Although various tests are used by different circuits, 

we adopt the view of the Ninth Circuit: 

Because of the federal interests 

reflected in the Bankruptcy Act, the 

courts look to federal law to determine 

whether an obligation is "actually in the 

nature of . . . support" and is therefore 
nondischargeable . . . "[Rlegardless of 

how a state may choose to define 

'alimony', a . . . court, for purposes of 

applying the federal bankruptcy laws, is 

not bound to a label that a state affixes 

to an award, and that, consistent with 

the objectives of federal bankruptcy 

policy, the substance of the award must 

govern. " 

In determining whether an obligation is 

intended for support of a former spouse, 

the court must look beyond the language 

of the decree to the intent of the 

parties and to the substance of the 

obligation . . . The courts that have 

considered this issue have used several 

factors to aid in the characterization of 

the debt. If an agreement fails to 

provide explicitly for spousal support, a 

court may presume that a so-called 

"property settlement" is intended for 

support when the circumstances of the 

case indicate that the recipient spouse 

needs support . . . Factors indicating 

that support is necessary include the 

presence of minor children and an 

imbalance in the relative income of the 

parties . . . Similarly, if an obligation 

terminates on the death or remarriage of 

the recipient spouse, a court may be 

inclined to classify the agreement as one 

for support . . . A property settlement 

would not be affected by the personal 

circumstances of the recipient spouse; 

thus, a change in those circumstances 

would not affect a true property 

settlement, although it would affect the 

need for support. The court will look 

also to nature and duration of the 

obligation to determine whether it is 

intended as support. Support payments 

tend to mirror the recipient spouse's 

need for support. Thus, such payments 

are generally made directly to the 

recipient spouse and are paid in 

installments over a substantial period of 

time . 

Shaver v. Shaver (9th Cir. 1984), 736 F.2d 1314, 1316-17 

(citations omitted) . 

Section 523 (a) (3) provides that debts neither listed nor 

scheduled are excepted from discharge unless the creditor had 

notice or actual knowledge of the case to permit timeI-y 

filing of a proof of claim. We note that co-debtors and 
guarantors are classified as creditors and entitled to 

notice. - See In re Warner (Bankr. D. Utah 1980)~ 5 B.R. 434; 

In re Gilbert (Bankr. N.D. Ohio 1984), 38 B.R. 948; In re 

Barnett (Bankr. S.D. N.Y. 1984), 42 B.R. 254. We conclude 

there is an unresolved fact issue as to whether Nancy Rough 

ha.d notice or actual knowledge of the bankruptcy. - See 3 

Collier - on Bankruptcy 9 523.13 [5] [c] (15th ed. 1985). We 

remand this issue to the District Court. 

We reverse the order of contempt and remand for the 

District Court to determine whether the debt was in the 

nature of alimony, maintenance or support and, if not, 

whether Nancy Rough had notice or actual knowledge of the 

case to permit timely filing of a proof of claim. 

We Concur: