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FILED

JUL 09 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOTFOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-14-1381-JuKiPa

)

ROMAN A. KOSTENKO, ) Bk. No. 2:12-bk-02741-DPC

)

Debtor. )

______________________________)

)

MARTHA S. KOSTENKO, )

)

Appellant, )

)

v. ) M E M O R A N D U M*

)

ROMAN A. KOSTENKO; ERIC M. )

HALEY, Chapter 7 Trustee, )

)

Appellees. )

______________________________)

Submitted on June 19, 2015

at Phoenix, Arizona 

Filed - July 9, 2015

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Daniel P. Collins, Chief Bankruptcy Judge, Presiding

_________________________

Appearances: Jody A. Corrales of DeConcini McDonald Yetwin &

Lacy, P.C. argued for appellant Martha S.

Kostenko; Claudio E. Iannitelli of Cheifetz

Iannitelli Marcolini PC argued for appellee Roman

A. Kostenko; Stuart Bradley Rodgers of Lane &

Nach PC argued for appellee Eric M. Haley,

chapter 7 trustee.

_________________________

Before: JURY, KIRSCHER, and PAPPAS, Bankruptcy Judges.

FILED

JUL 09 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

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Appellant Martha S. Kostenko (Ms. Kostenko) is the former

wife of chapter 71 debtor Roman A. Kostenko (Debtor). After

Debtor received his § 727 discharge, but before the bankruptcy

case was fully administered and closed, the state court

conducted a trial and entered a judgment/decree (Divorce Decree)

dissolving the parties’ marriage and dividing the community

property and debt.2 Located under the heading “Division of

Property and Debts,” and within a series of paragraphs

apportioning responsibility for various marital debt, was a hold

harmless provision. In dividing the property, the state court

determined that an unequal division of community property was

appropriate “to achieve equity.” As a result, the state court

ordered Debtor to reimburse Ms. Kostenko one-half of a 2011 tax

refund and pay her a portion of the proceeds from the

liquidation of rental properties (Rentals), both of which were

included in Debtor’s estate under § 541(a)(2).

After the state court issued the Divorce Decree,

Ms. Kostenko filed an amended proof of claim (Amended POC) in

the bankruptcy case asserting claims for her share of the 2011

tax refund and proceeds from the Rentals. Debtor objected to

the Amended POC and filed a motion to enforce the discharge

injunction (Enforcement Motion), claiming that the state court

imposed obligations on him for marital debt which was

1 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure.

2 The Divorce Decree also addressed support and other issues

not relevant to this appeal.

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discharged. 

The bankruptcy court sustained Debtor’s objection to the

Amended POC and granted Debtor’s Enforcement Motion. The court

found that (1) the state court did not have jurisdiction to

divide the community property which was property of the estate;

(2) the division of community debt related to prepetition

liabilities that were discharged in the bankruptcy case; and

(3) Ms. Kostenko did not have a claim but only an equity

interest in the community property, which had become property of

Debtor’s estate. In the end, the court found that the

provisions in the Divorce Decree relating to the division of

property and debt were null and void. 

Ms. Kostenko appeals from the orders sustaining Debtor’s

objection to her Amended POC and granting his Enforcement

Motion. For the reasons explained below, we AFFIRM the

bankruptcy court’s order on the Amended POC and AFFIRM in part

and VACATE in part the order granting Debtor’s Enforcement

Motion.

I. FACTS

On February 15, 2012, Debtor, a family law attorney, filed

a chapter 13 petition. At the time, Debtor and Ms. Kostenko

were parties to a divorce action (Divorce Proceeding). As of

the filing date, the state court had not divided the community

property or debt. 

Community assets consisted of real and personal property

valued at approximately $455,000, with community secured and

unsecured liabilities of $580,000. The primary assets included

the marital residence and three single-family Rentals, all

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titled solely in Debtor’s name, and listed in Debtor’s

Schedule A. Most of the liabilities listed in Debtor’s

schedules were community liabilities with the exception of his

student loans in the amount of $14,590, two court reporting fees

totaling $1,361.95, and child support owed in the amount of

$700. Among the listed community debts, Debtor included a Citi

credit card and a Bank of America World Points (World Points)

credit card that were issued in Ms. Kostenko’s name. In

Schedule F, Debtor listed Ms. Kostenko as an unsecured creditor

with a claim in an unknown amount due to the pending divorce. 

Debtor also listed the divorce proceeding as pending in his

Statement of Financial Affairs.

Debtor filed a chapter 13 plan which sought to retain

ownership of the Rentals. Ms. Kostenko objected to confirmation

of the plan, contending that the plan was not proposed in good

faith, but instead for the improper purpose of avoiding Debtor’s

priority domestic support obligations.

On May 11, 2012, the chapter 13 trustee issued an

Evaluation and Recommendation Report (Recommendation Report)

giving notice of the potential dismissal of Debtor’s case if

certain conditions were not satisfied. One such condition

required Debtor to turn over all tax refunds to the trustee for

2011 and subsequent years as supplemental plan payments. In

July 2012, Debtor turned over the 2011 tax refund to the

trustee. 

In October 2012, Ms. Kostenko filed a motion for relief

from the automatic stay to allow the parties to proceed with the

dissolution of marriage. Debtor objected to the motion insofar

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as she sought relief from the stay for the division of community

property. 

In December 2012, Ms. Kostenko filed an emergency motion to

dismiss Debtor’s case, arguing that his plan was not proposed in

good faith but for the improper purpose of avoiding Debtor’s

unsecured domestic support obligations. Ms. Kostenko also

complained that Debtor failed to disclose or divide the parties’

2011 tax refund which Debtor had received. 

The bankruptcy court heard Ms. Kostenko’s motion for relief

from the stay, her motion to dismiss, and Debtor’s plan

confirmation at the same time. The court subsequently entered

an order finding that Debtor had failed to comply with the

trustee’s Recommendation Report, failed to make timely plan

payments, and failed to remain current on his domestic support

orders. As a result, the bankruptcy court converted Debtor’s

case to chapter 7. The order further granted Ms. Kostenko

limited relief from stay to proceed with the dissolution, but

stated that the division of property and debts would remain

under the jurisdiction of the bankruptcy court.

Eric H. Haley was appointed the chapter 7 trustee

(Trustee).

In late January 2013, Ms. Kostenko filed a motion to compel 

Trustee to abandon to her one-half of the 2011 tax refund. 

Ms. Kostenko maintained for various reasons that her portion of

the income tax refund should not belong to Debtor’s bankruptcy

estate. Trustee objected, arguing that the full tax refund was

property of the estate under § 541 and that Debtor had a duty to

remit the refund to him under § 542. The bankruptcy court

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denied Ms. Kostenko’s motion.

In February 2013, Trustee filed a motion to sell the

Rentals free and clear of liens, which the bankruptcy court

granted. The properties were sold in July 2013, with net

proceeds exceeding $108,000.

In early March 2013, Ms. Kostenko filed another motion to

dismiss Debtor’s case, again arguing that he had filed the

bankruptcy case in bad faith. Ms. Kostenko asserted that Debtor 

was using the bankruptcy system as a way to avoid an unfavorable

ruling by the state court regarding the division of the marital

property. Trustee argued in opposition that he expected a

substantial distribution to creditors and thus dismissal of the

case, which had been pending for over a year, would cause

prejudice to creditors who had filed claims and those who had

yet to file claims. Trustee also noted that Debtor had been

cooperative in the administration of the estate thus far. In

reply, Ms. Kostenko again asserted Debtor had filed the

bankruptcy case in bad faith and argued that she never consented

to the bankruptcy court retaining jurisdiction over the division

of assets. Ms. Kostenko requested dismissal of the case or, in

the alternative, requested the bankruptcy court to abstain

regarding the division of assets and debts and to remand those

issues to the state court to determine. 

On April 11, 2013, Trustee filed a notice of trustee’s

intent to abandon all personal property listed on Debtor’s

schedules, but specified that the estate was retaining all

interests in the 2011 income tax refund, real property and

Debtor’s law practice.

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Meanwhile, Ms. Kostenko filed a claim of homestead

exemption against the marital property. Trustee objected to the

homestead on the ground that Ms. Kostenko had no interest in the

property. 

In late April 2013, Debtor filed a notice claiming a

homestead exemption in the marital residence and explaining that

he did not previously claim the exemption because he and his

counsel erroneously believed he was not eligible for the

exemption because as of the Petition Date he did not reside in

the marital residence. Debtor filed an amended Schedule C

listing the homestead exemption. Debtor also objected to

Ms. Kostenko’s claim of homestead exemption against the

property. Debtor asserted that she had no legal right to claim

the exemption because she had executed a disclaimer deed whereby

she disclaimed any interest in the property. 

Ms. Kostenko responded by arguing Debtor was ineligible to

assert the homestead exemption because he did not occupy the

property on the petition date. As a result, Ms. Kostenko

asserted that only she could claim the exemption in the entire

property. Ms. Kostenko also noted that she and Trustee were

negotiating a settlement that would resolve her motion to

dismiss and Trustee’s objection to her claimed homestead.

Thereafter, Trustee filed a motion to continue the hearing

on Ms. Kostenko’s motion to dismiss and his objection to her

claimed homestead exemption since the settlement negotiations

were ongoing. Debtor opposed the continuance, arguing that

neither Trustee nor Ms. Kostenko had any right to enter into a

settlement regarding exempt property in which he asserted

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rights. 

Trustee then filed an application seeking approval of his

settlement with Ms. Kostenko. Pursuant to the agreement,

Ms. Kostenko would withdraw her motion to dismiss with prejudice

and, in return, Trustee would deliver to her a trustee’s deed

transferring the estate’s interest in the marital residence

subject to all interests, liens and encumbrances. Debtor

opposed the settlement to the extent Trustee awarded any portion

of the homestead exemption to either Ms. Kostenko or Debtor.

In response, Trustee amended his application stating that

he did not take a position as to who was entitled to claim a

homestead exemption on the property and that the bankruptcy

court should determine that issue. Trustee also confirmed that

when she entered into the settlement agreement Ms. Kostenko was

under the impression that she would be taking the interest of

the estate in the marital residence free of Debtor’s claim of

homestead. 

On August 8, 2013, the bankruptcy court entered an order

granting Trustee’s amended application to settle with

Ms. Kostenko pursuant to the following terms: her motion to

dismiss would be dismissed with prejudice; Trustee would

withdraw his objection to her notice of homestead; Trustee would

transfer the estate’s interest in the marital residence to

Ms. Kostenko subject to the parties’ interest in the applicable

statutory homestead exemption of $150,000; and Trustee would

abandon the estate’s interest in Debtor’s law practice. 

Meanwhile, Ms. Kostenko filed a motion again requesting the

bankruptcy court to abstain from presiding over the division and

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disposition of the marital residence and also from making any

decisions about the homestead exemption. Debtor opposed,

arguing that the court had expressly retained exclusive

jurisdiction over the division of property without objection

from Ms. Kostenko and thus the court should determine which of

the parties was entitled to claim the exemption. In reply,

Ms. Kostenko asserted that by virtue of Trustee’s settlement

agreement with her, the marital residence was no longer property

of Debtor’s estate and Trustee had disclaimed any interest in

the parties’ competing claims to the homestead exemption. 

Therefore, according to Ms. Kostenko, the determination of who

was entitled to the homestead exemption was moot since the

property was no longer property of the estate and thus no longer

subject to liquidation by Trustee.

On September 26, 2013, the bankruptcy court entered an

order on Ms. Kostenko’s abstention motion, finding that the

$150,000 homestead exemption relating to the marital property

belonged both to her and Debtor as a community property asset. 

The order further stated: “The state court will determine how

to equalize the exemption with all other community property

assets and liabilities, pursuant to applicable community

property laws, for the reasons stated on the record.”3 Finally,

the court found that the equity in the marital residence over

and beyond the $150,000 homestead exemption belonged to

3 There is no transcript of this hearing in the record but

this statement in the court’s order seems to indicate that the

bankruptcy court thought the state court would divide the

property and debt by requiring Debtor to make some sort of

equalization payment.

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Ms. Kostenko as her sole and separate property.

In November 2013, the parties entered into a binding

settlement agreement to sell the marital residence and equally

divide the net proceeds of the sale.

On November 25, 2013, Debtor received his discharge.

The parties subsequently returned to the state court to

complete their dissolution proceedings. In connection with the

upcoming divorce trial, Debtor and Ms. Kostenko filed their

Joint Pretrial Statement on January 24, 2014. There,

Ms. Kostenko requested the state court to order Debtor to

reimburse her for one-half of the 2011 tax refund. Ms. Kostenko

also sought $33,500 from the proceeds obtained through the sale

of the Rentals. This amount was one-half of the proceeds that

remained after the secured community debts were paid on the

Rentals through Debtor’s bankruptcy case. Ms. Kostenko

maintained that this amount should come out of Debtor’s equity

in the marital residence. She also asserted that two community

debts remained - the Citi credit card with a balance $3,989.15

and the World Points credit card with a balance of $12,038.17. 

Ms. Kostenko proposed that these balances be paid out of the

proceeds from the sale of the marital home.4 

On January 30, 2014, the state court held a trial. 

On March 12, 2014, the state court issued the Divorce

Decree dissolving the marriage and addressing, among other

things, the 2011 tax refund, the proceeds from the Rentals, and

4 The marital home was no longer property of the estate

pursuant to Ms. Kostenko’s settlement with Trustee.

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the allocation of liability for community debt. The state court

first found that under Arizona law, an unequal division of

community property was appropriate to achieve equity. 

Accordingly, the state court ordered Debtor to reimburse

Ms. Kostenko for her one-half share of the 2011 tax refund. 

Concerning the Rentals, the state court stated there was some

question whether the bankruptcy court had continuing

jurisdiction over the parties’ finances and therefore it ordered

the parties to file an update with the court no later than

April 1, 2014. However, the state court noted that Ms. Kostenko

was requesting payment for her interest in the Rentals after the

payment of secured community debt.

Under the heading “Debts,” the state court ordered that if

the Citi and World Points credit cards debt was not discharged

in Debtor’s bankruptcy, those debts should be divided equally. 

In addition, the decree provided that “Father shall be solely

responsible for any credit card or debt in his name incurred

after service of the Complaint” and that “[a]ny community debts

that were not identified at the time of the trial shall be

divided equally between the parties.” Finally, the decree

stated: “Each party shall indemnify and hold harmless from any

and all debts designated as the responsibility of that party by

the terms set forth in this Decree.”5

On April 30, 2014, the marital property was sold. 

5 While Ms. Kostenko asked the state court to make orders

that related to Debtor’s half of the exempt marital property,

which was no longer property of his estate, that is not what the

state court did.

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On April 28, 2014, Ms. Kostenko filed an Amended POC. The

Amended POC asserted a claim for the sum of $63,907.70 which was

comprised of claims for $52,515.94 (50% community interest in

the equity from the Rentals), $3,211 (50% community interest in

the 2011 tax refund), and the prior claim for unpaid child

support in the amount of $8,180.76. Ms. Kostenko asserted that

the $8,180.76 amount was a claim based on a “domestic support

obligation” entitled to priority under § 507(a)(1)(A) or (B). 

Attached to the Amended POC was the Third Circuit’s

decision in In re Ruitenberg, 745 F.3d 647 (3d Cir. 2014). 

There, the Third Circuit held the chapter 7 Debtor’s estranged

wife had an allowed prepetition claim against the estate based

upon her interest in the equitable distribution of marital

assets in divorce proceedings that were pending when the Debtor

filed his bankruptcy petition, even though the final judgment of

divorce had not yet been entered. According to the Third

Circuit, the wife’s interest was unliquidated and contingent

upon a final decree apportioning the marital property and thus

“clearly” was a claim within the scope of § 101(5)(A).

Debtor filed an objection to and motion to expunge

Ms. Kostenko’s Amended POC. Debtor argued that the Amended POC

was yet another attempt by Ms. Kostenko to circumvent the

bankruptcy court’s reserved jurisdiction over division of

property and debt and to seize for herself any surplus equity

that Trustee may have left for distribution to Debtor, after all

of the creditors were paid. Debtor further asserted that the

bankruptcy estate held the full interest in the Rentals and 2011

tax refund under § 541(a)(2). Finally, Debtor maintained that

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the Ruitenberg case was inapplicable because it applied

New Jersey law, a non-community property jurisdiction. Debtor

asserted that no case had applied § 541(a)(2), which brings the

community property interests into the bankruptcy estate, in a

non-community law jurisdiction. 

Trustee joined in Debtor’s objection to Ms. Kostenko’s

Amended POC and her reliance on Ruitenberg.

In light of the state court’s rulings, Debtor also filed

the Enforcement Motion seeking to have the bankruptcy court

enforce the discharge injunction. Debtor maintained that the

hold harmless debt was a prepetition debt subject to his

discharge under the holding in Heilman v. Heilman

(In re Heilman), 430 B.R. 213 (9th Cir. BAP 2010). Debtor also

complained that the state court’s order requiring him to

reimburse Ms. Kostenko for one-half of the 2011 tax refund and

proceeds from the Rentals violated the discharge injunction.

In response to the motion, Ms. Kostenko argued that the

holding in Heilman was inapplicable because in that case the

Debtor filed for bankruptcy and obtained his discharge before

the divorce proceeding was initiated. In contrast, Debtor filed

the divorce proceeding prior to filing his petition and thus

Debtor cannot skirt his domestic support obligations to

Ms. Kostenko and hide behind his bankruptcy filing. 

Ms. Kostenko further argued that the state court orders

allocating community property that was liquidated in the

bankruptcy court was not void and that the debts arising out of

the Divorce Decree were nondischargeable under § 523(a)(5) or

(15).

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The bankruptcy court heard the Enforcement Motion and

Debtor’s objection to and motion to expunge Ms. Kostenko’s

Amended POC on June 30, 2014. After hearing argument, the court

ruled:

I think that -- and I’m going to order that the motion

of the Debtor is granted with respect to the credit

cards. The state court in the March 12, 2014[]

dissolution order says that the father shall be solely

responsible for any credit card or debt in his name

incurred after the service of the complaint. That is

a time period prior to the bankruptcy. So if he

incurs some debts post divorce proceeding but

pre-bankruptcy, I don't think the state court can hold

him liable for that because he has a discharge for all

of those debts that he incurred post dissolution

filing and pre-bankruptcy. 

The [state] court goes on to say that any community

debts that were not identified at the time of the

trial should be divided equally between the parties. 

Again, to the extent that there are credit card debts

like the Citi card and the WorldsPoint (sic) credit

card which were admittedly incurred pre-divorce,

pre-bankruptcy, and as community obligations, albeit

incurred by Mrs. Kostenko, those obligations were

discharged in the bankruptcy of Mr. Kostenko relative

to him and to the community, albeit not as to

Mrs. Kostenko. 

The [state] court goes on to say that the Debtor

should ensure that the mother's name is removed from

all credit card accounts assigned to him and vice

versa. I don't think that there's bankruptcy stay

implications relative to that. 

And the [state] court goes on then to say that each

party shall indemnify and hold harmless from any and

all debts designated as the responsibility of the

other party. I understand that’s standard domestic

relations language. But it just simply can’t be the

case that to the extent Mrs. Kostenko gets stuck with

liabilities that were discharged in the bankruptcy

that were community liabilities, I don't think that

the state court can then hold Mr. Kostenko liable on

an indemnity for those obligations. He got a

discharge and we can’t have the state court after the

fact -- after the fact of the discharge, that is, then

start loading personal liability on him for such

things as this indemnity or hold harmless.

The tax refund I think everybody agrees is fully

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property of the estate. And the state court is not

the party to decide -- or is not the jurisdiction to

decide where the tax refund goes. That’s property of

the estate. The Trustee has control of that and is

going to be paying out those tax refunds according to

what the Bankruptcy Court is calling for. Which, by

the way, there will be a priority claim for the Debtor

for the amount -- I think it's an agreed-upon amount

of 5,485.57. That is the very first priority level. 

And so the Debtor -- or I should say the Debtor's

ex-wife will get that straight off the top after

administrative claims are covered for the

administration of this case. 

So then with respect to the rental properties, I

really think that what we have is described in the

Petersen[, 437 B.R. 858 (D. Ariz. 2010)] case. And

that while Mrs. Kostenko may have an interest in these

properties as properties of the community, all

community property comes into this bankruptcy. All

community liabilities and allowed claims against this

estate get paid from that before Mrs. Kostenko ever

would see anything from this bankruptcy estate. And

if it's going to be a shortfall -- and it certainly

sounds like everybody believes there will be a

shortfall -- she's not going to have an equity

position. And that's all she ever had in these rental

properties is an equity position. It didn't exist

prepetition and doesn't exist now. And so to the

extent that the state court was calling for

Mr. Kostenko to pay an equalization or in some other

way have an obligation to Mrs. Kostenko relative to

these rental properties, I think the state court has

overstepped the bounds there.

. . . .

So with that -- and I guess I should also say that I 

really don't believe I'm bound by the Third Circuit

decision. It comes from New Jersey where we don't

have community property laws in effect there. I think

it's just a completely different animal. And again, I

think the tieback to this case -- yes, Mrs. Kostenko

has an interest in community assets which belong to

this bankruptcy estate. But that interest is really

an equity position, not off the top before creditors

get their share of what they're entitled to in this

matter.

On July 17, 2014, the bankruptcy court entered the order

granting Debtor’s Enforcement Motion. On the same date, the

bankruptcy court entered the order sustaining Debtor’s objection

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to and motion to expunge Ms. Kostenko’s Amended POC. 

On July 31, 2014, Ms. Kostenko filed a timely notice of

appeal from both orders. On September 26, 2014, a one-judge

order was issued permitting Ms. Kostenko to appeal both the

orders in a single appeal. On October 7, 2014, a one-judge

order authorized Trustee to be added as an appellee by

stipulation of the parties.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (B). We have jurisdiction under

28 U.S.C. § 158.

III. ISSUES

A. Whether the bankruptcy court erred by sustaining

Debtor’s objection to Ms. Kostenko’s Amended POC and by

expunging it; and

B. Whether the bankruptcy court erred by finding that the

discharge injunction applied to the obligations imposed on

Debtor under the division of property provisions in the Divorce

Decree.

IV. STANDARDS OF REVIEW

We review a bankruptcy court’s legal conclusions, including

its interpretation of the Bankruptcy Code and state law, de

novo. In re Heilman, 430 B.R. at 216. 

We review the bankruptcy court’s order expunging

Ms. Kostenko’s Amended POC de novo. Cont’l Ins. Co. v. Thorpe

Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011,

1020 (9th Cir. 2012).

The bankruptcy court’s finding that a violation of the

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§ 524 discharge injunction has occurred is reviewed for clear

error. Sciarrino v. Mendoza, 201 B.R. 541, 543 (E.D. Cal 1996). 

A finding is clearly erroneous if it is illogical, implausible,

or without support in the record. United States v. Hinkson,

585 F.3d 1247, 1262 (9th Cir. 2009)(en banc).

V. DISCUSSION

Ms. Kostenko concedes that under § 541(a)(2)6, all

community property not yet divided by the state court at the

time of Debtor’s bankruptcy filing is property of his estate,

subject to administration by the trustee and payment to

creditors. See Birdsell v. Petersen (In re Petersen), 437 B.R.

858, 867 (D. Ariz. 2010) (analyzing Arizona statutory law and

finding that none of the statutes took the community property

outside the ambit of the bankruptcy estate under § 541(a)(2)). 

It follows that proceeds from the sale of the community property

during the bankruptcy case are also considered property of the

6 Section 541(a) provides in part:

The commencement of a case under . . . this title

creates an estate. Such estate is comprised of all of

the following property, wherever located:

(2) All interests of the debtor and the debtor's spouse

in community property as of the commencement of the

case that is —

(A) under the sole, equal or joint management

and control of the debtor; or

(B) liable for an allowable claim against the

debtor, or for both an allowable claim

against the debtor and an allowable claim

against the debtor's spouse, to the extent

that such interest is so liable.

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estate under §§ 541(a)(2) and (6). Non-exempt community

property is available to pay community debts according to the

priority scheme set forth in § 726(c)(2). 

The bankruptcy court has exclusive jurisdiction over

property of the estate, including community property. 28 U.S.C.

§ 1334(e)(1); § 541(a)(2). This exclusively is so even when

there is a concurrent dissolution proceeding in state court. 

See Teel v. Teel (In re Teel), 34 B.R. 762, 763–64 (9th Cir. BAP

1983). Here, the bankruptcy court indisputably retained control

over the estate community property and its disbursement to

creditors under both its order granting Ms. Kostenko limited

relief from the stay to proceed with the dissolution proceeding

in the state court without a division of property and debt and

the supremacy clause, Aticle VI, Clause 2, of the U.S.

Constitution. See Id. at 764. The state court was thus

precluded from dividing the non-exempt community property and

debt before Debtor’s case was closed. Accordingly, the

bankruptcy court properly found the property division provisions

under the Divorce Decree were null and void and ineffective. 

Because Ms. Kostenko’s claims in the Amended POC were based

solely on the property division provisions, the bankruptcy court

did not err in sustaining Debtor’s objection to Ms. Kostenko’s

Amended POC.7

7 There is no dispute that Ms. Kostenko’s priority claim

asserted in the Amended POC was proper. Under § 727(c)(2)(B), if

State law allows for community property to be liable for separate

debts, then community property would be available in bankruptcy

for those same debts. In re Merlino, 62 B.R. 836, 840 (Bankr.

(continued...)

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Debtor’s Enforcement Motion called into question the scope

of Debtor’s discharge with respect to the state court’s division

of community debt. The discharge under § 727(a) discharges the

Debtor from all debts that arise prior to the commencement of

the case. The discharge “voids any judgment at any time

obtained, to the extent that such judgment is a determination of

the personal liability of the Debtor with respect to any debt

discharged under section 727. . . .” § 524(a)(1). The

discharge also “operates as an injunction against the

commencement or continuation of an action, . . . to collect

. . . any such debt as a personal liability of the Debtor

. . . .” § 524(a)(2).

The bankruptcy court’s order granting the Enforcement

Motion provides: 

1. The Debtor’s Motion for (1) Enforcement of

Discharge Injunction –and- (2) To Declare Null and

Void Portions of Superior Court Order in Violation of

Discharge Injunction is hereby GRANTED.

2. The orders of the State Court referenced above as

paragraphs (a) through (e) are hereby declared null

and void and of no effect.8

7(...continued)

W.D. Wash. 1986). Under Arizona law, community property is not

liable for either spouse’s separate debts, except in those

situations involving the value of one spouse's contribution to

the community property. See Ariz. Rev. Stat. § 25-215(B). 

Therefore, community property is not available to pay

Ms. Kostenko’s support claims.

8 These provisions stated:

(a) that Ms. Kostenko’s community debts (Citi Card

($2,860.50) and World Points Credit Card ($8,900.00))

shall be divided equally between Ms. Kostenko and the

(continued...)

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3. The State Court has no jurisdiction to impose

personal liability on the Debtor for discharged debts

following the Debtor’s discharge.

It is undisputed that Debtor obtained his chapter 7

discharge and that this discharge enjoins collection of

prepetition claims against him, as noted above. Therefore, the

state court did not have jurisdiction to divide the property and

debt and the related provisions in the Divorce Decree are null

and void. Thus, the bankruptcy court’s order under paragraphs

one and two was correct. 

The third paragraph in the enforcement order is in the

nature of prospective declaratory relief. Generally,

“[d]eterminations regarding the scope of the discharge require a

declaratory judgment obtained in an adversary proceeding.” 

In re Munoz, 287 B.R. 546, 551 (9th Cir. BAP 2002) (citing

Rule 7001(9)). In Munoz, the Panel found that “[i]t is error to

circumvent the requirement of an adversary proceeding by using a

‘contested matter’ motion under [Rule] 9014.” Id. Accordingly,

8(...continued)

Debtor;

(b) that any community debts that were not identified

at the time of the trial shall be divided equally

between Ms. Kostenko and the Debtor; 

(c) that each party shall indemnify and hold harmless

from any and all debts designated as the responsibility

of that party by the terms set forth in this Decree;

(d) that the Debtor shall reimburse Ms. Kostenko for

one half share of the parties’ 2011 tax refund;

(e) that the Debtor shall reimburse Ms. Kostenko for

one half share of equity of the parties’ rental

properties that is part of the bankruptcy estate.

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while we affirm the bankruptcy court’s decision that the debt

division provisions in the Divorce Decree are null and void, we

vacate paragraph three which provides prospective declaratory

relief to Debtor on the scope of the discharge injunction. 

To be clear, our conclusions on appeal do not “terminate

the matter of division and distribution of property as between

the divorcing spouses. Jurisdiction over the division and

distribution of the parties’ property as between themselves

pursuant to the divorce returns to the state court” once the

bankruptcy case is closed. Shulkin Hutton Inc. v. Treiger

(In re Owens), 2007 WL 7540999, at *6 (9th Cir. BAP June 25,

2007) (J. Klein concurring) (citing In re Teel, 34 B.R. at 764);

see also In re Herter, 457 B.R. 455 (Bankr. D. Idaho 2011),

aff’d, 2013 WL 588145, at *3 (D. Idaho Feb. 13, 2013) (noting

that it was not until the Debtor’s bankruptcy case was closed

that the state court gained the ability to effectively transmute

community property to the separate property of the spouses). 

It is possible that Ms. Kostenko may hold a

nondischargeable equitable claim which may be determined by the

state court after the case is closed. Ariz. Rev. Stat. § 25-318

authorizes the state court to allocate community liabilities

between the parties in effecting an equitable division of all

community property. Spector v. Spector, 17 Ariz. App. 221, 225,

496 P.2d 864, 867 (Ariz. Ct. App. 1972). The statute requires

that the division of property must be equitable, “though not

necessarily in kind.” The Arizona Supreme Court had noted:

Obviously, the trial court may make adjustments to

accommodate the necessities of the situation. Where

physical assets are not readily divisible or

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available, . . . the statute contemplates that the

court could compensate a spouse for his or her

interest in the assets, and, of necessity, that would

be by an award of money.

Martin v. Martin, 156 Ariz. 452, 458, 752 P.2d 1038, 1044 (Ariz.

1988). “‘Equitable’ means just that—it is a concept of fairness

dependent upon the facts of particular cases.” Toth v. Toth,

190 Ariz. 218, 221, 946 P.2d 900, 903 (Ariz. 1997). 

The liquidation of Ms. Kostenko’s prepetition divorce

related claims after Debtor’s case is closed would not violate

the discharge injunction. Further, while the expungement of

Ms. Kostenko’s Amended POC may affect her right to distribution

from bankruptcy estate property, it does not prevent her from

pursuing collection of a prepetition debt even if Debtor

received his discharge because debts for property division in

divorce decrees are nondischargeable under § 523(a)(15). Short

v. Short (In re Short), 232 F.3d 1018, 1022–23 (9th Cir. 2000)

(holding that a property division claim comes within purview of

§ 523(a)(15).

VI. CONCLUSION

In sum, we AFFIRM the bankruptcy court’s order on the

Amended POC. We AFFIRM in part and VACATE in part the

bankruptcy court’s order granting Debtor’s Enforcement Motion. 

We AFFIRM the bankruptcy court’s order in paragraphs one and

two. We VACATE paragraph three of the order, which grants

Debtor prospective declaratory relief as to the dischargeability

of the division of property and debt claims because such relief

was procedurally improper.

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