Court Opinion

ID: 5664956
Source: CourtListenerOpinion
Date Created: 2022-01-12 03:46:00.208433+00
Date Added: 2024-06-11T08:39:10.079208
License: Public Domain

Opinion
GAUT J.
1. Introduction
In May 1994 Sydney Lowe Harris and Louise Croce terminated their marriage, agreed that spousal support would be waived, and that Harris would hold Croce harmless from the obligation of the community to pay Mike D. Munaretto and Carol E. Munaretto in connection with a debt totaling $140,000 at the time but which has increased to over $230,000. In October 1999, Harris filed a chapter 7 bankruptcy petition listing the Munarettos as unsecured creditors but did not include Croce as a creditor. Harris did not notify Croce of his petition.
On February 1, 2000, Harris was granted a discharge of his debts under section 727 of the Bankruptcy Code (11 U.S.C. § 727). Harris never did include Croce in the bankruptcy petition and did not tell her that his obligation to the Munarettos had been discharged in bankruptcy.
*433In 2002, Croce purchased a home but was unaware of the Munaretto judgment until November 2004, when she received an application for renewal of the judgment from the Munarettos.
This proceeding was begun by Croce as a law and motion matter seeking an order modifying the spousal dissolution judgment to order Harris to hold her harmless from the Munaretto claims. That motion expanded into an evidentiary hearing consisting of Croce’s testimony. As a result of the proceedings, the trial court denied Croce’s initial request to compel Harris to provide spousal support but made the following findings and orders:
“2. The Court finds that Petitioner, SYDNEY LOWE HARRIS, has had at various points in time before the bankruptcy discharge, as well as after, the ability to pay on the debt set forth in Paragraph 3 of the Judgment for Dissolution filed on January 26, 1995, specifically stating that Petitioner shall pay the following community property obligation and hold Respondent free and harmless therefrom on the litigation with Munaretto, Case No. VC 000394, and has failed and neglected to do so, although it is Petitioner’s responsibility as per the parties’ agreement that the parties had in their contractual agreement which is the Marital Settlement Agreement.
“3. Despite lack of harm directly to Respondent at this time, that Petitioner does not intend to indemnify Respondent in the future, and that the Court finds therefore, that breach, as well as anticipatory breach in the alternative, has occurred which requires compensation of a party in order to make the party whole.
“4. The most appropriate method of doing so is to place Respondent in no better position than she would have been had, in fact, this agreement has been complied with; namely, this is not a situation wherein Respondent should be allowed to obtain a windfall. This is a situation wherein if Respondent decides that she wishes to go by way of a discharge in bankruptcy herself, that she does not simply collect a quarter of million dollars from Petitioner to keep for her own purposes. This was for a very specific use.
“5. It does not appear appropriate that the Court order the amount of $239,129.54 be ordered by way of Writ of Execution. That Respondent may obtain by way of Writ of Execution against Petitioner for that amount which is the amount of the Munaretto judgment against Respondent with orders that any amounts collected from Petitioner by way of Writ of Execution on this debt be forwarded to Respondent’s judgment creditor, which would be the *434Munarettos for payment on the debt. That would be a pure indemnification. It should occur within two weeks of the money actually being in hand.”
We reject Harris’s assertion that his bankruptcy discharge terminated his obligation to pay the Munaretto community obligations despite his written agreement to do so.
2. Effect of the Discharge of Harris in Bankruptcy
On January 26, 1995, Harris and Croce entered an agreement of dissolution of their marriage which, in addition to other agreements, required Harris to “hold . . . [Croce] harmless on litigation . . . with Munaretto . . . .”
Harris argued before the trial court that his subsequent discharge in chapter 7 bankruptcy in February 2000 discharged his obligation to Croce under their dissolution agreement. In response, Croce argued that Harris’s chapter 7 discharge did not terminate his obligation to her under the dissolution agreement for two reasons:
First, Croce argues that Harris’s obligation was not discharged under title 11 United States Code section 523(a)(5) because her agreement with Harris was in the nature of “alimony to, maintenance for, or support” for her as the spouse of Harris. Croce’s own reference to the case of In re Gionis (Bankr. 9th Cir. 1994) 170 B.R. 675, 683-684 (Gionis), raises substantial doubt that alimony, maintenance, or support for Croce was an element in the dissolution of the marriage. In the Gionis case there was a substantial disparity between the incomes of the husband and wife. The parties had a minor child for whom custody was required. The trial court concluded that payments made to the wife by the husband were in the nature of spousal support.
None of the Gionis factors were involved here. There were apparently no children in the marriage, there was no discussion of Croce’s need for support, and no evidence of a disparity of income between them. The absence of those factors militated against a finding that the indemnity agreement between Harris and Croce was in the nature of spousal support.
In the alternative, Croce argues that Harris’s obligation to indemnify her was nondischargeable under title 11 United States Code section 523(a)(15) (section 523(a)(15)). That section provided, at the time of the termination of the marriage, that discharge of an individual debtor under section 727 of the Bankruptcy Code does not discharge that debtor from a debt of the kind described in section 523(a)(15) incurred by the debtor in the course of a *435dissolution unless (a) the debtor does not have the ability to pay such debt from income or property that is not necessary to be expended for the maintenance or support of the debtor, or (b) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to the spouse. In that connection, the trial court could find that Harris had the ability to pay the Munaretto judgment.
In the case of In re Montgomery (Bankr. C.D.Cal. 2004) 310 B.R. 169 (Montgomery), the court considered some factors similar to, and pertinent to this case. The parties borrowed money from the wife’s parents to purchase a home and executed a joint note to the wife’s parents. Twelve years after the marriage, they separated. The wife received the house; husband received rights to his pension plan. They each agreed to pay one-half of the debt owed to the wife’s parents. When the wife subsequently sold the property the husband refused to pay his one-half share of the unpaid debt.
The trial court observed that while dischargeability of a debt is liberally construed in favor of the debtor in order to promote his or her fresh start, that result is tempered when the debt arises from a divorce or separation agreement.
The trial court found that title 11 United States Code section 523(a)(5) only precludes a debtor from discharging his obligations for alimony, maintenance or support. Section 523(a)(15), however, precludes a discharge of the debtor in the course of a divorce, separation, or separation agreement unless (a) the debtor does not have the ability to pay from the income or property of the debtor such a debt or (b) the discharge of the debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse or child of the debtor.
The Montgomery trial court found that the wife was required by a preponderance of the evidence to prove that the debt was incurred in the course of a divorce proceeding, was imposed by a court of record, and did not qualify as alimony, maintenance or support within the scope of title 11 United States Code section 523(a)(5). Once the wife established those facts, the burden of proof shifted to the husband to establish by a preponderance of the evidence that the debt was dischargeable because the conditions set forth in paragraph (A) or paragraph (B) of section 523(a)(15) existed. (Montgomery, supra, 310 B.R. at p. 176.)
The Montgomery case confirms that section 523(a)(15)(A) and (B) applies to this case and that Harris’s obligation under the judgment of January 26, *4361995, is not terminated unless paragraph (A) or (B) applies. On remand the trial court must consider whether those paragraphs apply to Harris here.
3. Harris’s Failure to Notify Croce of His Petition
Croce complains that Harris’s failure to notify her of his bankruptcy proceeding was dishonest, calculated to circumvent the bankruptcy court’s review of the indemnity agreement, and prejudiced her. She asserts that the “no-asset, no-bar-date” has prejudiced her. She misunderstands the meaning of the concept. It merely informs creditors that there appear to be no assets available from which unsecured creditors can be paid and therefore creditors are not required to file a proof of claim until the bankruptcy clerk notifies them of that obligation. Failing to list a creditor on the mailing list does not make the debt nondischargeable in a no-asset, no-bar-date chapter 7 bankruptcy because there is no time limit for filing a proof of claim. The federal courts have consistently concluded that in a chapter 7, no-asset bankruptcy the failure to schedule a debt is immaterial or irrelevant. Reopening a bankruptcy in a no-asset chapter 7 bankruptcy is a pointless exercise because a failure to list does not make the debt nondischargeable. (In re Nielsen (9th Cir. 2004) 383 F.3d 922, 926.)
We conclude that section 523(a)(15) is applicable to this case and requires Harris to pay the Munaretto judgment depending upon the applicability of paragraphs (A) and (B). That conclusion renders moot Croce’s complaint that Harris failed to list her in his petition.
The trial court must consider Harris’s current financial circumstances and whether the circumstances are fixed or likely to change in the foreseeable future. The Montgomery court found that the husband had the burden to “demonstrate either that he does not have the ability to pay the debt or that discharging the debt would result in a benefit to the debtor that outweighs the detrimental consequences to his former spouse.” (Montgomery, supra, 310 B.R. at p. 181.) There is no evidence that the trial court considered those alternatives.
If the court finds that the debtor has the ability to pay, the Montgomery court found that the court must consider the equities under the totality of circumstances test, including “(a) the income and expenses of both parties; (b) whether the nondebtor spouse is jointly liable on the debts; (c) the number of dependents; (d) the nature of the debts; (e) the reaffirmation of any debts, and (f) the nondebtor spouse’s ability to pay.” (Montgomery, supra, 310 B.R. at p. 182.) The balance of the detriments’ focus is upon the economic *437situation of the parties in their new lives. (Ibid., citing In re Jodoin (Bankr. E.D.Cal. 1996) 196 B.R. 845, 855.)
There is no evidence that the trial court considered whether Harris did or did not have the ability to pay the debt at the time of this proceeding or that discharging the debt would result in a benefit to Harris that outweighs the detrimental consequences to Croce. Nor is there any evidence that the trial court weighed the circumstances of the parties by inquiring into the benefit and detriment to the parties, focusing upon their total economic circumstance in their new lives. (Montgomery, supra, 310 B.R. at p. 182, citing In re Jodoin, supra, 196 B.R. at p. 855.)
Since the trial court did not consider the factors set forth in section 523(a)(15)(A) and (B), we will remand the case to the trial court to consider the factors set forth above.
4. Writ of Execution
The trial court directed Croce to serve Harris with a writ of execution in the amount owed to the Munarettos with instructions to forward any amount she obtains by the writ directly to the Munarettos.
On remand the trial court’s order will depend upon the finding on the issues raised by section 523(a)(15)(A) and (B). If the court finds that the debt in question is excepted under either paragraph (A) or (B) of section 523(a)(15), Croce’s claim must be rejected; in the event the trial court finds that Harris’s debt is not discharged under section 523(a)(15), the trial court must order Harris to pay the Munaretto judgment directly. We reject plaintiff’s request that the trial court issue a writ of execution and order the payment be made to Croce. The trial court shall order Harris to make payments directly to the Munarettos under the supervision by the trial court in any way it finds appropriate. Failure of Harris to comply with such an order shall result in appropriate sanctions.
5. Attorney Fees and Costs
The dissolution judgment entered into by the parties expressly provided that they shall pay their own attorney fees and expenses. In the event the trial court finds that the provisions of the original judgment between the parties requires modification as a result of the initiation of this proceeding, it may order attorney fees imposed as to either party under Family Code sections 271 *438and 2030. The trial court has the discretion to determine appropriate fees to be awarded to the parties incurred at the trial and in the Court of Appeal.
6. Disposition
The judgment is reversed and remanded with directions to the trial court to determine the obligations of the parties pursuant to section 523(a)(15)(A) and (B) and if appropriate to order Harris to commence payments on the Munaretto obligation. If the trial court concludes that Harris does not have the ability to pay the obligations under the agreement of dissolution, the trial court shall discharge Harris of the obligation to the Munarettos.
Each party shall be responsible for his or her own fees and costs.
King, J., concurred.