Court Opinion

ID: 9646917
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:16:11.526227+00
Date Added: 2024-06-11T18:11:43.622845
License: Public Domain

PAPPAS, Bankruptcy Judge,
dissenting in part.
Regrettably, I believe the majority incorrectly applies 11 U.S.C. § 727(b) in this appeal, and that its decision inappropriately impairs the ability of state courts to equitably resolve debt issues in a marital dissolution proceeding. I therefore respectfully dissent from that portion of the decision which holds that the Debtor’s obligation to hold Heilman harmless for any payments she is required to make to the Beyers was a prebankruptcy, discharged debt.12
In a Washington dissolution proceeding, the state court is commanded by statute to assign responsibility for the parties’ liabilities in a manner “as shall appear just and equitable after considering all relevant factors.... ” RCW 26.09.080. In particular, the court is directed to consider the economic circumstances of each spouse at the time of the dissolution in designing an equitable resolution of the parties finances. See RCW 26.09.080(4).
These statutes would seem to require the state court to consider that one party to a dissolution action has received a discharge in bankruptcy when the court crafts its equitable dissolution of the parties’ property and debts. Consistent with the agreement of the parties, I think we must presume that the Washington court in this case decided, in the exercise of its equitable discretion in dissolving the parties’ marriage, that if Heilman were required to pay the community debt owed by the parties to the Beyers, the Debtor must hold her harmless.13 I think we must also assume, to be true to the state law, that the dissolution court imposed the equitable, hold-harmless obligation upon the Debtor based upon the economic circumstances of the parties existing at the time of the dissolution in September 2006, some *222nine months after the Debtor received his bankruptcy discharge.
Despite the statutory requirement that an equitable dissolution be crafted based upon the facts as they exist at the time of the dissolution, the majority characterizes the Debtor’s newly-imposed obligation under the state court’s order as a prebank-ruptcy claim. Then, though holding that the hold-harmless obligation is a pre-petition claim, the majority inexplicably concludes that it is not excepted from discharge in the Debtor’s bankruptcy case under § 523(a)(15) since it was not incurred in the course of a divorce, apparently because the dissolution decree was not entered by the state court until after the Debtor’s bankruptcy case was filed.14 These conclusions simply can not be correct.
In general, except for debts described in § 523(a), a chapter 7 discharge impacts “all debts that arose before the date of the order for relief....” 11 U.S.C. § 727(b). Simply put, under Washington law, the state court could not impose a hold-harmless obligation upon the Debtor until it entered the dissolution decree. As a result, the Debtor’s duty to indemnify Heil-man for payments made to the Beyers was clearly a post-bankruptcy debt not covered by the discharge in the bankruptcy case filed in October 2005.
The majority’s attempt to treat the Debtor’s obligation as a pre-existing “contingent” claim for contribution held by Heilman is out of step with state law. Heilman held no contribution claim against her spouse for payment of a community obligation — that claim could only arise as a result of the dissolution, and then only based upon a state judge’s assessment of the equities of the parties’ current economic circumstances.15
There are an abundance of decisions from bankruptcy courts across the Nation holding that debts established in post-petition divorce decrees in favor of a nondebt- or spouse are not discharged in the debt- or’s prior bankruptcy case.16 As one court recently summarized these holdings:
*223“Courts have consistently held that a debtor’s obligation to a former spouse under a postpetition divorce decree or settlement constitutes a postpetition debt and is not dischargeable under § 727(b).” In re Miller, 246 B.R. 559, 562 (Bankr.E.D.Tenn.2000) (citing Arleaux v. Arleaux, 210 B.R. 148, 150 (8th Cir. BAP 1997); Compagnone v. Compagnone (In re Compagnone), 239 B.R. 841, 844-45 (Bankr.D.Mass.1999); Scholl v. Scholl (In re Scholl), 234 B.R. 636, 645 (Bankr.E.D.Pa.1999); In re Degner, 227 B.R. 822, 824 (Bankr.S.D.Ind.1997); Bryer v. Hetrick (In re Bryer), 216 B.R. 755, 760-61 (Bankr.E.D.Pa.1998); Neier v. Neier (In re Neier), 45 B.R. 740, 743 (Bankr.N.D.Ohio 1985)). Furthermore, where a divorce decree “obligates the debtor to indemnify the spouse and hold the spouse harmless from debts incurred during the marriage, courts recognize that the obligation to the spouse is separate from the original debt.” Id. Consequently, a post-petition divorce obligation to hold a spouse harmless from prepetition debt will not be subject to discharge. Id.
Cooper v. Cooper (In re Cooper), 2009 WL 3747210 *3 (Bankr.M.D.Ala.2009); see also, Buglione v. Berlingeri (In re Berlingeri), 246 B.R. 196, 200-201 (Bankr.D.N.J.2000). The common theme expressed by all of these decisions is that an obligation imposed by a divorce-court in a post-bankruptcy decree is a new debt owed by the debtor to his soon-to-be former spouse, not an obligation to pay any prebankruptcy debt.17 Without good reason, the majority departs from that simple theme today.
I also believe that the majority’s conclusion runs afoul of the general case law concerning when a claim arises for purposes of discharge. As the majority acknowledges, in the Ninth Circuit, a claim is deemed to arise only when the claimant can fairly or reasonably contemplate the claim’s existence. See, e.g., SNTL Corp. v. Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 839 (9th Cir.2009). Here, the dissolution action was not even commenced until several months after the Debtor filed the bankruptcy case and received a discharge. Contrary to the majority’s conclusion, there is nothing in our terse record to show that Heilman should have fairly or reasonably contemplated at the time of the Debtor’s bankruptcy that a state court would, in an as-of-yet unfiled dissolution action, employ a hold-harmless obligation in her favor in dissolving her marital affairs with the Debtor. The majority does not identify what circumstances should have alerted Heilman that her marriage to the Debtor would one day end, and that she would, as a result of the dissolution decree, be granted a claim against her spouse? Absent such facts, we should hold that the Debtor’s hold-harmless obligation to Heilman was not discharged in his bankruptcy.
In addition to misapplying § 727(b), I fear that the majority’s holding will also *224unnecessarily interfere with the ability of state courts to equitably dissolve marriages. By restricting the dissolution court’s ability to impose a hold-harmless obligation in favor of Heilman against the Debtor, the majority effectively instructs the court that, in spite of controlling state law, it can not impose new financial obligations in favor of one spouse against a former bankruptcy debtor in its effort to equitably adjust their marital affairs.
The resolution of divorce issues is the exclusive province of the state courts, not the federal bankruptcy courts.18 We should be extremely reluctant to create barriers to the otherwise just, fair resolutions of dissolution actions in state courts. Unfortunately, that is exactly what the majority’s holding does.19
Finally, if it is indeed a prebankruptcy debt, I can not fathom how the hold-harmless obligation created in the state court dissolution decree does not represent a debt to a spouse “that is incurred by the debtor ... in connection with a ... divorce decree or other order of a court ...” for purposes of excepting that debt from discharge under § 523(a)(15). In enacting §§ 523(a)(5) and (15), Congress dictated that virtually all obligations and debts created in state court divorce proceedings be excepted from discharge in a former spouse’s bankruptcy case. But while the majority declares the hold-harmless obligation to be a pre-petition debt, it concludes that because the dissolution decree was not entered by the state court until after the Debtor filed for bankruptcy, the hold-harmless obligation is not covered by the exception from discharge. Section 523(a)(15) contains no such condition, nor does the majority cite case law or other authority for restricting the application of the discharge exception in this fashion. Moreover, the inconsistency in the majority’s logic is indefensible: either the debt owed by the Debtor to Heilman is a pre-bankruptcy claim to which the exception applies, or it is an undischarged post-bankruptcy debt.20
*225In sum, I would conclude that the hold-harmless obligation imposed upon the Debtor by the state court is a post-bankruptcy debt and was not discharged in the Debtor’s bankruptcy case. Even assuming it was a prebankruptcy debt, I would hold that it was excepted from discharge. Instead, the majority renders a most unfair decision that, in my opinion, conflicts with the Code and cases interpreting it, impairs the ability of state courts to equitably resolve married parties’ financial affairs upon divorce, and misapplies the exception to discharge for debts created in divorce decrees. I do not agree.

. I join in the Panel’s decision that, despite the Debtor's post-bankruptcy agreement with Heilman, and the terms of the state court dissolution decree, any personal obligation of the Debtor to pay the debt owed to the Beyers was discharged and unenforceable.

. The parties and the majority take no issue with characterizing the loan from the Beyers to Heilman to care for the needs of her child as a communily debt. This conclusion appears to be consistent with the Washington statutes. See RCW 26.16.205 (providing that both spouses can be sued "jointly or severally” to recover any expenses incurred for the family, "including stepchildren”). In Washington, when a divorced person pays a community obligation, she is entitled to contribution from her former spouse. Hanson v. Hanson, 55 Wash.2d 884, 350 P.2d 859 (1960). Here, however, there was no evidence that Heilman had paid any amounts to the Beyers on the loan. Clearly, the Debtor’s liability to Heilman was not based upon her right to contribution.

. Like the majority, I do not think the hold-harmless agreement entered into by the parties in the dissolution proceeding constitutes an enforceable reaffirmation agreement for purposes of § 524(c). But that conclusion merely begs the question since, if the Debtor’s duty to hold Heilman harmless from payments to the Beyers is a post-petition debt, no reaffirmation agreement was required to render the obligation enforceable, the Debtor's discharge notwithstanding.

. While not expressly stating so, the majority apparently believes that Heilman’s contingent claim for contribution from the Debtor arose when the parties, married at the time, incurred the debt to the Beyers, and that the claim merely matured when they divorced. But a hold-harmless obligation is only one form of device a state court might employ in equitably dissolving a marriage. For example, instead of ordering that the Debtor indemnify her for any payments she makes to the Beyers, the state court could have simply granted Heilman a money judgment against the Debtor for the amount due on the Beyers loan balance. Had it done so, would the majority have deemed that obligation a pre-bankruptcy discharged debt? Likely not. But if the majority is willing to deem the money judgment a "new” post-bankruptcy debt, there is an obvious flaw in its logic. The Debtor’s obligation in both instances is a new one, imposed in the dissolution decree, not before.

.The majority cites only one case, Edwards v. Edwards (In re Edwards), 91 B.R. 95 (Bankr.C.D.Cal.1988), for the proposition that the dissolution decree in this case circumvents bankruptcy law by reviving a discharged debt. Of course, unlike the facts presented in this appeal, Edwards involved a divorce decree that required the debtor to directly pay creditors holding discharged debts, not a hold-harmless obligation imposed in favor of the nondebtor spouse. Moreover, the bankruptcy court also based its conclusion on decisions of the California courts con*223struing state statutes, not the Code. Edwards, 91 B.R. at 96, citing In re Marriage of Cohen, 105 Cal.App.3d 836, 164 Cal.Rptr. 672 (1980); In re Marriage of Clements, 134 Cal.App.3d 737, 184 Cal.Rptr. 756 (1982); and In re Marriage of Williams, 157 Cal.App.3d 1215, 203 Cal.Rptr. 909 (1984). In light of the many decisions to the contrary discussed below, the majority should find little comfort in Edwards.

. The majority attempts to distinguish the outcome in these many cases because they did not originate in community property states, or because they are based in part upon local divorce laws. But as noted above, the question we decide in this appeal is not a community property issue — it involves when the spouse’s claim arises, pre- or post-bankruptcy, an analysis that necessarily implicates the state law basis of the claim.

.Indeed, in recently instructing federal courts to refrain from encroaching upon the state courts' prerogative to resolve domestic relations issues, the Supreme Court states:
Long ago we observed that "[t]he whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States.” In re Burrus, 136 U.S. 586, 593-594, 10 S.Ct. 850, 34 L.Ed. 500 (1890). See also Mansell v. Mansell, 490 U.S. 581, 587, 109 S.Ct. 2023, 104 L.Ed.2d 675 (1989) ("[Djomestic relations are preeminently matters of state law”); Moore v. Sims, 442 U.S. 415, 435, 99 S.Ct. 2371, 60 L.Ed.2d 994 (1979) ("Family relations are a traditional area of state concern”). So strong is our deference to state law in this area that we have recognized a "domestic relations exception” that "divests the federal courts of power to issue divorce, alimony, and child custody decrees.” Ankenbrandt v. Richards, 504 U.S. 689, 703, 112 S.Ct. 2206, 119 L.Ed.2d 468 (1992). We have also acknowledged that it might be appropriate for the federal courts to decline to hear a case involving “elements of the domestic relationship,” id., at 705, 504 U.S. 689, 112 S.Ct. 2206, 119 L.Ed.2d 468, even when divorce, alimony, or child custody is not strictly at issue.
Elk Grove Unified School Dist. v. Newdow, 542 U.S. 1, 12-13, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004) (emphasis added).

. The majority relies upon the Supremacy Clause as a basis for its holding in this case, arguing its interpretation is necessary to promote the Bankruptcy Code's policy giving the Debtor a financial "fresh start.” Of course, I disagree with that conclusion if, in the process, we subordinate the equally-strong federal policy of avoiding interference with the adjudication of marital issues in state court. Moreover, the majority’s enthusiasm for promoting the discharge in this case seems misplaced since the Debtor has died. If anyone benefits from a fresh start, it will be the Debtor’s heirs.

. In light of the majority’s view of the interplay between § 727(b) and § 523(a)(15), at*225torneys counseling divorce clients should consider advising clients to seek a bankruptcy discharge prior to pursuing a marital dissolution, since a discharge may insulate the debt- or from liability for a variety of potential claims by the debtor's spouse that would clearly be nondischargeable if the decree is entered prior to discharge.