In re Okrepka
In re Okrepka
Opinion of the Court
MEMORANDUM OPINION AND ORDER GRANTING CREDITOR’S OBJECTION TO PLAN CONFIRMATION, DENYING DEBTOR’S CLAIM OBJECTION, AND GRANTING CREDITOR’S MOTION TO LIFT THE AUTOMATIC STAY
Comes on for hearing' Creditor Ivan Kepych’s objection to confirmation of Debtor Oleksandra Okrepka’s chapter 13 plan, Debtor’s claim objection, and Creditor’s motion to lift the automatic stay.
The Court finds that Oleksandra’s divorce obligation to make an equalization payment to Ivan is a property settlement obligation under 11 U.S.C. § 523(a)(15) and is not a domestic support obligation (DSO) because it did not have the purpose and effect of providing support for Ivan.
This Court has jurisdiction under 28 U.S.C. §§ 157 and 1334 to decide the matter in controversy.
FACTS
Oleksandra and Ivan married on October 16, 1999, and divorced on October 3, 2007. On July 12, 2004, they purchased a home at 8400 W. 149th Terrace, Overland
Ivan filed for divorce on July 7, 2007. Oleksandra did not appear at the divorce proceedings and was found in default. On October 3, 2007, the Johnson County District Court for Kansas (the “Divorce Court”) entered its decree of divorce (the “Divorce Decree”).
Additionally, the Divorce Decree included the following clause:
That all property and monies received or retained by the parties pursuant hereto shall be the separate property of the respective parties, free and clear of any right, title or interest in the other party, and each party shall have the right to deal with and dispose of his or her separate property as fully and effectively as if the parties had never been married. ...
[T]his Decree itself shall constitute an actual grant, assignment and conveyance of property and rights and in such manner, and with such force and effect, as shall be necessary to effectuate the terms hereof.7
Subsequent to the parties’ divorce, the Marital Residence became the subject of
On June 19, 2013, Oleksandra filed a chapter 13 voluntary petition for relief and proposed chapter 13 plan.
On August 12, 2013, Ivan filed Claim 8-1 in the amount of $73,251, claiming that he is the joint owner and holds a judgment lien on the Marital Residence.
On September 16, 2013, Ivan filed a motion requesting relief from the automatic stay under § 362(d) to continue pursing satisfaction of the Equalization Payment in state court.
On March 6, 2014, Oleksandra, Ivan, and the Chapter 13 Trustee, William H. Griffin, appeared before the Court. The parties presented arguments concerning the stay relief motion, Oleksandra’s claim objection, and plan confirmation.
Under § 1328(a), a debtor is entitled to a discharge after full compliance with his or her chapter 13 plan. However, § 1328(a) specifies that certain debts cannot be discharged. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendment to § 523(a)(15) provides that a property settlement under § 523(a)(15) is nondis-ehargeable.
ANALYSIS
Debtor asserts the wrong test to determine whether the Equalization Payment to Creditor is a debt under § 523(a)(15).
Oleksandra seeks a discharge of the Equalization Payment as a property settlement under § 523(a)(15). She argues that § 523(a)(15):
... excepts from discharge debts incurred through a divorce proceeding other than those covered by 11 U.S.C. § 523(a)(5), unless the debtor can show an inability to pay the debt or that discharging the debt will provide benefits to the debtor that outweighs [sic] any detrimental effects on the former spouse and/or children of the debtor.20
However, this characterization regarding the burden of proof analysis under § 523(a)(15) is outdated. Originally enacted in 1994, § 523(a)(15) excepted from discharge debts arising from divorce or separation unless either: (a) the debtor lacked the ability to pay the debt; or (b) discharging the debt would confer a benefit to the debtor that outweighed the detrimental consequences to the spouse, former spouse, or children of the debtor.
The Equalization Payment to Ivan is not a DSO under § 523(a)(5) but is a division of property under § 523(a)(15)
The Court is not bound by the labels applied by the Divorce Court when reviewing the characterization of the Equalization Payment.
The language establishing the Equalization Payment is contained in paragraph 17 of the Divorce Decree and indicates that “[t]he assets and debts of the parties should be divided as follows....”
The substance of Oleksandra’s obligation under the second prong of the Sampson analysis shows the Equalization Payment is a property settlement obligation. Determining whether Oleksandra’s obligation is in the nature of support turns on “the function served by the obligation at the time of the divorce.”
Ivan holds an in rem judgment lien interest in the Marital Residence under the Divorce Decree
A judicial lien is a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
In Kansas, courts have recognized the ability of the Divorce Court to impose a lien on a homestead and allow the sale of the homestead to enforce the lien,
There is not a reasonable likelihood that Oleksandra could propose a con-firmable plan.. Oleksandra’ petition indicates an average monthly income of $1,004.56 with $895 in average monthly expenses for a net monthly income of $109.56. Her plan proposes making $100 monthly payments for 48 months. Furthermore, her proposed plan does not provide for treatment of Ivan’s secured judgment lien. Thus, Ivan’s motion for relief from the automatic stay is granted for cause under § 362(d)(1) because there is not a reasonable likelihood Oleksandra could propose a confirmable plan based on her income and projected plan payments.
CONCLUSION
Oleksandra’s obligation to satisfy the Equalization Payment is a dischargeable property settlement obligation under § 523(a)(15).
IT IS ORDERED that Creditor Ivan Kepych’s objection to confirmation of Debtor Oleksandra Okrepka’s chapter 13 plan is GRANTED.
IT IS FURTHER ORDERED that Debtor’s objection to Creditor’s Claim 8-1 is DENIED as to the secured status of Creditor’s claim.
IT IS FURTHER ORDERED that Creditor’s motion for relief from the automatic stay to proceed in rem is GRANTED.
IT IS SO ORDERED.
. Doc. 16, 24, and 28. Debtor,. Oleksandra M. Okrepka, appears by her attorney, James W. Lusk, Lenexa, KS; Creditor, Ivan Kepych, appears by his attorney, Christopher Fletcher, Olathe, KS.
. Doc. 47, Transcript of Proceedings held March 6, 2014.
. All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 11 U.S.C. §§ 101-
.The United States District Court for the District of Kansas refers all cases and proceedings in, under, or related to Title 11 to the District’s bankruptcy judges pursuant to the Amended Standing Order of Reference, effective June 24, 2013, referenced in D. Kan. Rule 83.8.5.
.Doc. 40-1. Ivan and Oleksandra did not agree to a joint marital settlement agreement for the division and ownership of marital property. Instead, the Divorce Court adopted the Divorce Decree prepared by Ivan's attorney because Oleksandra failed to appear at the Divorce Court hearings and was found in default.
. This property is separate real property and not part of the Marital Residence.
. Doc. 40-1 ¶ 15-16, at 3-4.
. Doc. 1 and Doc. 2.
. Doc. 16.
. Doc. 21.
. There was not a mortgage on the Marital Residence at the time of the divorce.
. Doc. 24. Oleksandra did not object to the amount of Ivan's claim.
. Doc. 26.
. Doc. 28.
. Doc. 28, 24, and 16.
. 4 Collier on Bankruptcy ¶ 523.23, at 523-126 (Alan N. Resnick & Henry J. Sommer, eds., 16th ed. 2014). This holds true in individual cases under chapters 7 and 11 and cases under chapter 12 where § 523(a) controls dischargeability. Section 1328(a) controls dischargeability in chapter 13 cases and the § 523(a)(15) exception was not incorporated into § 1328(a).
. A domestic support obligation (DSO) is an obligation in the nature of alimony, maintenance, or support that arises before, on, or after the filing of the bankruptcy petition under a divorce decree, separation agreement, or other order under state or administrative law. Section 101(14A) fully defines DSOs. The dischargeability of DSOs is addressed under § 523(a)(5).
. Collier, supra note 16.
. See In re Trump, 309 B.R. 585, 591 (Bankr. D.Kan. 2004) (citing and quoting In re Sampson, 997 F.2d 717, 721 (10th Cir. 1993)). See also Henry J. Sommer & Margaret Dee McGarity, Collier Family Law and the Bankruptcy Code ¶ 6.03[1], at 6-13-6-17 (2014). Collier, supra note 16, ¶ 523.05, at 523-1.
. Doc. 40 at 7, citing In re McFadden, Adv. No. 05-7143 (Bankr.D.Kan. Oct. 20, 2006).
. Former 11 U.S.C. § 523(a)(15)(A), (B), repealed by Pub L. No. 109-8, § 215(3).
. Pub.L. No. 109-8, § 215(3) (2005). The change became effective in bankruptcy cases commenced on or after October 17, 2005. Debtor cited In re McFadden, Adv. No. 05-7143 (Bankr.D.Kan. Oct. 20, 2006) (petition filed October 12, 2005), and In re Hall, 285 B.R. 485 (Bankr.D.Kan. 2002) (petition filed July 11, 2001), for her burden of proof analysis. Both decisions applied the pre-BAPCPA analysis in accord with the October 17, 2006, cutoff.
. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Sommer & McGarity, supra note 19, ¶ 6.07A[3][c], at 6-107.
. Sommer & McGarity, supra note 19, ¶ 6.07A[3][c], at 6-107.
. Sommer & McGarity, supra note 19, ¶ 6.07A[2][a], at 6-103.
. In re Rivet, No. 13-11726, 2014 WL 1876285, at *3 (Bankr.D.Kan. May 8, 2014) (This Court is not bound by labels applied to matrimonial obligations in a state court decree.).
. In re Sampson, 997 F.2d at 722. The Sampson court rejected the suggestion in Yeates, 807 F.2d 874 (10th Cir. 1986), that an unambiguous agreement normally controls the court’s determination.
. In re Sampson, 997 F.2d at 721 ("Whether a debt is nondischargeable under § 523(a)(5) is a question of federal law.”); In re Rivet, 2014 WL 1876285, at *3; In re Trump, 309 B.R. at 592; In re Busch, 369 B.R. 614, 622 (10th Cir. BAP 2007) (citing In re Sampson, 997 F.2d at 725-26).
. In re Sampson, 997 F.2d at 723 (quoting 2 Homer H. Clark, .Jr., The Law of Domestic Relations in the United States § 17.7, at 305 (2d ed. 1987)) (emphasis provided by the Sampson court).
. In re Sampson, 997 F.2d at 726; In re Yeates, 807 F.2d at 879; In re Williams, 703 F.2d 1055, 1057 (8th Cir. 1983); see also In re Taylor, 737 F.3d 670, 676 (10th Cir. 2013) ("When determining whether an obligation is in the nature of alimony, maintenance, or support, this court conducts a 'dual inquiry’ looking first to the intent of the parties at the time they entered into their agreement, and then to the substance of the obligation.”).
. Sommer & McGarity, supra note 19, ¶ 6.04[2], at 6-28 to 6-29.
. In re Good, 187 B.R. 337, 338-40 (Bankr. D.Kan. 1995).
. Sommer & McGarity, supra note 19.
. Doc. 40-1 ¶ 17, at 4.
. In re Sampson, 997 F.2d at 723 (quoting In re Yeates, 807 F.2d at 878).
. Collier, supra note 16, ¶ 523.11[6][a], at 523-85.
. In re Sampson, 997 F.2d at 725-26 (quoting In re Gianakas, 917 F.2d 759, 763 (3d Cir. 1990)).
. In re Sampson, 997 F.2d at 726.
. Doc. 41-5 ¶ 2, at 1.
. 11 U.S.C. § 101(36).
. In re Maus, 837 F.2d 935 (10th Cir. 1988).
. Farrey v. Sanderfoot, 500 U.S. 291, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991).
. Emphasis added.
. In re Hilt, 175 B.R. 747, 750 (Bankr. D.Kan. 1994).
. Blankenship v. Blankenship, 19 Kan. 159 (1877). See also Bohl v. Bohl, 234 Kan. 227, 670 P.2d 1344 (1983) (holding that a homestead may be sold to satisfy a judicial lien arising from a debt for alimony or property division).
. In re Hilt, 175 B.R. at 754.
. In re Hilt, 175 B.R. at 754 (quoting Brandon v. Brandon, 14 Kan. 342, 345 (1875)).
. In re Hilt, 175 B.R. at 754.
. See Doc. 40-1, supra note 7.
. “Congress did not aim § 522(f)(1) at judicial liens created to equalize divorce property divisions.” In re Hilt, 175 B.R. at 754. Regardless, Oleksandra has not attempted to avoid Ivan’s lien under § 522(f)(1), an action that may very well be an exercise in futility.
. Assuming that Oleksandra receives a discharge under § 1328(a).
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