Opinion
CASE NO: 00-01456-B, ADVERSARY NO: 00-80112-B
January 3, 2001
ORDER
This matter came before this Honorable Court for hearing on October 31, 2000, on the Adversarial Complaint filed by the Plaintiff seeking the non-dischargeability of certain marital debts and the answer filed thereto by the Defendant/Debtor. The Plaintiff was represented by Sidney Wike, Jr., Esquire and the Defendant was represented by Robert H. Cooper, Esquire.
BACKGROUND
The plaintiff and defendant were married on July 7, 1984. Three children were born of the marriage, and their ages at present are eleven, thirteen and thirteen. The Family Court of Anderson County, South Carolina did in its Final Order dated July 7, 1999, grant the couple a divorce based upon the grounds of one year separation. That court granted the debtor custody of the minor children with the father having visitation rights, and the father was ordered to pay the sum of $146.76 per week directly to the debtor as child support. He was also ordered to maintain health insurance on the children. Also, the husband was ordered to pay the debtor's attorney's fees related to the divorce. The court notes in its order that both parties are healthy and educated people, able to support themselves. Further, the court directed that each party will be responsible for his or her own debt.
In paragraph 11 of the Final Order the Court grants the debtor possession and ownership of the marital home. In paragraph 21 the Court orders that the debtor must, within six months, refinance or sell the marital home, and pay to her husband the sum of $17,500. Of this sum, $12,500 represents his equity in the marital home and $5,000 represents his equity in other marital property. Both Plaintiff and Defendant agree that this represents a property settlement under 523(a)(5).
The Family Court entered an Amended Order on September 21, 1999, leaving the requirement that the debtor pay the husband the $17,500 in spite of her having advised the Family Court that she had been unable to sell or refinance the marital home.
The debtor filed a Petition for Relief under Chapter 7 of the Bankruptcy Code on February 17, 2000. Since the filing of the bankruptcy, the debtor and her three children have vacated the former marital residence and are living in an apartment. The former husband has since that time moved into the house and continues to live there, and he pays both mortgages secured by the house.
The plaintiff's position in this adversarial matter is that in spite of the debtor's allegations that she was unable to sell or refinance the former marital residence, she still owes him the $17,500, that it is non-dischargeable in her bankruptcy, and that she is voluntarily under-employed.
The defendant's position is that she made reasonable efforts to sell or refinance the residence but to no avail. Further, her position is that her former husband now has possession of the marital residence and that since he purchased the estate's interest in the home from her Chapter 7 trustee for $5,000, she does not owe the plaintiff $17,500. Further, her position is that the plaintiff has 100% ownership in the residence, since she surrendered all interest in the house in her Chapter 7 bankruptcy, and that he enjoys the benefit of all equity, not just half. She has offered to execute any documents if any necessary to transfer all interest whatsoever to the plaintiff. Moreover, the defendant's position is that the Family Court Order mandating that she sell or refinance the home and pay the plaintiff $17,500 is a property settlement and not in the nature of alimony, maintenance or support and the Plaintiff concedes that. Finally, her position is that she does not have the ability to pay the debt from her income or her property that is not reasonably necessary for her support and that of her children. Moreover, discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to her former spouse.
LEGAL ISSUES
Since the parties have stipulated that the debt in question is not in the nature of alimony, maintenance and support under § 523(a)(5) and is instead a debt commonly labeled as a "property settlement," the legal issue to be addressed by this court involves § 523(a)(15) which states as follows:
Exceptions to discharge:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt —
(15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, a determination made in accordance with State or territorial law by a governmental unit unless —
(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or
(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor;
The defendant's attorney argued at trial that should the defendant succeed in proving she does not have the ability to pay the debt in question under § 523(a)(15)(A), the inquiry ends and this Court need not then address § 523(a)(15)(B), because the standard is either § 523(a)(15)(A) or § 523(a)(15)(B). The Court held that ruling in abeyance and required evidence regarding both subsections.
The majority of courts place the burden of proof under § 523(a)(15)(A) and (B) on the debtor. This Court agrees with that conclusion as it has previously done in its previous opinion in the case of In re Campbell, Adversarial Proceeding number 95-8301, (Bankruptcy Court D.S.C. Order entered April 30, 1996) and in its other rulings in In re Strong, Adversarial Proceeding number 95-8100, (Bankruptcy Court D.S.C. 11/13/95) and In re Scott, Adversarial Proceeding number 95-8065 (Bankruptcy Court D.S.C. 10/24/95). As in other subsections of § 523(a) such burden of proof must be met by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
The proper time for determining the issues under § 523(a)(15)(A) and (B) is at the time of trial. See In re Campbell. (Because circumstances can change drastically following a divorce and the filing of a bankruptcy, this determination is critical. This Court adopts the conclusion that the time for such determination should be at the time of trial, because this gives the Court the opportunity to examine the parties present financial conditions, especially the benefit that a debtor may have received from a discharge of other debts in Chapter 7.) The Court in the present case agrees that by the same logic the Court can at the time of trial determine whether perhaps the non-debtor spouse has improved his financial status since the divorce. Certainly, by using the time of trial as the proper time for determining this issue allows the Court to review both parties' financial situation prior to making its decision.
Having determined that the debtor has the burden of proof under § 523(a)(15)(A) and (B) that such burden must be met by a preponderance of the evidence, and that the issues must be determined based on financial positions of the parties at the time of trial, the Court must now focus on whether the debtor has the ability to pay the debts. The initial issue is which "ability to pay" test should be used. This Court in the In re Scott and In re Campbell opinions, among others, have used the Chapter 13 confirmation "disposable income" test of § 1325(b)(2).
To succeed under § 523(a)(15)(A), the debtor must show an inability to pay the debt at issue. See 11 U.S.C. § 523 (a)(15)(A). "In other words, the debt will remain dischargeable if paying the debt would reduce the debtor's income below that necessary for the support of the debtor and the debtor's dependents. The Committee believes that payment of support needs must take precedence over property settlement debts." 140 Cong.Rec.H. 10752-1 (daily ed. Oct. 4, 1994). The use of the phrase "ability to pay" in § 523(a)(15)(A) directs the Court to § 1325(b)(2)'s "disposable income" test. The language of § 523(a)(15)(A) essentially mirrors the language of § 1325(b)(2). Thus, the Court finds a similar analysis is appropriate.
In re Hill, 184 B.R. 750, 754, 755 (Bkrtcy, N.D. Ill. 1995). This Court holds that the disposable income test of § 1325(b) is the proper test. The Fourth Circuit has recently defined the "disposable income test" of § 1325(b).
The statute defines "disposable income" as "income which is received by the debtor and which is not reasonably necessary to be expended . . . for the maintenance or support of the debtor or a dependent of the debtor." 11 U.S.C. § 1325 (b)(2) . . . "Rather than engaging in hopeless speculation about the future," a court should determine projected disposable income by calculating a debtor's "present monthly income and expenditures" and extending those amounts over the life of the plan. In re Crompton, 73 B.R. 800, 808 (Bankr.E.D. Pa. 1987).
In re Solomon, 67 F.3d 1128 (4th Cir. 1995).
ARGUMENT
The plaintiff and defendant stipulated that the debt was incurred by the debtor in the course of a divorce or separation agreement. The burden of proof as to the affirmative defenses under § 523(a)(15)(A) and (B) then shifted to the debtor/defendant. Although the plaintiff alleged that the defendant was under employed, because she worked "weekends only," the defendant proved through both testimony and documentary evidence that her gross income was at least equal to or greater than that which she would receive if she worked forty hours during the week. This was due to the "weekend premium" employees who are willing to work weekends receive. The debtor testified that she works noon Saturday to midnight Saturday and from noon Sunday to midnight Sunday at $16.89 per hour, which equals a gross weekly income of $405.36. She further testified that the normal hourly wage for those working during the regular work week equals approximately $10.00 per hour, which equals $400.00 per week gross income for a forty hour week. Therefore, testified the debtor, she can, although sacrificing her weekends, receive as much income by working the weekend shift as by working during the week. Moreover, by working weekends, she can spend more time with her three minor children and save on child care costs all of which she feels are sound reasonable personal decisions. The plaintiff argued that the defendant/debtor should work both the twenty four hour weekend shift and additional hours during the week. The defendant/debtor argued that this is not required under the spirit of § 523(a)(15)(A). In fact to force the debtor to do so would be tantamount to forcing a debtor to work overtime. The defendant's attorney argued that this was not the intent of Congress when it enacted § 523(a)(15). This Court agrees.
Further evidence revealed that the debtor's gross annual income at the time of trial was estimated to be approximately $23,171.73 plus her annual child support was estimated to be approximately $7696.00. Therefore, her total annual income at the time of trial was estimated to be approximately $30,867.73, and it is this income with which she is expected to provide for herself and her three minor children. She testified that her expenses exceed her income and that she has no disposable income each month. She introduced her bank statements for the past year and a half plus her bankruptcy schedules to prove this. On cross-examination of the plaintiff by the debtor's attorney it was revealed that the plaintiff's new spouse receives approximately $16,800 annual gross income and that the plaintiff himself receives a gross annual income of approximately $46,616. Therefore, evidence reveals that the estimated total gross income of the plaintiff and his new spouse at the time of trial approximates $63,416, and that neither of these have dependents living within their household. Nonetheless, the plaintiff testified that his expenses and those of his new spouse exceed their net income.
DECISION OF THE COURT
It is the opinion of this Court that the defendant/debtor has by a preponderance of the evidence proven that she does not have the ability to pay the debt in question from income or property not reasonably necessary to be expended for the maintenance or support of herself or her dependents. Additionally, it is the opinion of this Court that the defendant/debtor is not under employed and is not required under the spirit of § 523(a)(15)(A) to work additional hours, because that would be tantamount to requiring her to work overtime, and this Court does not agree that this was the intent of Congress when it enacted that Code provision. Further, this Court agrees with counsel for the defendant debtor that since the debtor has succeeded under § 523(a)(15)(A), this Court need not look to § 523(a)(15)(B), because Congress intended that either the requirements of subsection (A) or subsection (B) must be met, but not both. Finally, it is the opinion of this Court that the debt in question is not excepted from discharge and is in fact dischargeable in full in the defendant/debtor's Chapter 7 bankruptcy.
AND IT IS SO ORDERED, ADJUDGED, AND DECREED.