Opinion
Case No. 00-34732-T Chapter 7
May 10, 2001
James DeWees, Esquire, DeWees Law Firm, Richmond, Virginia, Counsel for Plaintiff.
John K. Dixon, III, Esquire, Richmond, Virginia, Counsel for Defendant.
MEMORANDUM OPINION
Trial was held April 26, 2001, on plaintiff's complaint for determination of dischargeability of debt. At conclusion of the trial, the matter was taken under advisement. For the reasons stated herein, the People's Bank Visa debt will be excepted from discharge pursuant to 11 U.S.C. § 523(a)(15), and the Reynolds Credit Union debt will be discharged.
Findings of Fact.
On February 9, 2000, plaintiff and defendant entered into a property settlement agreement that was incorporated by reference into their final divorce decree dated March 16, 2000. The agreement contains the following language:
Neither party shall be liable for any debts, contracts, obligations or liabilities of the other arising hereafter; and each party agrees to defend, indemnify and save the other harmless from any suit or claim asserted against him or her on account of any such debt or obligation.
Wife agrees to pay off the Visa Charge Account with People's Bank Account #5412146004039774.
The parties agree that neither party hereto shall pledge the credit of the other or purchase any item of any nature on the credit of the other.
Property Settlement Agreement ¶ V, Debts.
Defendant filed chapter 7 on August 28, 2000. Schedule H lists plaintiff as a co-debtor on two debts: People's Visa and Reynolds Credit Union.
On November 27, 2000, plaintiff filed this adversary proceeding to determine dischargeability of debt.
Counsel for plaintiff failed to plead a statutory exception to discharge. At trial, counsel stated that plaintiff was seeking to have the debt excepted pursuant to § 523(a)(15).
Furthermore, counsel for plaintiff neglected to plead that the People's Visa debt should be excepted from discharge. Instead, counsel plead only that the court should except the Reynolds Credit Union debt.
At trial, counsel for plaintiff presented evidence of the People's Visa debt, and counsel for defendant did not object. Accordingly, counsel for defendant waived any objection to that evidence, and the court considers the issue raised.
An amended pretrial order was entered on March 7, 2001, which changed the trial date to April 26, 2001, and set forth the schedule for filing exhibits and witness lists prior to trial.
Counsel for plaintiff failed to comply with the pretrial order. He should have filed a list of proposed exhibits, the exhibits and a list of witnesses with the clerk fifteen days prior to trial. Instead, he presented three exhibits in open court and produced one witness.
A. People's Bank Visa
Plaintiff testified that defendant obtained the People's Visa by forging his name to the application. He stated that since he never signed for the Visa and never used the Visa it was specifically included in the property settlement agreement. Defendant confirmed that she obtained the Visa without plaintiff's prior knowledge or approval.
In July 2000, plaintiff received a past due letter from People's. This letter shows a current balance of $1,976.11, and a payment of $35.00 past due. In September 2000, plaintiff received another letter from People's that shows a current balance of $2,038.42, and a payment of $75.00 past due.
Plaintiff does not know the current balance of the People's Visa debt, but whatever that amount is, he is seeking to except it from defendant's discharge pursuant to § 523(a)(15).
B. Reynolds Credit Union
Defendant testified that she took out a loan from Reynolds Credit Union in 1998 for approximately $13,000.00, and in July 1999 she refinanced that loan and took out an additional $3,400.00. She further testified that she asked plaintiff to cosign for the additional loan only and did not realize that Reynolds would combine the refinanced loan with the new loan.
Plaintiff and defendant were separated at the time plaintiff cosigned for the Reynolds loan. Plaintiff agreed to cosign for the loan, but he did not think he would have to repay it because the payments were automatically withdrawn from defendant's paycheck.
The Reynolds debt existed at the time the parties entered into the property settlement agreement, but it was not mentioned in the agreement.
In January 2001, plaintiff received a letter from Reynolds stating that the loan was in default for October, November and December 2000 payments and late fees in the amount of $1,085.43, and that he would have to pay the full amount of the debt if defendant did not pay.
Plaintiff does not know the current balance of the Reynolds Credit Union debt, but whatever that amount is, he is seeking to except it from defendant's discharge pursuant to § 523(a)(15).
Conclusions of Law.
Section 523(a)(15) raises a rebuttable presumption that property settlement obligations are non-dischargeable. Initially, the burden of proof is on plaintiff to establish that the debt is not in the nature of alimony or support and that the debt arose from a property settlement agreement.
See Metzger v. Metzger (In re Metzger), 232 B.R. 658, 663 (Bankr.E.D.Va. 1999); see also Lumley v. Lumley (In re Lumley), 258 B.R. 433 (Bankr.W.D.Mo. 2001). Then the burden shifts to defendant to prove either: (a) her inability to pay the debt; or (b) the benefit of the discharge to defendant outweighs the detriment to plaintiff. See In re Metzger, 232 B.R. at 663; 11 U.S.C. § 523(a)(15)(A), (B).
Plaintiff seeks to except two separate debts from defendant's discharge pursuant to 11 U.S.C. § 523(a)(15). These debts will be analyzed separately.
A. Reynolds Credit Union
At trial, plaintiff introduced the property settlement agreement. It contains the following language: "Neither party shall be liable for any debts, contracts, obligations or liabilities of the other arising hereafter." (emphasis added) The agreement was signed on February 9, 2000. The Reynolds debt, however, was cosigned by plaintiff in 1999, so it does not fall under the catchall language of the agreement because it did not arise "hereafter."
Plaintiff testified that the Reynolds debt was not mentioned in the agreement because he did not think he would have to pay it back since payments were automatically withdrawn from defendant's paycheck.
Therefore, since the Reynolds debt was not provided for in the agreement, it is not a debt incurred by defendant as part of her divorce or property settlement agreement, and thus it is not a debt subject to exception from discharge under § 523(a)(15). It is simply a joint debt of the parties not addressed in the property agreement, and plaintiff must remain liable for it.
B. People's Visa
Plaintiff also seeks to except the People's Visa debt. The property settlement agreement states that "[w]ife agrees to pay off the Visa Charge Account with People's Bank Account #5412146004039774." That is sufficient to meet his burden of proof, and so it shifts to defendant to prove her inability to pay or that the benefit of discharge outweighs the detriment to plaintiff.
1. Ability to Pay
Section 523(a)(15)(A) states that the debt is non-dischargeable unless "the debtor does not have the ability to pay such debt from income or property of the debtor nor reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor." The burden is on defendant to prove that she does not have the ability to pay the debt.
Many courts, including this one, have relied on § 1325(b)(2)'s disposable income test in determining whether debtor has an ability to pay. See In re Metzger, 232 B.R. at 663-64 (stating that courts rely on the disposable income test in § 1325(b)(2) due to its similarity to § 523(a)(15)(A)).
a. Reasonably Necessary Expenses
Defendant is employed at Reynolds Metal and has been for four years. Schedule I lists her current net income as $1,880.00 per month, and Schedule J lists her monthly expenses as $2,268.00. At trial defendant testified that she pays $655.00 per month for a three bedroom apartment, $300.00 per month for utilities and $250.00 to $300.00 per month for car insurance and gas. She further testified that she owns her car and has $7,000.00 in a 401(k) savings plan at work. She received $10,000.00 in the divorce settlement, which she used to pay off some bills.
The court notes that Schedule J lists $60.00 per month for car insurance and $150.00 for transportation expenses.
Defendant stated that she has a $2,000.00 loan against her 401(k) savings.
After evaluating defendant's expenses, the court concludes that some of them are unreasonably inflated: $90.00 per month for telephone, $100.00 per month for a cell phone, $83.00 for cable television, $450.00 per month for food and $200.00 per month for clothing and laundry. Accordingly, defendant should have more disposable income per month, which indicates an ability to pay the People's Visa debt.
2. Balance of Hardships
Section 523(a)(15) is a disjunctive test. Even if defendant is able to pay, the debt still could be discharged if she can prove that the benefit to her outweighs the harm it might cause to plaintiff. See 11 U.S.C. § 523(a)(15)(B). This court has previously adopted a totality of the circumstances approach to making such a determination. See In re Metzger, 232 B.R. at 665.
The court, therefore, must examine several factors: "the income and expense of both parties, whether the non-debtor spouse is jointly liable on the debts, the number of dependents, the nature of the debts, the reaffirmation of any debts, and the non-debtor spouse's ability to pay." Id.
Plaintiff testified that he is a machine operator and earns approximately $42,000.00 per year. He has custody of the parties' two sons, and they both live at home with him. He receives $57.00 per week from defendant for child support. He testified that he has an $833.00 per month mortgage payment, pays approximately $290.00 per month in utilities, and he is putting his oldest son through school. Furthermore, since this court has ruled that the Reynolds Credit Union debt will not be excepted from defendant's discharge, he may have to repay defendant's loan, which may be approximately $15,000.00 or more.
Plaintiff receives support payments for the minor son only.
Next, the court must consider whether plaintiff is jointly liable on the debt and the nature of the debt. Plaintiff testified that he never used the credit card. Defendant admitted that she obtained the credit card by forging plaintiff's name on the application. Moreover, the People's Visa was specifically included in the property settlement agreement whereby defendant was to be solely responsible for the debt.
Based on the foregoing, the court finds that defendant has an ability to pay the People's Visa debt, and additionally she failed to meet her burden of proof that the benefit of the discharge outweighs the detriment to plaintiff. Accordingly, the court will except the People's Visa debt from defendant's discharge pursuant to 11 U.S.C. § 523(a)(15).
A separate order consistent with this memorandum opinion will be entered.