Opinion
Case No. 97-2457-CH. Chapter 7.
September, 1999.
ORDER-COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT
This matter came on for trial on September 28, 1998, the parties appearing in person and with their attorneys of record, Gary R. Hassel for the plaintiff and Jerrold Wanek for the defendant. The proceeding was submitted upon written briefs and arguments. The briefs having been submitted the court deems the matter submitted for findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052.
JURISDICTION
The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and order of the United States District Court for the Southern District of Iowa. This is a core proceeding pursuant to 28 U.S.C. § 152(b)(2)(I).
PLEADINGS
The complaint, as amended, alleges that the debt owed by the defendant to the plaintiff is nondischargeable pursuant to the provisions of 11 U.S.C. § 523(a)(2)(A), false pretenses, false representation, or actual fraud, and § 523(a)(15), property settlement agreements arising out of a divorce.
Defendant has generally denied the allegations of the complaint.
FINDINGS
1. Defendant-Debtor (herein Bill) filed a chapter 7 petition on May 27, 1997. He scheduled Plaintiff-Creditor (herein Barbara) as an unsecured creditor with a claim of unknown value. This claim was scheduled as disputed, contingent, and unliquidated.
2. The parties were formerly wife and husband having been married on December 5, 1969.
3. The marriage of the parties was dissolved by decree filed on April 10, 1992, in the Iowa District Court, Dallas County, D.M. No. 3451 (Exh. A).
4. On March 30, 1991, the parties represented that they had a net worth of $241,925.00. (Exh 2)
5. This decree was a consensual decree as the parties had agreed upon the terms of the decree. The decree provided for a division of the property and debt of the parties. The decree provided that neither party was to pay alimony to the other.
6. The decree provided that Bill was to receive as his sole and separate property the following: all shares of stock in Bill's businesses as well as all accounts thereof; a 1989 Oldsmobile Cutlass; and, his personal property in his possession. This business was a profitable business at the time of the agreement between Bill and Barbara and resulting decree, but failed some time after the decree.
7. The decree provided that Barbara was to receive as her sole and separate property the following: her savings accounts, retirement annuity, stock fund and company accounts; a 1988 Oldsmobile Delta 88 automobile; her personal property in her possession; and, the marital residence.
8. The marital debt was also divided between the parties. Bill was to assume all debt on his businesses; his personal credit card debt; and, all debt not expressly ordered paid by Barbara.
9. Barbara received the marital residence subject to the indebtedness thereon which she was to pay and hold Bill harmless from any liability therefor. She was also to pay the debt on two credit cards held by her.
10. One of the terms of the decree provided as follows:
"That Respondent (Billie F. Guske) shall pay to Petitioner (Barbara M. Guske), as and for property settlement, the sum of $30,000.00, without interest, within 5 years from the date of this decree; provided further, that any amount not paid within said 5 year period shall then draw interest at the rate of ten per cent (10%) per annum until paid.
11. Bill has paid approximately $1,400.00 of this debt and filed his bankruptcy petition to discharge the balance of that debt.
12. Bill had no intention of paying that debt when he signed the decree on or about April 10, 1992. This intention was never conveyed to Barbara and she signed off on the decree believing that she would be paid the entire $30,000.00.
13. Bill gave his address as 2830 Gilmore Avenue, Des Moines, IA 50312 at the time he filed his petition. This home is owned by Sharon Engeldingher, and Bill lives in that home with Ms. Engeldingher.
14. He scheduled his occupation as insurance agent for Brenton Investment and Insurance. His scheduled gross income was $2,249.60 per month with a net income of $1,665.20 per month. Bill deducted a payment of $36.00 per month for a 401K. He also receives $800.00 per month for disability and renewal income for a total net monthly income of $2,465.20.
15. His Schedule J shows a total expenditure of $2,574.65 per month. This includes the following monthly expenditures: rent-$600.00; home maintenance-$25.00; food-$300.00; recreation-$100.00; and, misc. expenses and lunches-$150.00.
16. Schedule J reveals an installment payment of $519.99 per month.
17. Bill acquired a 1996 Chevrolet Blazer on April 29, 1997 when he traded his 1993 GMC Jimmy for said vehicle (Exh 7).
18. The 1993 GMC was given a value of $18,745.00 at the time of the trade but $12,441.17 was owed on this vehicle for a net trade-in allowance of $6,303.83. He paid $30,020.00 for the 1996 Blazer and financed $25,401.67 at 11.24% interest. The monthly payments are $519.99 for 66 months beginning June 13, 1997.
19. Bill is 61 years of age (b/d 10/12/37). He claims a physical disability in that he has a heart condition which limits his ability to work as a result of fatigue. He anticipates that surgery will have to be performed which will hopefully improve his physical well being.
20. Bill enjoys hunting and fishing. He is a serious hunter and hunts deer, geese, ducks, and moose. Walking is an important element of these endeavors.
21. Bill states that he will not pay Barbara even if this court orders him to pay the debt.
22. Barbara is 54 years of age (b/d 4/8/44) and lives at 300 Gray, Waukee, IA 50263.
23. She lives there with her 32-year-old son who does not pay rent or utilities. He does things around the house such as yard work and inside maintenance.
24. Barbara's home is a four-bedroom home which she received as part of the property settlement from the dissolution of marriage in 1992.
DISCUSSION 11 U.S.C. § 523(a)(2)(A)
The first issue is the dischargeability of Bill's debt to Barbara under 11 U.S.C. § 523 (a)(2)(A). Barbara seeks to have the debt owed by Bill declared nondischargeable. Bill argues that the debt was not fraudulently incurred, and should therefore be dischargeable. The Code section at issue provides:
§ 523. Exceptions to discharge.
(a) A discharge under section 727 of this title does not discharge an individual debtor from any debt — (2) for money, property, services, or an extension, renewal, refinancing of credit, to the extent obtained by — (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insiders financial condition. . . .
11 U.S.C. § 532(a)(2)(A).
The standard of proof under § 523 is a preponderance of the evidence. See Grogan v. Garner, 489 U.S. 279, 286-87 (1991).
The creditor must prove the following elements to prevail under § 523(a)(2)(A):
(1) the debtor made false representations;
(2) at the time made, the debtor knew them to be false;
(3) the representations were made with the intention and purpose of deceiving the creditor;
(4) the creditor justifiably relied on the representations; and,
(5) the creditor sustained the alleged injury as a proximate result of the representations having been made.
In re Van Horne, 823 F.2d 1285, 1287 (8th Cir. 1987), as modified by Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 446, 133 L.Ed.2d 351 (1995) (holding that § 523(a)(2)(A) requires "justifiable, but not reasonable, reliance").
The first three elements may be considered together by asking whether Bill knowingly made false representations with the intention and purpose of deceiving Barbara.
In executing the stipulated dissolution of marriage decree Bill represented that in return for the marital assets which he received by benefit of the decree that he would pay Barbara $30,000.00 to equalize the property settlement.
The alleged fraud must have existed at the time the debt was incurred to provide a basis for excepting a debt from discharge, In re Scarlata, 127 B.R. 1004 (N.D.Ill. 1991), aff'd, 979 F.2d 521 (1992). "A mere promise to be executed in the future is not sufficient to make a debt dischargeable, even though there is no excuse for the subsequent breach. In re Homer, 45 B.R. 15 (Bankr.W.D.Mo. 1984) (citing 1A L. King, Collier on Bankruptcy ¶ 17.16, pp. 1638-39 (15th ed. 1976)). A breach of contract is not necessarily a misrepresentation for purposes of § 523(a)(2)(A). Leeb v. Guy (In re Guy), 101 B.R. 961, 978 (Bankr.N.D.Ind. 1988). Without proof of intent, mere breach by Bill of his commitment to pay the cash property settlement does not establish misrepresentation at the time that Bill entered into the stipulated decree.
The question for purposes of a fraud analysis is whether or not Bill intended to pay the $30,000.00 at the time he executed the stipulated dissolution of marriage decree. Direct proof of intent is nearly impossible to obtain, so a creditor may present evidence of the surrounding circumstances from which intent may be inferred. In re Van Horne, 823 F.2d 1285, 1287 (8th Cir. 1987).
In resolving what was said and intended when Bill and Barbara entered into the stipulated decree, the court must look at the facts and circumstances surrounding the signing of the consent decree. However, the court is aided by Bill's testimony that he had no intention of paying the cash award when he signed the decree.
The real issue is whether Barbara was aware of Bill's intentions at the time of the signing of the stipulated dissolution of marriage decree.
The court finds that Barbara was unaware of his intent at the time the decree was entered but became aware of this some time after the marriage was dissolved.
The deception perpetrated by Bill caused Barbara to lower her guard regarding the signing of the consent decree. She did not secure her position with liens on Bill's property or require different terms to better enforce collection of the property settlement.
The court concludes that Barbara has shown by a preponderance of the evidence as follows:
(1) Bill made false representations to Barbara. He falsely represented that he was going to pay the $30,000.00 property settlement.
(2) Bill knew these representations were false when he made them at the time he signed the consent decree.
(3) These representations were made with the intention and purpose of deceiving Barbara.
(4) Barbara justifiably relied upon these representations and was unaware of Bill's deceit when she signed the consent decree.
(5) Barbara sustained injuries as a proximate result of Bill's false and deceitful statements. She agreed to a property settlement which was not part of the bargain and which was inequitable as accepted by the court.
11 U.S.C. § 523(a)(15)
Since the court has ruled that the debt is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A) the court will not consider the issues raised under 11 U.S.C. § 523(a)(15).
ORDER
IT IS THEREFORE ORDERED that the debt of Billie F. Guske, a.k.a. Bill Franklin Guske, to Barbara M. Guske is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A).
FURTHER, Barbara M. Guske shall have judgment against Billie F. Guske, a.k.a. Bill Franklin Guske, in the amount of $28,600.00, plus interest at the rate of ten percent (10%) per annum from April 10, 1997, and the costs of this proceeding.