Opinion
NOT FOR PUBLICATION
Argued and Submitted at Las Vegas, Nevada: May 18, 2006
Appeal from the United States Bankruptcy Court for the District of Nevada. Honorable John L. Peterson, Bankruptcy Judge, Presiding. Bk. No. 03-17995. Adv. No. 03-01238. Ref. No. 05-11.
Before: Montali, Smith and Marlar, Bankruptcy Judges.
MEMORANDUM
In a prior appeal (BAP No. NV-04-1339-PMaR) we reversed the bankruptcy court, which had determined that the debtor's obligation under a marital settlement agreement to repay a credit card debt was nondischargeable spousal support under Section 523(a)(5). On remand the bankruptcy court determined that the debt was nondischargeable under Section 523(a)(15). Because the judgment requires a technical amendment we remand for that limited purpose. In all other respects we AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (" BAPCPA").
I. FACTS
Teresa Mullins (" Teresa") and Daryl Mullins (" Daryl") were married in 1989 and divorced in 1998. In connection with their divorce they allocated who would retain which assets and who would pay which debts in a Marital Settlement Agreement (" MSA") which was incorporated into the dissolution judgment. The MSA also included mutual promises (§ 10) not to incur further debt for which the other might be liable, and to defend, indemnify, and hold harmless the other if they did incur such debt.
A. Assets
Daryl retained the house that he and Teresa had shared in Lemon Grove, California and he took on responsibility for the mortgage on that house. At the time of the MSA, the house had either negative equity (according to Daryl) or minimal equity (according to Teresa). Transcript, April 28, 2004, pp. 22:23, 33:16-21, 75:16-17. Daryl alleged at the time of the nondischargeability trial that his current mortgage debt is still about equal to the value of the house. Teresa introduced no contrary evidence.
Teresa moved into her parents' house in Las Vegas. After her father died she obtained title to that house and took out a $40,000 second mortgage on it. Transcript, April 28, 2004, pp. 73:22-74:23.
The bankruptcy court later found, in its Memorandum of Decision and Order dated March 30, 2005 (the " Decision"), that there was " no credible evidence" as to the net value of any of the parties' assets. In particular, " the evidence is inconclusive on the equity value of either home[Ballot box]" as of the date of the nondischargeability trial.
B. Debts
Daryl assumed responsibility for a smaller share of the credit card debts than Teresa under § 7 of the MSA. Daryl assumed responsibility for a " Chevy Chase Bank VISA Card with a balance of $14,810.64" and a " Wells Fargo Master Card with a $1500 balance." Teresa assumed responsibility for obligations to " Bank of America in the amount of $4,600, " " Macy's Visa $5,200, " " MBNA in the amount of $13,000, " " Travelers Bank for couch $300, " and the debt that is central to this appeal, to " Providian Visa [later Chase or Chase Manhattan Platinum MasterCard] in the amount of $26,524" which Teresa was to pay down at the rate of $500 per month (the " Providian/Chase" debt).
Daryl testified that Teresa assumed responsibility for the Providian/Chase debt because she is the one who incurred all of the charges, during a time when they were separated. Transcript, April 28, 2004, pp. 10:11-11:1. Teresa testified that she assumed responsibility for this and other debts because, although her income was lower, the parties expected her living expenses to be lower as well since she was moving in with her parents. Id. pp. 41:24-42:2. Teresa also testified that Daryl would not agree to a divorce on any other terms. Id. p. 65:14-15.
C. Income
As Teresa testified, her income has been lower than Daryl's. The bankruptcy court accepted Teresa's evidence that she earned $30,299 in 2000, $33,137 in 2001, $35,925 in 2002, and $49,752 in 2003, although the rise in 2003 was because she took on a second job.
Teresa's opening brief on this appeal claims that the bankruptcy court erred when it found that " [a]t the time of the divorce [in 1998], Daryl's gross income was $66,524.00 while Teresa had gross income of $45,385.00." Teresa claims that this is one of " a number" of factual errors by the bankruptcy court and that " both parties acknowledge" that Daryl earned more than twice as much as Teresa earned at the time of the divorce.
Teresa did not dispute at trial that she was receiving monthly rent payments of $400 from her mother and $400 from her son and his family, all of whom resided in the Las Vegas home; but she asserted that these funds should not be taken into account and are more than offset by added expenses. The bankruptcy court doubted Teresa's credibility regarding expenses, as explained further below. It found that her net income at the time of trial was " about $3,200 per month from her employment and rent."
Daryl's tax returns show adjusted gross income of $67,748 in 1999, $76,015 in 2000, $81,317 in 2001, $86,886 in 2002, and $103,527 in 2003. Daryl, a police officer, testified that though he had earned substantial overtime pay in 2003 due to a heightened security alert level and inadequate staffing, as of the time of trial there was no opportunity for overtime. Teresa questioned whether Daryl really could not earn overtime pay any more and she relied on wage statements issued shortly before trial, but the bankruptcy court believed Daryl's testimony about exceptional circumstances in the past and lack of overtime opportunities at present. The Decision states that " by the time of trial that overtime pay had decreased to virtually zero." The bankruptcy court found that as of the time of trial Daryl was paid about " $6,092 gross per month, " which is $73,104 per year. Daryl introduced evidence that after payroll deductions, including approximately $1,400 per month paid into a deferred compensation/retirement plan, his average net monthly pay was $4,280.51.
D. Expenses
Daryl's expenses as of the time of trial amounted to about $4,300 per month. The parties have no minor dependents but both have expenses for assisting elderly mothers, according to Daryl's budget accepted in evidence in the nondischargeability trial and Teresa's testimony. Transcript, April 28, 2004, p. 29:21-24.
Teresa alleged that her current expenses are about equal to her income, but Daryl pointed to evidence suggesting that her expenses are overstated or not reasonably necessary. Among other things he pointed out that Teresa claimed rental income of $1,000 from her mother in her original bankruptcy schedules but later claimed that the current amount is $400 (Transcript, April 28, 2004, pp. 49:3-50:11); at trial she claimed expenses related to a timeshare of approximately $484 per year, but she did not list either the timeshare or the associated expenses in her original bankruptcy schedules; and at trial she claimed expenses that are much higher than those in either her original or her amended bankruptcy Schedule J, increasing her food expense from $250 per month to $600, her cable television bill from $40 per month to $150, and her power bill from $125 per month to $275. Daryl pointed out that Teresa previously was able to pay at least $500 per month on the Providian/Chase debt for several years. Id. pp. 44:25-45:1. Teresa also admitted that she gambled and that her losses exceeded her winnings by at least the amounts reflected on her tax returns: $19,600 in 2002 and $17,635 in 2003. Id. pp. 57:21, 59:6. She testified that she stopped gambling around the time that she filed her voluntary Chapter 7 petition (id. pp. 57:22-58:2) so this no longer consumes large amounts of her income. Daryl also challenged Teresa's credibility by pointing out that she did not include income from her second job in her bankruptcy Schedule I, although she had started that job about a month prior to filing her bankruptcy petition. Id. p. 37:21-22.
Teresa responded that she signed her bankruptcy papers before she had her second job (and, implicitly, she forgot to amend them before filing her voluntary Chapter 7 petition). She acknowledged that her living expenses have gone up but alleged that this was because " [t]here's more people living with me" now that her son and his family have moved in. Transcript, April 28, 2004, p. 294:9. As for rent received from her mother, she testified " I don't really know" where the $1,000 number came from but " [i]t was just an approximate amount" that she gave when preparing her bankruptcy papers and " there [are] times [when her mother] buys food or she helps with my dog." Id. pp. 49:24-50:6.
The bankruptcy court rejected Teresa's allegation that she had no net income:
[A]lthough she states her expenses are about equal to her income[*], she made the admission at trial that since the divorce she was able to pay $40,000 to $50,000 on the Providian account. (Tr. 64). It is disturbing, however, that during the period just prior to filing the Chapter 7 petition she sustained gambling losses in the year 2002 of $19,600 and $17,635 in the year 2003. She claims she has now stopped her gambling activity (Tr. 57, 59).
[*] Teresa amended her bankruptcy petition . . . on August 8, 2003, to report on Schedule J -- Current Expenditures -- monthly expenses of $2,963.00. She gave no explanation why her expenses increased. [Footnote in original.]
All matters considered, I find Teresa has the ability to pay the Providian debt over time, particularly in light of her substantial present income and release of her debts by the Chapter 7 discharge.
E. Debt incurred by Teresa after executing MSA
Teresa testified that at one point she had paid down the Providian/Chase debt to " fourteen thousand and something" (Transcript, April 28, 2004, pp. 44:25-45:1) but that she later incurred more debt on the Providian/Chase account. Section 10.c. of the MSA provides:
c. Wife warrants to Husband that she has not incurred, and she covenants that she shall not incur, any liability or obligation for which Husband is or may be liable, with the exceptions of any obligations identified in this agreement. Wife covenants, except, as may be expressly provided otherwise in this agreement, that if any claim, action or proceeding shall hereafter be brought seeking to hold husband liable for any of Wife's debts, liabilities, acts or omissions, she shall, at her sole expense, defend him against any such claim or demand (whether or not well founded) and that Wife shall indemnify him and hold Husband free and harmless from all costs, expenses and liabilities in connection therewith, including attorneys fees and costs incurred by, Husband in defending or responding to any collection agency. [Emphasis added.]
Among other things Teresa obtained a cash advance of $9,500 that she loaned to her then boyfriend for his business. Teresa testified,
It was never a question that I couldn't use it [the Providian/Chase credit card]. [Daryl] didn't care if I used the credit card forever as long as I paid the credit card and which I did do. If he didn't want me to use the credit card he would have stopped it the day that I left where I couldn't charge on it anymore but he did not. We talked about this bill, I talked to Daryl on a monthly basis for a lot of years. . . . [¶ ] We were friends, I was allowed to use this credit card. I didn't use the credit card for about two or three years and I had paid it down. At different times after that I did use the credit card.
Transcript, April 28, 2004, p. 43:12-24.
Daryl testified that he " had no knowledge that it [the debt to Providian/Chase] had been run up to this amount" until he tried to get a second mortgage on his home and he " contacted Providian and asked them to take my name off the card." Transcript, April 28, 2004, p. 13:1-22. At that time, he testified, " Providian told me that due to the amount on the card they could not close the account" without payment in full. Id.
Although Teresa has obtained her discharge (Case No. BK-S-03- 17995-VJ) Daryl has not filed a bankruptcy petition and the debt to Providian/Chase has not been discharged as to him. The bankruptcy court found that as of the time of the nondischargeability trial the debt had grown to about $33,000.
F. Procedural background
Teresa filed her voluntary Chapter 7 petition on June 26, 2003. She received her discharge on October 14, 2003. Meanwhile, Daryl filed a nondischargeability complaint under Section 523 that came on for trial on April 28, 2004.
After trial the bankruptcy court initially ruled that the debt was nondischargeable under Section 523(a)(5). We reversed and remanded (BAP No. NV-04-1339-PMaR), stating:
The parties discuss at length in their appellate briefs whether the debt is nondischargeable under § 523(a)(15). We do not address these arguments, because the bankruptcy court did not make any of the factual findings necessary to a determination of dischargeability under § 523(a)(15). We therefore remand for the bankruptcy court to make the necessary factual findings.
On remand the bankruptcy court issued the following order:
. . . the Court is advised by the Court's law clerk that counsel for the parties agree to submit the issue on the present record and with briefs filed in the appeal to the BAP. The Court concurs. The Court, however, is desirous of having the record supplemented by each party's affidavit on the following issue:
1. Has Providian VISA/Chase Platinum MasterCard made any demand on either party for payment since the filing of the Debtor's bankruptcy petition, and if so attach any correspondence or written document which verifies such contact.
Each affidavit shall be filed with the Clerk of this Court on or before March 2, 2005.
The parties have not included any affidavits in the excerpts of record. We have accessed the bankruptcy court's docket electronically and it does not reflect any affidavit from Teresa but it does list one from Daryl, which we have obtained. Daryl's affidavit and attached documents show that Providian/Chase has made demands for payment but had not brought any legal action against Daryl as of that time. Daryl's counsel confirmed this at oral argument before us.
On April 1, 2005, the bankruptcy court entered its Decision concluding that a judgment should be entered in Daryl's favor and against Teresa. On the same day the bankruptcy court entered a separate Judgment, which also is not in the excerpts of record but which we obtained electronically. That Judgment recites that it " is entered against [Teresa]" and that " the debt owed by [Teresa] to [Providian/Chase] is excepted from her discharge" under Section 523(a)(15). Teresa filed a timely notice of appeal.
II. ISSUES
A. Was the debt " incurred by the debtor in the course of a divorce or separation" or otherwise within Section 523(a)(15)?
B. Did the bankruptcy court err in finding that the debt is nondischargeable under section 523(a)(15)(A) and (B)?
Teresa raises another issue but it was disposed of in her prior appeal (BAP No. NV-04-1339-PMaR). She objects that the gravamen of Daryl's Complaint was Section 523(a)(5) and that he did not sufficiently raise Section 523(a)(15) even though the Complaint quotes that section in its entirety, the bankruptcy court rejected this argument at the start of the nondischargeability trial because the parties had briefed the issue (Transcript, April 28, 2004, p. 5:23-24), and we noted in her prior appeal that she " does not argue that the bankruptcy court erred in allowing evidence to be presented on this claim [under Section 523(a)(15)]." Memorandum (BAP No. NV-04-1339-PMaR) at pp. 15:15-16:1. Moreover, we specifically remanded for the bankruptcy court to make the necessary factual findings under that section. It is the law of the case that the issues under Section 523(a)(15) were properly before the bankruptcy court. See In re Fraschilla, 235 B.R. 449, 454, 457-458 (9th Cir. BAP 1999) (on remand a court must follow decision of appellate court, absent intervening change in governing authority), aff'd, 242 F.3d 381 (9th Cir. 2000).
III. STANDARDS OF REVIEW
We review the bankruptcy court's legal conclusions de novo and its factual findings for clear error. In re Myrvang, 232 F.3d 1116, 1120 (9th Cir. 2000). See also In re Smith, 242 B.R. 694, 699 (9th Cir. BAP 1999) (former " gross abuse of discretion" standard is same as reviewing the findings of fact for clear error and reviewing conclusions of law de novo). The " balance of the equities" test under Section 523(a)(15)(B) is reviewed for abuse of discretion. Id. at 1121.
Our review of factual findings is deferential to the trial court.
Review under the clearly erroneous standard is significantly deferential, requiring a definite and firm conviction that a mistake has been committed. Thus, an appellate court must accept the [trial] court's findings of fact unless upon review the appellate court is left with the definite and firm conviction that a mistake has been committed. If the [trial] court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.
Smith, 242 B.R. at 699-700 (citations and internal quotation marks omitted).
IV. DISCUSSION
Under Section 523(a)(15), " debts incurred in the course of a divorce proceeding are not dischargeable unless the debtor can establish that (1) the debtor does not have the ability to pay [the 'ability to pay' prong], or (2) the benefit of the discharge to the debtor outweighs the detriment of discharge to the former spouse [the 'benefit/detriment' prong]." Myrvang, 232 F.3d at 1119 n. 2. More fully, Section 523(a)(15) provides:
(a) The discharge under section 727 . . . of this title does not discharge an individual debtor from any debt --
* * *
(15) not of the kind described in paragraph (5) [i.e. not for alimony, maintenance, or support] 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, [or] 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[.]
11 U.S.C. § 523(a)(15) (prior to BAPCPA amendments; see n. 2 above).
Both the ability to pay prong and the benefit/detriment prong are applied as of the time of trial, not at the time the bankruptcy petition was filed. Jodoin, 209 B.R. at 142. Objections to discharge are construed narrowly, but " once the Plaintiff demonstrates that the Debtor incurred the debt in connection with divorce, the burden shifts to the Debtor to prove subsections (A) and (B), " meaning that the debtor has " both the burden of going forward with the evidence and the burden of persuasion." Jodoin, 209 B.R. at 139-40 (citation and internal quotation marks omitted).
In assessing the " ability to pay" requirement of Section 523(a)(15)(A), the Ninth Circuit has not decided whether the " disposable income test of 11 U.S.C. § 1325(b)(2) is the exclusive method that a bankruptcy court must employ" ( Myrvang, 232 F.3d at 1120 n. 3) but it cited our decision that this " provides an excellent starting point." Id. (quoting Jodoin, 209 B.R. at 142). Section 1325(b)(2) defines " disposable income" as " income which is received by the debtor and which is not reasonably necessary to be expended -- (A) for the maintenance or support of the debtor or a dependent of the debtor [including certain charitable contributions]; and (B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business." 11 U.S.C. § 1325(b)(2) (prior to BAPCPA amendments; see n. 2 above).
With respect to the benefit/detriment requirement of Section 523(a)(15)(B), the Decision uses a " totality of the circumstances" test and lists the following " non-exclusive criteria":
1. The relative economic conditions of both parties, including income and expenses of both parties;
2. The health, job skills, training, age and education of the parties;
3. The amount and nature of the debt;
4. The debtor's ability to pay the debt;
5. The parties['] relative life style;
6. The conduct of the parties;
7. The number of the parties['] dependents;
8. Whether there is joint liability on the debt;
9. The ability to pay of the new spouse;
10. The assets of the parties. See In re Haines, 210 B.R. 586, 594 (Bankr. S.D. Cal. 1997); In re Morris, 193 B.R. 949, 954 n. 8 (Bankr. S.D. Cal. 1996).
No party has challenged the bankruptcy court's use of these factors, and the Ninth Circuit has implicitly approved the totality of the circumstances test as one of several alternative approaches. See In re Short, 232 F.3d 1018, 1024 (9th Cir. 2000) (quoting In re Crosswhite, 148 F.3d 879, 889 (7th Cir. 1998)) (" [T]he bankruptcy court set the correct course when it adopted a 'totality of the circumstances' approach to its inquiry [regarding dischargeability].")).
A. Teresa's obligations to Daryl under the MSA are debts incurred " in the course of a divorce or separation" or otherwise within Section 523(a)(15)
Teresa argues that the debt purportedly made nondischargeable by the bankruptcy court is not a debt owed to Daryl but is instead a debt owed to a third party, Providian/Chase, and therefore does not come within the provisions of Section 523(a)(15). Though there is some disagreement in the reported decisions about who has standing under Section 523(a)(15) and whether the debt can be owed to a third party rather than the former spouse, we need not address those issues here. We interpret Daryl's Complaint to assert claims under the hold harmless provisions of the MSA and as Teresa concedes there is no question that such hold harmless debts come within Section 523(a)(15). See In re Finaly, 190 B.R. 312, 315-16 (Bankr. S.D. Ohio, 1995) (although third party creditors lack standing under Section 523(a)(15), former spouse has standing when division of marital debts includes hold harmless provision); In re Smith, 205 B.R. 612, 615-17 (Bankr. E.D. Cal. 1997) (same). Compare In re Stegall, 188 B.R. 597, 598 (Bankr. W.D. Mo. 1995) (debt is not " incurred" in divorce settlement if no hold harmless agreement between former spouses). Contra In re Soderlund, 197 B.R. 742, 747-48 (Bankr. D. Mass. 1996) (disagreeing with Finaly that third party creditors lack standing). Cf. In re Montgomery, 310 B.R. 169, 175-180 (Bankr. C.D. Cal. 2004) (debt to former spouse would be nondischargeable even without hold harmless provision), and In re Dollaga, 260 B.R. 493 (9th Cir. BAP 2001) (2-1 decision) (divorce attorney lacked standing; declining to decide whether all third party creditors lack standing under Section 523(a)(15)).
We use the term " hold harmless" to include Teresa's obligations under the MSA to defend, indemnify, and hold Daryl harmless.
Teresa has obligations under the MSA to defend, indemnify, and hold Daryl harmless from any cost, expense, or liability in connection with the original obligation to Providian/Chase. See MSA § § 7 and 10.c. She was also obligated not to incur additional indebtedness. See MSA § 10.c. Lastly, she is obligated to reimburse Daryl for all reasonably necessary costs and expenses, including attorneys' fees and court costs, resulting from the fact that she did not carry out the MSA agreement. See MSA § § 10.c. and 17.j.1. All such debts are " incurred 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" within the meaning of Section 523(a)(15). See Short, 232 F.3d at 1023 (rejecting contention that pre-marital debt from the wife to the husband, included in stipulated divorce judgment, was not " incurred in the course of" divorce or separation).
That said, Teresa is correct that the Judgment erroneously refers to the " debt obligation owed by Teresa Mullins to Providian Visa/Chase Manhattan." The bankruptcy court's discussion in its Decision shows that this was simply a technical error. On remand the bankruptcy court should fashion a form of Judgment in Daryl's favor, declaring that Teresa's debts to Daryl under the MSA that relate to the Providian/Chase debt, whatever those debts may be, are excepted from her discharge under 11 U.S.C. § 523(a)(15).
Daryl complained in his post-remand affidavit filed with the bankruptcy court that since filing his Complaint he has discovered at least one other debt that Teresa did not pay in violation of the MSA, but the Judgment only included the Providian/Chase debt and as the bankruptcy court noted it " has the discretion to order a partial discharge of a separate debt arising out of the terms of a divorce decree." Myrvang, 232 F.3d at 1124. Daryl has not cross-appealed from the Judgment.
We note that there is no evidence in the excerpts of record that Providian/Chase has brought any collection action against Daryl. In the past it sent him dunning letters but for all we know it may have decided not to pursue Daryl for this debt or he may have some defense to it. In response to our questions at oral argument Teresa's counsel agreed that Daryl might have a complete defense as to any liability incurred by Teresa after Daryl attempted to have his name removed from the account, under the Fair Debt Collection Practices Act, 15 U.S.C. § § 1692 et. seq., or other applicable law. Daryl may have other defenses. Neither Teresa's nor Daryl's counsel could tell us whether the statute of limitations has run on any collection action by Providian/Chase against Daryl. For these or other reasons it is possible that Providian/Chase no longer has any claim against Daryl, or alternatively Providian/Chase might have decided to abandon whatever claim it did have. Therefore, we questioned Daryl's attorney at oral argument whether this appeal could be moot and if we are being asked to render an advisory opinion. See In re Omoto, 85 B.R. 98, 99-100 (9th Cir. BAP 1988) (" The panel can only address actual cases and controversies and, therefore, has a duty to raise the issue of mootness sua sponte when the parties fail to do so.").
Daryl's attorney responded that at a minimum Daryl has already incurred attorneys' fees and other costs arising from Teresa's breach of the MSA, and Teresa is obligated to reimburse him for these legal expenses. See MSA § § 10.c. and 17.j. In addition, he argued that on the present state of the record Daryl has at least contingent debts to Providian/Chase and therefore Teresa has at least a contingent hold harmless debt to Daryl. Contingent claims can be nondischargeable. See In re Murrell, 257 B.R. 386, 389-90 (Bankr. D. Conn. 2001) (former spouse's contingent debts under hold harmless obligation were nondischargeable); In re Krause, 114 B.R. 582, 594-95 (Bankr. N.D. Ind. 1988) (" a debt that is contingent may be nondischargeable"). Therefore, we are satisfied that this is not an advisory opinion.
Section 10.c. requires Teresa to hold Daryl harmless against " all costs, expenses and liabilities in connection [with the debt to Providian/Chase], including attorneys fees and costs incurred by, [Daryl] in defending or responding to any collection agency." Section 17.j. of the MSA provides in relevant part, " Each of the parties agrees on request of the other, to execute and deliver any instrument, furnish any information and perform any other acts reasonably necessary to carry out the provisions of this Agreement without undue delay or expense. A party who fails to comply with this subsection shall reimburse the other party for all costs and expenses, including attorneys' fees and court costs, that as a result of such failure become reasonably necessary to carry out this Agreement."
Nor does the possibility that Daryl's debt to Providian/Chase could be reduced or eliminated change our analysis of the dischargeability of Teresa's debts to Daryl, whatever they ultimately may be. Accord Myrvang, 232 F.3d at 1119 n. 1 (husband's contention that collection action by creditor was " less likely" in view of post-trial developments " could not have significantly changed the judge's calculus of nondischargeability"). Therefore, we turn to the bankruptcy court's analysis of dischargeability.
B. Teresa has not established that the debt is dischargeable
1. The ability to pay prong: Section 523(a)(15)(A)
The bankruptcy court concluded that Teresa has the ability to pay the debt:
All matters considered, I find Teresa has the ability to pay the Providian debt over time, particularly in light of her substantial present income and release of her debts by the Chapter 7 discharge.
We cannot say that the bankruptcy court made a clear factual error. It did not believe Teresa's evidence that she lacked sufficient net income to make monthly payments to reduce the Providian/Chase debt (or whatever portion of it must be paid by Daryl, and is thus owed by Teresa to him under the hold harmless provisions of the MSA). The Decision makes reference to several factors that support its conclusion: its finding that Teresa's income has " risen sharply" since the divorce, her past ability to pay at least $500 per month on the Providian/Chase debt for several years (while she was working only one job), her unexplained increase in expenses listed on her amended bankruptcy Schedule J, her past ability to fund her former boyfriend's business and large gambling losses, and the additional net income she can expect to have in the future because her other debts have been discharged and because she testified that she has stopped gambling. Although the bankruptcy court could have drawn different conclusions from the evidence, we cannot say that it misapplied the law or clearly erred in its factual conclusions. See Jodoin, 209 B.R. at 143 (affirming nondischargeability, based in part on finding that debtor had demonstrated " the capacity to purchase" expensive assets and services). " When there are two permissible views of the evidence, the trial judge's choice between them cannot be clearly erroneous." In re Baldwin Builders, 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted).
Teresa argues that by taking into account the $800 in monthly rent that she receives from family members the bankruptcy court improperly took into account the finances of others living in her household, without meeting the " economic interdependence" test set forth in Short, 232 F.3d at 1023-24 (applying that test to a live-in romantic companion). Teresa claims that " technically" she did not even have to include the rent she receives from her family members in her income. This is wrong. The rent she receives is cash income. It is not deemed income that is attributed, as authorized by Short, from another individual's separate earnings because that individual is " economically interdependent" with the debtor. To the contrary, if there had been more evidence of the family's economic interdependence it might have cut the other way. There was evidence, for example, that although Teresa's son has been working it has been Teresa who payed for all utilities, payed a cable bill approximately three times what Daryl pays, and payed for substantially all the household's food, although she testified that " once in a while" the other occupants of the house " do go buy food or if they need something." Transcript, April 28, 2004, pp. 52:1-18, 71:4-17. Meanwhile, Teresa's son has been paying over $1100 per month for two vehicles. Id. p. 71:16-18. Teresa originally stated in her bankruptcy schedules that she received $1000 from her mother each month for rent, at a time when her son did not live in the house, but at trial she claimed that the current figure is $400. She explained that her mother " used to try to help a little bit more when I needed more help because my son wasn't living there." Id. p. 70:14-15. Teresa has also been paying for a timeshare property. From all of these things the bankruptcy court could conclude that Teresa did not adequately support her allegation that her necessary expenses use up all of her income or offset the $800 in cash that she acknowledged receiving every month from her family for rent.
Teresa, who is older than Daryl, argues in her opening brief on this appeal that it takes 25 years to pay back a credit card when making minimum payments and that she would be 76 years old by that time. The short answer is that there is no evidence in the excerpts of record to support this calculation and it assumes that Teresa can only pay the minimum amount, whatever that might be.
In sum, given the conflicting and sometimes missing evidence, we cannot say that the bankruptcy court erred in finding that Teresa did not meet her burden of proof on the ability to pay prong of Section 523(a)(15)(A). We must conclude that Teresa has the ability to pay the debt.
2. The benefit/detriment prong: Section 523(a)(15)(B)
The bankruptcy court found that Daryl has " substantially more net income than Teresa, but her expenses are lower on a monthly basis, and well within her income from all sources." The bankruptcy court also found that Daryl " assumed substantially more marital debt that Teresa, due to the home mortgage assumption" in the MSA. It found that most other factors are neutral: both parties are healthy, neither has any minor dependents, both own family homes, and " the evidence is inconclusive on the equity value of either home[Ballot box] although Daryl testified [that] his mortgage payment, transferred to him under the MSA, is about equal to the value of the home." The overriding factor in the bankruptcy court's analysis, besides Teresa's ability to pay the debt, was the genesis of the debt:
The Providian debt is about $33,000.00. Yet, it is clear [that] a significant portion of that obligation was due to the cash withdrawal on the account post-divorce by Teresa. Her discharge of the debt and thus her breach of promise to pay the obligation not only violates the MSA and the hold harmless clause, but does so under circumstances where she substantially benefitted from the cash withdrawal of $9,500.00.
Therefore, as to the benefit/detriment test, I find the equities tip in favor of Daryl. To hold otherwise would reward Teresa at the expense of Daryl, when Teresa voluntarily and willingly undertook under the divorce decree to pay the debt. Thus, discharging the debt would result in a significant benefit to Teresa that far outweighs the detrimental consequences to Daryl to have to pay a debt assumed by Teresa by her solemn promise to pay Provident.
Teresa asserts numerous grounds for a different outcome on the benefit/detriment prong. She claims that Daryl's California house has appreciated in value, but she introduced no evidence of that at trial. She argues that the bankruptcy court should have taken into account the earnings of Daryl's live-in girlfriend, who is an administrative assistant in a construction office. Daryl testified that she was a student until two months before trial and that he did not know her earnings. Transcript, April 28, 2004, p. 35:11-20. Teresa responds that this " strains credibility" and that even at minimum wage the girlfriend's earnings would provide Daryl with an extra $600 per month. Teresa presented no evidence to support this conjecture and the bankruptcy court was free to believe Daryl's evidence or discount any potential income from a girlfriend because, unlike a spouse, she presumably could leave at any time with no financial obligation.
Teresa argues that she barely breaks even but, as discussed above, the bankruptcy court found that she does more than break even, her expenses are well within her income, and she can afford to pay the Providian/Chase debt (or hold Daryl harmless against any debt he must pay to Providian/Chase). She argues that her income is 40% of what Daryl earns, but using the bankruptcy court's findings the calculation is far higher ($49,752/$73,104 per year = 68%). She argues that Daryl's own figures show that he was earning more than minimal overtime pay before the trial, but the bankruptcy court believed Daryl's testimony that he no longer had the opportunity to earn any substantial overtime pay. She argues that she takes care of her 80-year-old mother with Alzheimer's disease, provides some support to one son who lives with her with his wife and two children, and has two other children while, allegedly, Daryl has no dependents. Neither Teresa's nor Daryl's tax returns list any dependents, both have elderly mothers whom they support and, as noted above, the evidence was inconclusive about what is contributed by or given to Teresa's family members who live with her, except that she admits that they pay her $800 per month in rent.
Teresa's most persuasive arguments are that she works 80 hours per week at two jobs, that Daryl could if necessary use the $1400 per month that he pays into savings and retirement accounts to pay the Providian/Chase debt, and that according to one case " if the debtor's standard of living will fall materially below the creditor's standard of living if the debt is not discharged, then the debt should be discharged." In re Smither, 194 B.R. 102, 111 (Bankr. W.D. Ky. 1996). Under the totality of the circumstances test, however, we cannot say that the bankruptcy court erred in finding that Teresa did not meet her burden to satisfy the benefit/detriment prong.
On cross examination she admitted that she works somewhat fewer than 80 hours per week, although we do not question that holding down two jobs is very difficult and may not be sustainable. Transcript, April 28, 2004, pp. 55:21-56:1. On the other hand, she testified that the second job added only $900 per month in additional income and as noted above there is evidence in the excerpts of record to suggest that even without this second job she may be able to pay the debt at issue. The burden was on Teresa to prove otherwise, and the bankruptcy court doubted her credibility. We cannot say that this was clear error.
It is an uncontested fact that Teresa chose to incur new debts instead of paying down her old debt to Providian/Chase as she was obligated to do under the MSA. Meanwhile interest, late fees, and other charges have undoubtedly accrued. If Daryl is able to raise legal defenses to the debt asserted by Providian/Chase then that will also reduce some of Teresa's nondischargeable hold harmless obligations to Daryl under the MSA. If, on the other hand, Daryl must pay Providian/Chase or incur legal fees and other costs in defending against that creditor then he would be harmed all the more by discharging Teresa's obligations to him. In either event, the bankruptcy court had sufficient evidence to determine that Teresa has not met her burden to show that the benefit to her outweighs the harm to Daryl.
V. CONCLUSION
In this unfortunate case neither spouse has a lavish lifestyle but both were left with the consequences of debts incurred during the marriage and Teresa's post-divorce $9,500 cash advance and gambling debts. Daryl may be legally obligated to Providian/Chase for some portion of the credit card balance, and Teresa has the legal obligation under the MSA to defend, indemnify, and hold him harmless from this debt. Although Teresa earns less than Daryl the bankruptcy court also found that she has not proven her alleged expenses and did not meet her burden to show that she is unable to pay the debt at issue or that the benefit to her of discharging the debt would outweigh the harm to Daryl. The bankruptcy court's findings of fact and application of its discretion are entitled to great deference. We cannot say that it erred in these conclusions.
We remand for a limited purpose. The bankruptcy court should fashion a form of Judgment in Daryl's favor, declaring that Teresa's debts to Daryl under the MSA that relate to the Providian/Chase debt, whatever those debts may be, are excepted from her discharge under 11 U.S.C. § 523(a)(15). In all other respects, the Judgment is AFFIRMED.
Teresa cites the Statement of W-2 Earnings attached to Daryl and Teresa's joint 1998 federal tax return, but although it shows different wages for purposes of Social Security it shows exactly the same " gross income" for each of them as recited by the bankruptcy court. Teresa also cites Daryl's testimony in which he initially agreed that Teresa earned " about $30,000, " but then he testified, " Actually I think she made more than that . . . ." Transcript, April 28, 2004, p. 28:17. Teresa has shown no factual error.