In re Swonger, Case No. 14-50807 (2024)

Case No. 14-50807

10-10-2014

In re: Robert O. Swonger, Debtor.

Honorable Mark A. Randon

Chapter 13 ORDER GRANTING CREDITOR SUZANNE JENSON'S MOTION FOR RELIEF FROM THE AUTOMATIC STAY; WAIVING THE 14 DAY PROVISION IN RULE 4001(a)(3); AND, CONFIRMING DEBTOR'S CHAPTER 13 PLAN

I. INTRODUCTION

Before filing this Chapter 13 bankruptcy, Debtor and Suzanne Jenson divorced in Oakland County, Michigan. The Judgment of Divorce ("the Judgment") denied spousal support to either party; awarded Jenson the marital home and responsibility for the primary mortgage; and, required Debtor to refinance an existing Home Equity Line of Credit ("HELOC") by a date certain. Debtor remains unable or unwilling to refinance the HELOC - the deadline for doing so has passed.

Debtor's Chapter 13 case is ready for confirmation: Jenson did not object to confirmation, all outstanding objections have been resolved, and the Chapter 13 Trustee says Debtor's plan fully complies with section 1325 of the Bankruptcy Code. But Jenson now petitions this Court to grant her relief from the automatic stay. She says: (1) Debtor's responsibility to refinance the HELOC is a non-dischargeable domestic support obligation ("DSO"); or, (2) the Judgment provides that the state court may impose a prospective non-dischargeable award of spousal support if Debtor fails to refinance.

Jenson seeks to return to state court and pursue any available remedy under the Judgment. Debtor argues that the requirement to refinance the HELOC was part of the parties' property settlement - not a DSO. Nor, he says, does the Judgment bind him to any domestic support obligation going forward.

The motion is fully briefed. On October 1, 2014, the Court held a hearing on confirmation of Debtor's plan and Jenson's motion. Because Jenson fails to demonstrate that Debtor's obligation to refinance the HELOC is a DSO, Debtor's Chapter 13 Plan is CONFIRMED.

However, this Court agrees that the Judgment may reasonably be interpreted to allow the state court to prospectively award non-dischargeable spousal support payments upon Debtor's failure to refinance the HELOC. Therefore, cause exists to GRANT Jenson's motion for relief from the automatic stay, pursuant to section 362(d)(1).

II. BACKGROUND

While married, Debtor and Jenson owned a home in Michigan; as co-borrowers, they took out a $68,400.00 HELOC with Charter One Bank, N.A. ("Charter One").

Debtor and Jenson consented to a judgment of divorce in 2010. The marital home was awarded to Jenson. The Judgment did not award spousal support to either party. But, among other things, it provided for: distribution of assets and debts; guidelines for financial responsibilities on the marital home; and, a non-dischargeability provision. Central to the dispute here are portions of Paragraphs 9 and 19 of the Judgment.

Jenson's brief indicates that the date of the divorce was September 13, 2013; but the Judgment is dated September 13, 2010. The Court therefore assumes the 2013 date is a typo.

Paragraph 9 of the Judgment concerns the marital home:

[Jenson] shall be responsible for the CCO Mortgage and she shall refinance the mortgage if and when she is able. [Jenson] shall make the minimum monthly interest payment on the home equity loan through Charter One []. [Debtor] shall refinance the balance of the home equity loan into his name by August, 2014.

In the event that either party fails to pay any amount due as provided in this Judgment then this Court shall reserve the right to Order the responsible party to pay the other non-deductible alimony in an amount deemed appropriate under the circ*mstances including attorney fees incurred by the innocent party. The indemnification and hold harmless clauses contained in this Judgment are intended to be for the support of the indemnified party. As a result, those clauses, and the obligations they create, are intended by the parties and determined by the Court not to be dischargeable in bankruptcy.

The indemnification and hold harmless clauses, to which Paragraph 19 refers, appear in the sections entitled Automobiles, Plaintiff's Share of Assets, Defendant's Share of Assets, Plaintiff's Share of Debts, and Defendant's Share of Debts. This language does not appear in the Marital Home section.

Debtor twice attempted to refinance the HELOC in his name; his efforts were unsuccessful.

On June 27, 2014, Debtor filed this Chapter 13 petition. His Schedule F lists Jenson as a creditor holding an unsecured nonpriority claim, valued at $67,621.76; the HELOC is not included in the plan. Charter One filed a $67,799.62 claim, secured by the marital home. Jenson did not object to confirmation of Debtor's plan.

Debtor's Schedule F notes this to be the result of the Judgment's requirement that he assume the HELOC.

Jenson did not file an objection; but, at hearing, her counsel asserted that her motion could be construed as an objection. Nor has Jenson filed a claim; the deadline for doing so is November 13, 2014.

III. ANALYSIS

Whether Debtor's obligation to refinance the HELOC is a DSO - and how, if at all, that affects confirmation of his plan - is in dispute. A DSO is entitled to treatment as a first priority unsecured claim and is nondischargeable in a Chapter 13 bankruptcy. 11 U.S.C. §§ 507(a)(1); 523(a)(5); 1328(a)(2). A discharge will not be granted unless a debtor certifies that he is current on any DSO. 11 U.S.C. § 1328(a).

Conversely, post-marital obligations, including property settlements, are dischargeable in a Chapter 13. 11 U.S.C. 1328(a)(2); In re Thomas, 511 B.R. 89, 94 (B.A.P. 6th Cir. 2014).

Debtor maintains that Jenson is properly listed as a Schedule F general unsecured creditor; Jenson believes she should be listed as a domestic support creditor entitled to priority. Therefore, the Court must determine whether Debtor's obligation to refinance the HELOC is a DSO under section 523(a)(5).

Section 101(14A) of the Bankruptcy Code defines a DSO as "a debt that accrues before, on, or after the date of the order for relief in a case under this title . . . that is -"

(A) owed to or recoverable by[:] (i) a spouse, former spouse, or child of the debtor or
such child's parent, legal guardian, or responsible relative; or (ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of[:] (i) a separation agreement , divorce decree, or property settlement agreement; (ii) an order of a court of record; or (iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.

A. Debtor's Obligation to Refinance the HELOC is Not a Domestic Support Obligation

Even if Jenson purports to object to confirmation, this Court finds that Debtor's obligation to refinance the HELOC is not a DSO under section 101(14A).

Federal bankruptcy law - not state law - determines whether a debt is in the nature of support. Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1107 (6th Cir. 1983). In making such a determination, courts look to "traditional state law indicia" of support obligations, including: "(1) a label such as alimony, support, or maintenance in the decree or agreement, (2) a direct payment to the former spouse, as opposed to the assumption of a third-party debt, and (3) payments that are contingent upon such events as death, remarriage, or eligibility for Social Security benefits." Rugiero v. DiNardo (In re Rugiero), 502 F. App'x 436, 439 (6th Cir. 2012) (citing Sorah v. Sorah (In re Sorah), 163 F.3d 397, 401 (6th Cir.1998)). These factors are not exclusive. Sorah, 163 F.3d at 401. In determining whether an obligation is actually support, the Court must also consider the big picture: "if something looks like a duck, walks like a duck, and quacks like a duck, then it is probably a duck." Id.

Upon careful review of the Judgment, the Court finds that Debtor's obligation to refinance the HELOC is not a DSO. First, the provision requiring Debtor to refinance is within the section labeled "Property Division" - the Judgment "forever bar[s]" spousal support. Thus, the Judgment reads as a simple, equal division of the marital assets and debts at the time of separation, with no apparent weight given to the relative financial needs of either party. The first traditional state law indicia weighs against the finding of a DSO.

It also does not appear from the Judgment that the couple had minor children.

The second and third traditional state law indicia also weigh against the finding of a DSO: Debtor's obligation to refinance the HELOC is not a direct payment to Jenson. Nor is it subject to any contingent event directly related to Jenson's need for support - it simply states that the refinancing must occur by August of 2014. The significance of this date - almost four years post-Judgement - is unclear.

It does suggest, however, that Jenson had no immediate financial need for Debtor to refinance.

The record does not include any detailed information regarding other relevant factors, such as the respective income, work history, or financial positions of the parties. See, e.g., Rugiero, 502 F. App'x at 439 (noting that courts have held fee awards orders do not amount to DSOs where "the state court's orders failed to tie the awards to the creditor spouse's financial needs"); In re Thomas, 511 B.R. 89, 97-98 (B.A.P. 6th Cir. 2014) (The Panel upheld the bankruptcy court's conclusion that the parties and state court intended to create a support obligation, because Debtor's requirement to make half of the second mortgage payments helped provide a residence for the children.); In re Westerfield, 403 B.R. 545, 554 (Bankr. E.D. Tenn. 2009) (considering whether the debtor's assumption of the obligation will provide "support needed by the former spouse or children to meet daily needs" (citing Calhoun, 715 F.2d at 1109-10)). The Judgment's requirement that Debtor refinance the HELOC is not a DSO; Jenson is properly listed as a general unsecured creditor.

Jenson was not present at the hearing. And neither party requested an evidentiary hearing.
--------

B. The State Court Should Determine Whether to Impose Prospective Spousal Support Payments as a Consequence of Debtor's Failure to Refinance

Jenson seeks relief from the automatic stay pursuant to section 362(d). Under section 362(d)(1) - which provides relief from the automatic stay for cause - "courts must determine whether discretionary relief is appropriate on a case by case basis." In re J & M Salupo Dev. Co., Inc., 388 B.R. 809, 812 (Bankr. N.D. Ohio 2008) (quoting Laguna Associates L.P. v. Aetna Cas. & Surety Co. (In re Laguna Associates L.P.), 30 F.3d 734, 737 (6th Cir.1994)(internal quotations omitted)). Cause is a "broad and flexible concept which permits a bankruptcy court, as a court of equity, to respond to inherently fact-sensitive situations." In re Indian River Estates, Inc., 293 B.R. 429, 433 (Bankr. N.D. Ohio 2003) (citation omitted). In determining cause, the Court should consider the "hardships imposed on the parties with an eye towards the overall goals of the Bankruptcy Code." In re Plastech Engineered Products, Inc., 382 B.R. 90, 106 (Bankr. E.D. Mich. 2008) (quoting In re C & S Grain Co., 47 F.3d 233, 238 (7th Cir.1995)).

The Judgment does not explicitly provide a remedy for Debtor's failure to refinance the HELOC. Paragraph 19 states that "[i]n the event that either party fails to pay any amount due as provided in this Judgment," the state court may order the responsible party to pay spousal support. (emphasis added). But, it is unclear whether Debtor's failure to refinance the HELOC triggers the state court's discretionary imposition of spousal support. If awarded, such payments would be a non-dischargeable DSO, and may ultimately affect Debtor's ability to proffer a feasible amended plan or obtain a discharge. Therefore, sufficient cause exists to allow Jenson to return to state court and address the limited issue of whether Debtor's failure to refinance the HELOC should result in a prospective spousal support award. 11 U.S.C. § 362(d)(1); see Fitzgerald, 9 F.3d at 521 (explaining that a bankruptcy court's review of divorce judgments should not "intrude into the states' traditional authority over domestic relations and the risk of injustice to the non-debtor spouse or children"); In re Combs, 435 B.R. 467, 469 (Bankr. E.D. Mich. 2010) (holding that former wife was entitled to stay relief to pursue her rights in Chapter 13 debtor's pension benefits under divorce judgment).

If the state court imposes spousal support payments on Debtor, he would then be required to file a feasible amended plan and remain current on the obligation to obtain a discharge. 11 U.S.C. § 1328(a). But, unless and until that happens, Debtor's Chapter 13 Plan complies with section 1325.

IV. CONCLUSION

Because Jenson fails to demonstrate that Debtor's obligation to refinance the HELOC is a DSO, Debtor's Chapter 13 Plan is CONFIRMED.

However, this Court agrees that the Judgment may reasonably be interpreted to allow the state court to prospectively award non-dischargeable spousal support payments upon Debtor's failure to refinance the HELOC. Therefore, cause exists to GRANT Jenson's motion for relief from the automatic stay, pursuant to section 362(d)(1). Jenson shall petition the state court for any relief pursuant to this Order on or before November 10, 2014, or the automatic stay will be reinstated. The 14-day provision in Rule 4001(a)(3) is WAIVED.

Signed On October 10, 2014

/s/ Mark A. Randon

Mark A. Randon

United States Bankruptcy Judge