Six older case notes on how bankruptcy interacts with support, property division, agreement enforcement, and college tuition for children. Case notes on In Re Dill, Webb v. Craighead, Carter v. Carter, In Re Crosby, Lawson v. Lawson, and In Moseley v. Moseley follow:
BANKRUPTCY — AUTOMATIC STAY — ATTEMPTED ENFORCEMENT OF SEPARATION AGREEMENT. When can you be punished for trying to enforce the totally valid property-allocation provisions of a separation agreement? In bankruptcy court, of course. Because a wife brought a Rule to Show Cause against her husband when he failed to pay the joint credit card debt that he assumed under the provisions of their Prince William County agreement, the wife herself ended up being held in contempt for not withdrawing her contempt proceeding against the husband, because this was a violation of the automatic stay provisions of federal bankruptcy law. Of course the credit card debt was not alimony or support under 11 U.S.C. §523(a)(5), and although this obligation to pay the credit card debt might have been held non-dischargeable if the wife had moved for such a determination in the bankruptcy court under §523(a)(15), she did not do that. The husband as a debtor was therefore protected by §362(a), and when he received a discharge from the bankruptcy court, that obligation was discharged under §524. The bankruptcy court cited two decisions holding that using state court contempt proceedings to uphold the dignity of the state court is not a violation of the federal automatic stay law. However, even though there is no clear line between Virginia criminal contempt and Virginia civil contempt, the test of federal permissibility appears to be that punitive contempt proceedings are acceptable because they merely help out the state court, whereas coercive contempt proceedings are violative and punishable because they help out the private party. And here it was clear that the wife was trying to get the state court contempt rule in order to vindicate her own financial rights and keep from being pounced upon by the creditors at whom the husband had thumbed his nose. This was clear especially from the answer she filed and the testimony she gave. The Virginia court had not tried to call the contempt remedy a fine or a penalty, even though the husband could be imprisoned for failure to pay the wife as ordered. This debtor was definitely to be imprisoned until he paid not the court but his ex-wife. Thus this was civil, not criminal: a proceeding commenced by a creditor, and not by a court or a public official. Thus the wife willfully and contemptuously went ahead and sought the protection of the Virginia courts when she should have known better, and for violating the §362(a) automatic stay, she was held in contempt. In Re Dill, ___ B.R.___, 18 VLW 639 (USBC Alex., 10/3/03).
BANKRUPTCY -- SEPARATION AGREEMENTS -- MALPRACTICE TRAP. Divorce lawyers had better be careful never again to advise a client that drafting a non-dischargeable separation agreement property-division obligation can't be done, and never to advise a client contemplating bankruptcy that he will be safe from enforcement of such an obligation if he goes for a bankruptcy discharge. The Virginia Court of Appeals has taken the view that parties in a separation agreement can create an obligation to pay a monetary award that cannot be escaped from by bankruptcy. In Carter v. Carter, 9 VLW 296 (VCA 8/16/94), the Court of Appeals, over Judge Benton's dissent, held that a bankruptcy court's discharging the husband's debt to the wife under the separation agreement did not prevent the divorce court from rescinding the agreement and ordering a monetary award instead. The husband was not entitled to the benefit of the separation agreement as a barrier to imposition of other marital-property liability that goes beyond its specified terms. Actually, the Court of Appeals holds that the debt under the agreement was a dischargeable debt: it simply rejects the idea that Code sections such as 20-109 and 20-109.1 protect him from an order that rescinds the agreement and grants equitable distribution relief. Judge Benton maintains that the trial judge was not at liberty to ignore the bankruptcy court's discharge order when it set aside the agreement and considered the parties' marital debts and obligations. What he disagrees with is the majority's opinion that the husband repudiated the agreement by seeking a bankruptcy discharge, and thus cleared the way for the trial court to rescind the agreement and grant equitable distribution relief. The dissenter suggests that the trial judge proceeded as if the bankruptcy proceeding was a nullity. To Judge Benton, this was an act to collect and recover a debt that had been discharged in bankruptcy.
BANKRUPTCY -- BELATED "ALIMONY" LUMP SUM AS CURE. The Court of Appeals holding in Carter v. Carter, 447 S.E. 2d 522, which occasioned a strong dissent from Judge Benton, now appears considerably more murky as the Court of Appeals seems to reach an opposite result on very similar facts. In Moseley v. Moseley, 9 VLW 609, 629 (11/8/94) the Court appears to hold that it is not proper for a court to try to remedy discharge of a property division obligation in bankruptcy by using its reserved alimony jurisdiction to grant a lump-sum alimony award equal to the discharged equitable distribution liability. The trial judge in this case did make it painfully explicit that his purpose was property division and not truly providing support as such.
BANKRUPTCY – DISCHARGEABILITY – COLLEGE EXPENSES UNDER SEPARATION AGREEMENT. The U.S. Bankruptcy Court in Harrisonburg found a 50-50 division of college expenses in a separation agreement enforceable and non-dischargeable by the ex-husband father even though this particular contract provision said each would pay half “to the extent each is able.” When the father didn’t pay the first year of college, the wife took him to state court and had the judge find that he was indeed able to pay his half and enter judgment. After that, it doesn’t matter that he’s going bankrupt and can’t pay now, the federal court says. Moreover, the bankruptcy judge points out, college expense provisions are child support, and therefore non-dischargeable under 11 U.S.C. §523(a)(5). The bankruptcy judge does say that in determining what is a child support debt, you do look to the mutual intent of the contracting parties at the time of the contract, but that is so clear here, that there’s no genuine issue of material fact and the ex-wife is entitled to summary judgment. Dischargeability does not depend on the present financial ability of the debtor. Webb v. Craighead, ___ BR ___, 19 VLW 852 (USBC Harrisonburg, 12/6/04).
BANKRUPTCY — DISCHARGEABILITY — SEPARATION AGREEMENTS — COLLEGE COSTS. Is the college-costs provision of a Virginia decree-incorporated separation agreement "in the nature of support" so as to be non-dischargeable in bankruptcy? The U.S. Bankruptcy Court in Richmond, applying 11 USC §523(a)(5), looked to the nature of this particular agreement rather than to the intricacies of Virginia divorce law to hold that the college-costs clause in question created a non-dischargeable debt. However much they may have relied upon the assumptions of Virginia case law, what the Bankruptcy Court sees is that the lawyers drafting this particular agreement used language indicating that they intended the college expenses to be support. The college wording was under the child support heading in the document — and it would have been easy enough for them to put it some other place in order to clarify a contrary intent. Also, the child support paragraph's sentences follow a logical order, from support payments to health insurance provisions to college costs. The Court also looked at the relative financial positions of the parties, which indicated the wife would not have been able to afford the college costs by herself, which apparently makes them alimony. In Re Crosby, ___ B.R. ___, 13 VLW 1154 (USBC Richmond, 11/25/98).
BANKRUPTCY -- DISCHARGEABILITY -- SUPPORT/PROPERTY --MALPRACTICE TRAP. The U.S. Bankruptcy Court at Alexandria held that a separation agreement provision that jointly-owned real estate will be transferred to a trust for the benefit of the children was dischargeable, not because it was deemed to be a property transfer rather than support, but because the contract between the debtor and his wife was merely "executory" because performance (conveyance of the property) was "required only in the event of a divorce" and that divorce (a final decree) had not yet occurred. In fact, the Bankruptcy Court went on to hold, apparently in the belief that separation agreements are scrutinized and passed upon by divorce courts, the obligation of the debtor had not yet been determined by a state court because the court had not yet formally ratified that agreement and no obligation happens until divorce. The Court went on to construe Virginia divorce law by observing that the wife who had signed the agreement was, after all, not precluded from seeking an award of support and maintenance in the divorce proceeding. Lawson v. Lawson, No. 91-10262-AT (2/26/92), 7 VLW 609.