In re Hunsucker

631 B.R. 610

IN RE: Charles Dallas HUNSUCKER, Debtor.

Case No. 20-12226-JDW

United States Bankruptcy Court, N.D. Mississippi.

Entered August 3, 2021

Tracy Buster Walsh, Walsh Law Firm PLLC, Olive Branch, MS, for Debtor.

MEMORANDUM OPINION AND ORDER

Jason D. Woodard, United States Bankruptcy Judge

This matter came before the Court on the Objection to Allowance of Claim 9 filed by the debtor, Dallas Hunsucker ("the Objection") (Dkt. # 47), and the Motion to Dismiss Case filed by the debtor's ex-wife, Amy Hunsucker (the "Motion") (Dkt. # 39). An evidentiary hearing was held June 24, 2021, where the Court heard testimony from Dallas and admitted exhibits into evidence.

There are two questions before the Court, both related to the Hunsuckers' divorce. The first is whether Dallas owed Amy an ongoing child support obligation during his bankruptcy case that he failed to pay.¹ This Court finds that at all times during the bankruptcy case, Dallas's child support obligation was either suspended or terminated. The Motion is therefore due to be denied.

The second question is whether Amy's claim was properly filed as a domestic support obligation or should be reclassified as an unsecured property settlement. If the claim is domestic support, it is both nondischargeable and entitled to priority treatment in the plan.² If it is a property settlement, it is dischargeable in a chapter 13 case and should be treated like all general unsecured claims in the plan.³ The Court concludes that the majority of the claim is a property settlement, and the Objection is due to be sustained in large part.

I. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334, and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding as set forth in 28 U.S.C. § 157(b)(2)(A), (B), and (O).

II. FACTS & PROCEDURAL HISTORY⁴

Dallas and Amy were married for fourteen years. The marriage produced two daughters, both still under the age of majority. A Consent Agreement⁵ filed in the Chancery Court of Desoto County in April of 2019 signed by both Dallas and Amy provided that the chancery court would "make an equitable division of marital assets and marital debts accumulated or acquired by the parties during the marriage" and determine "whether to award alimony to one or the other party. ..."⁶

After hearing testimony and considering the evidence, Chancellor Mitchell M. Lundy, Jr. granted physical custody of the children to Amy and set Dallas's monthly child support payment at $1,000.00.⁷ Chancellor Lundy then extensively analyzed the Ferguson factors for property division, one of which focuses on "the extent to which property division may, with equity to both parties, be utilized to eliminate periodic payments and other potential sources of future friction between the parties. ..."⁸ Chancellor Lundy awarded Amy the "remaining funds in a Fidelity account,"⁹ and entered judgment in favor of Amy "for her half of the equity [in their marital home] in the amount of $20,000.00."¹⁰ This award, according to Chancellor Lundy's well-reasoned opinion, "would eliminate the need for an award of periodic alimony."¹¹ There is no analysis of the Armstrong factors or other mention of alimony in the thirteen-page opinion,¹² except that the chancellor did note that the award "could be satisfied in the form of monthly alimony payments."¹³ That language creates some ambiguity as to whether the award was alimony or a property settlement. The opinion was incorporated into the Final Judgment of Divorce on June 10, 2019.¹⁴

For reasons unknown to this Court and somewhat irrelevant to the issues to be resolved here, the daughters were removed from Amy's care and sent to live with Dallas in June of 2020. On July 27, 2020, Chancellor Vicki Daniels entered a temporary restraining order suspending Dallas's child support obligation and formally ordering that the daughters reside with Dallas.¹⁵ On March 18, 2021, Dallas filed a Motion for Child Support and for Declaratory Relief .¹⁶ He requested "an order declaring that he does not owe any child support to [Amy] for the months of July 2020 to October 2020."¹⁷ On April 5, 2021, Chancellor Daniels ordered that "any and all child support due from [Dallas] for the months of July 2020 through October 2020 has been paid and the last child support payment due and owing from [Dallas] was for the month of June 2020. "¹⁸

The import of these dates is that Dallas filed his chapter 13 bankruptcy case on July 1, 2020.¹⁹ Because his child support obligation was either suspended or terminated during the entirety of his bankruptcy case, Dallas owes no postpetition child support.

In his bankruptcy schedules, Dallas listed $6,000.00 of prepetition "child support arrearage through July 2020"²⁰ and $43,795.00 in unsecured debt for a "[d]ivision of property in divorce [judgment]."²¹ Amy later filed Claim # 9-1 for the $6,000.00 in prepetition child support arrearage, which is not at issue here. She then filed Claim # 9-2 to amend Claim # 9-1 and increased her claim to $50,975.00, all as domestic support. Claim # 9-2 is comprised of the undisputed $6,000.00 prepetition child support arrearage, an additional $1,000.00 for postpetition child support for July 2020, and $43,795.00 representing the chancellor's award of her half of the home equity and the Fidelity account. Dallas then filed the Objection.²²

III. CONCLUSIONS OF LAW

Section 523 of the Bankruptcy Code includes two subsections pertaining to the dischargeability of claims arising from domestic relations. Section 523(a)(5) provides that a debtor may not discharge a "domestic support obligation," which is a debt "in the nature of alimony, maintenance, or support."²³ Section 523(a)(15) expands the category to include all other debts:

to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) 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. ...

In other words, subsection (a)(5) debts are generally alimony and child support while subsection (a)(15) debts are all other debts owed to a former spouse or child arising from domestic proceedings.

Although the combination of subsections (a)(5) and (a)(15) appear to render all domestic relations debts nondischargeable, that is not the case in chapter 13. In a chapter 13 case, § 523(a)(15) debts are dischargeable, while § 523(a)(5) domestic support obligations are not.²⁴

Section 1328 of the Bankruptcy Code, providing for a debtor's discharge upon completion of a chapter 13 plan, specifically provides:

[T]he court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt... (2) of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a).

Notably missing are § 523(a)(15) debts. Thus, only those debts that are truly supportive in nature, such as alimony or child support, are nondischargeable in a chapter 13 case.²⁵

The Court of Appeals for the Fifth Circuit has held that "[w]hether a particular debt is a support obligation, excepted from discharge under 11 U.S.C. § 523(a)(5), is a question of federal bankruptcy law, not state law."²⁶ In In re Evert , the Fifth Circuit found that "if the agreement between the parties clearly shows that the parties intended the particular debt in question to reflect either support or a property settlement, then that characterization will normally control."²⁷ But in making the determination, the bankruptcy court "is not inextricably bound to the labels placed on obligations by the parties to a domestic relations proceeding."²⁸ The Court may independently evaluate the divorce and/or separation decree and if it is ambiguous, may look to extrinsic evidence.²⁹ "Whether a particular debt is nondischargeable... is an issue that must be proven by a preponderance of the evidence with the burden of proof to be carried by the party challenging dischargeability," which here, is Amy.³⁰

The Fifth Circuit has not established a comprehensive list of factors for courts to consider when determining whether an award is domestic support or a property settlement, probably due to the state-specific nature of domestic relations law.³¹ The strongest suggestion to lower courts is to examine "the intent of the parties at the time a separation agreement is executed," and "in a situation... where the written agreement and divorce decree in both form and substance clearly establish the nature of the obligation," to go no further.³² Pre-BAPCPA, the Fifth Circuit outlined "a nonexclusive list of factors" that may be considered when determining "whether a divorce obligation constitutes alimony, maintenance, or support."³³ They were "the parties' disparity in earning capacity, their relative business opportunities, their physical condition, their educational background, their probable future financial needs, and the benefits each party would have received had the marriage continued."³⁴ The Circuit has noted that "[o]ne characteristic indicative of alimony is that [an award] is normally subject to modification if the beneficiary no longer needs the support," but an "obligation is part of a property division [if] it is not altered by a change in the circumstances of the beneficiary."³⁵ The Circuit has also noted that an award of "payments over time, rather than one lump sum payment," may be indicative of alimony.³⁶

This Court has previously recognized there is no comprehensive test and in In re Sheffield , the Honorable David Houston, III, informed by Fifth Circuit precedent and Mississippi law, began the process of crafting factors for this district to determine whether an obligation is "indeed in the nature of...