BANKRUPTCY NO 99-11219 “A”.United States Bankruptcy Court, E.D. Louisiana.
July 20, 2009
REASONS FOR ORDER
ELIZABETH MAGNER, Bankruptcy Judge
This matter came before the Court on Debtor, Pellie F. Moody’s, Amended Motion to Reopen Case to Enforce Discharge (P-81).
Facts
Pellie F. Moody (“Debtor”) complains that Henry Kent Muller, Sr., (“Muller”) is collecting on a judgment discharged in her bankruptcy. Muller obtained the judgment against Irvin Moody, Debtor’s husband, on February 6, 1998 (“Judgment”). Shortly thereafter, Irvin Moody filed bankruptcy under chapter 7, case number 98-11436. Muller objected to the discharge of Irvin Moody, and, on February 11, 1999, the Court entered an Order Denying Discharge pursuant to 11 U.S.C. § 727.
Debtor filed a petition for relief under chapter 13 of the bankruptcy code on March 15, 1999, and listed the Judgment as an unsecured nonpriority claim in her schedules. Her plan proposed to pay unsecured creditors 100% of their claims. Thereafter, Muller filed an Objection to Plan Confirmation (“Objection”) and a Motion for Relief from Stay in Debtor’s bankruptcy case, asserting that the debt was owed by Irvin Moody, individually, and was not properly included in Debtor’s bankruptcy.
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On September 14, 1999, the Court conducted a hearing on Muller’s Motion for Relief from Stay, Debtor’s Confirmation of Plan, and Muller’s Objection to same. After considering the statements of Muller in open court, the record of the case, and the arguments of the Trustee and Debtor’s counsel, the Court issued a Memorandum Opinion in which it found:
a) The Judgment, while rendered against Moody, was a “community claim” under 11 U.S.C. § 101(7);[1]
b) As a community claim, the Judgment was properly included in Debtor’s plan; and
c) Because Debtor’s plan was otherwise confirmable and proposed to pay 100% of all allowed unsecured claims, relief from the automatic stay was not appropriate.
Muller’s Motion for Relief was denied, his Objection overruled, and Debtor’s plan was confirmed on September 17, 1999. While the Court noted that the Judgment was properly included in the bankruptcy, it did not consider whether the debt was dischargeable.
The last date to file proofs of claim was July 13, 1999. Despite having notice of the bar date, Muller did not file his claim until October 5, 1999. The Chapter 13 Trustee filed an Objection to the late-filed claim, which was sustained, resulting in the disallowance of Muller’s claim on November 9, 1999.[2]
Pellie Moody received a discharge on June 29, 2000.
Debtor filed the Motion to Reopen Case in Order to Enforce Discharge and Request for Sanctions after Muller attempted to collect upon the Judgment by having Irvin Moody’s wages garnished. The issue before the Court is whether the Judgment was discharged in Debtor’s
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bankruptcy.
A hearing on the Motion was held on June 21, 2009. Counsel for the Debtor appeared, Muller did not. At the conclusion of the hearing Debtor’s counsel requested additional time to file a post hearing memorandum which was granted. After the submission of the memorandum, the Court took the matter under advisement.
Law and Analysis
Debtor argues that the Judgment was properly included in her case by the Court’s September 17, 1999, decision and was discharged through her bankruptcy. She asserts that Muller did not appeal any Order entered by the Court and that res judicata
prevents the Court from revisiting that decision. The issue presented is not barred by the principles of res judicata because the Court never addressed the issue of discharge but rather whether or not the Judgment was subject to administration. Conversely, the question presented by this Motion is the effect of Debtor’s discharge on the Judgment. Section 524 describes the effect of discharge and provides, in relevant part:
(a) A discharge in a case under this title —
(3) operates as an injunction against the commencement or continuation of an action . . . to collect . . . against, property of the debtor of the kind specified in section 541(a)(2) of this title that is acquired after the commencement of the case, on account of any allowable community claim. . . .
* * *
(b) Subsection (a)(3) of this section does not apply if —
(1)(A) the debtor’s spouse is a debtor in a case under this title, or a bankrupt or a debtor in a case under the Bankruptcy Act, commenced within six years of the date of the filing of the petition in the case concerning the debtor; and
(B) the court does not grant the debtor’s spouse a discharge in such case concerning the debtor’s spouse.
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Section 541 describes property of the estate, and provides, in relevant part:
(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is —
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
Under these provisions, a discharge would prohibit collection of a community debt against property of the Debtor, whether existing at the time the case was instituted or acquired subsequently. However, this general provision has an important limitation relevant to this case. Within the six years preceding Debtor’s case, Debtor’s spouse filed his own bankruptcy case and was denied a discharge. As a result, the discharge available to Debtor does not extend to this Judgment. Therefore, the existing community and any after acquired property owned by Debtor or her spouse may be utilized to satisfy the Judgment.
The previous Order of the Court determined that the Judgment was a community debt properly subject to administration in this case. During the administration of Debtor’s case, the automatic stay prohibited the collection efforts of Muller. During this period, Muller was limited to funds received under Debtor’s plan. However, at the conclusion of Debtor’s case, the automatic stay lapses and is replaced by the discharge injunction. As noted above, the discharge injunction does not extend to this debt.
Debtor invites this Court to add an additional condition, not contained in the statute, that would modify the above conclusion. Debtor complains that to apply the statute as written, yields an absurd result. Debtor argues that in 1998, when Debtor’s spouse flied his chapter 7 case, his nondischargeable debt could have been discharged through a subsequently filed chapter 13 plan. Instead, Debtor filed her own chapter 13, included the Judgment, and expected the same result.
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Therefore, Debtor reasons, if discharge would have been available to Irvin Moody had he filed the chapter 13 rather than Debtor, to deny discharge of the Judgment is absurd.
While the Court does not disagree with Debtor’s analysis, the fact remains that Debtor’s spouse did not file his own chapter 13 case following his denial of discharge. While Debtor argues that this may create an absurd result, in some cases this distinction is important. For example, if an individual files a chapter 13 bankruptcy (“Original Debtor”), then the Original Debtor’s separate property is included in his estate and can be used to pay claims. If the plan proposes to pay creditors 100%, the automatic stay also extends to collection efforts against the Original Debtor’s spouse. If instead, the Original Debtor’s spouse files (“Spousal Debtor”), once again the community assets are included in the estate but now only the separate property of the Spousal Debtor is included. As with the Original Debtor’s filing, if the plan proposes to pay 100% of claims, the automatic stay applies to the Original Debtor.
On the completion of the case, a discharge is granted to the filing party. The community is also released from the claims of community creditors and the claims of the filing spouse’s separate creditors. The separate property of the non-filing spouse is not released from any claims. Even so, the non-filing spouse has received a moratorium on collection during the administration of the filing spouse’s case including the protection from seizure of his separate assets. During this period, the non-filing spouse is free to acquire, expend and dissipate his separate estate.[3] By the time the filing spouse defaults on her case, or the case concludes, the creditor whose debt is not discharged may find that the non-filing spouse has placed assets, otherwise available for the satisfaction of his debt,
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beyond the reach of the creditor. Thus, who files may have significance and may provide a reason why exceptions to § 524 exist.
While this Court could continue to speculate on why Congress placed this distinction in the code, ultimately it is not this Court’s prerogative to determine the wisdom of Congress’ choice. The Court is bound to apply a clearly written statute with an arguably reasonable policy basis as written.[4]
The final issue is whether the Judgment is automatically exempt from discharge, or if a formal action objecting to the discharge is necessary. There is no controlling jurisprudence on the issue of whether the provisions of § 524(b)(1) are self-executing. The Court finds that it is unnecessary to reach that question because Bankruptcy Rule 4007(b) provides that “[a] complaint [excepting a debt from discharge under § 524] . . . may be filed at any time.” The Court will treat the Debtor’s Motion to Enforce Discharge as a request to determine the dischargeability of the Judgment.
After considering the facts of the case, the relevant law, and for the reasons set forth above, the Court determines that the Judgment is not dischargeable as to Irvin Moody and that community assets are answerable to its satisfaction.