Collier Bankruptcy Case Update October-21-02
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
October 21, 2002
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 109(e) Debtor’s chapter 13 case was dismissed
because his unsecured claims were in excess of 109(e) limit.
In re Vaughn (Bankr. D.N.H.)
Rule 2004 Purchasers of debtor’s notes and stocks could
not compel production of material in bankruptcy court for use in
separate securities fraud action.
In re Enron (Bankr. S.D.N.Y.)
§ 523(a)(2)(A) Debt resulting from actual fraud against
creditor excepted from discharge.
K-B Bldg. Co. v. Barber (In re Barber) (Bankr. W.D. Pa.)
§ 362 Relief from stay properly granted to allow secured
creditor to enforce security interest, despite minor error in financing
Callaway v. Hudson United Bank (E.D.N.C.)
§ 327 Counsel for debtor in possession owes no fiduciary
duty to any particular creditor.
ICM Notes, Ltd. v. Andrews & Kurth (S.D. Tex.)
§ 523(a)(5) Hold harmless clause in separation agreement
did not create a nondischargeable support obligation.
Hanjora v. Hanjora (In re Hanjora) (Bankr. N.D. Ohio)
§ 523(a)(6) Conversion of creditor’s collateral resulted in nondischargeable obligation.
J & A Brelage, Inc. v. Jones (In re Jones) (Bankr. N.D. Ohio)
Rule 5005(a)(1) Timeliness of proof of claim is determined by actual receipt by clerk, not date of mailing.
In re Wallace (Bankr. N.D. Ohio)
§ 363(f) Debtor not entitled to setoff against creditor
who purchased accounts receivable postpetition.
Schneider Nat’l, Inc. v. Bridgestone/Firestone, Inc. (E.D. Wis.)
§ 362(c)(1) Stipulated relief from stay allowed creditor to proceed with foreclosure only until confirmation of chapter 11 plan.
Atalanta Corp. v. Allen (In re Allen) (9th Cir.)
§ 522(b)(2)(A) Homestead sale proceeds were no longer exempt after being taken out of filing state which did not recognize extraterritorial homestead.
In re Ginther (Bankr. D. Kan.)
§ 726(a)(1) Bankruptcy court erred by concluding that trustee had 'commenced distribution' prior to claims filed by taxing authorities.
Anderson v. Baer (In re Anderson) (B.A.P. 10th Cir.)
§ 522 Homestead exemption in motor home allowed.
In re McClain (Bankr. M.D. Fla.)
§ 523(a)(2)(A) Obligation to creditor farmer was nondischargeable due to misrepresentations by debtor developer.
Ozburn v. Moore (In re Moore) (Bankr. M.D. Ga.)
§ 523(a)(5) Debtor’s obligation to pay ex-spouse’s student loan, which state court ruled was in nature of support, was excepted from discharge.
Milford v. Milford (In re Milford) (Bankr. M.D. Fla.)
Collier Bankruptcy Case Summaries
Debtor’s chapter 13 case was dismissed because his unsecured claims were in excess of 109(e) limit. Bankr. D.N.H. PROCEDURAL POSTURE: The chapter 13 trustee filed a motion to dismiss or convert the debtor’s bankruptcy to a chapter 7, arguing that the debtor’s unsecured debt exceeded the $290,525 limit as set forth in 11 U.S.C. § 109(e). The debtor objected, arguing that the trustee erroneously included unliquidated amounts in his section 109(e) eligibility calculation. OVERVIEW: The debtor listed unsecured claims of $615,313, plus two claims with unknown value. Two lawsuits sought damages over $600,000, plus treble damages and costs. A third lawsuit was listed as unknown in value, but was based on fraud, to recover of the purchase price of rare coins, costs, and fees. The court found the debtor was able to value the claims, and, since the underlying matter involved a contract, there was a readily determinable figure relating to the value of what was delivered to the creditors in the litigation and what they should have received under the contract. The creditors were collectively alleging violations of the Racketeer Influenced and Corrupt Organization Act, fraud and conspiracy. The difference between the bargain and what was received were the amounts listed in the schedules. There was also evidence that the figure, which substantially exceeded the debt limitation in section 109(e), was actually higher than set forth in the schedules because, at the hearing, the debtor’s counsel indicated that the two lawsuit amounts that were stated were derived from a calculation of single damages, and not the potential treble damages that could be awarded. In re Vaughn, 2002 Bankr. LEXIS 419, 276 B.R. 323 (Bankr. D.N.H. April 5, 2002) (Vaughn, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.06
Purchasers of debtor’s notes and stocks could not compel production of material in bankruptcy court for use in separate securities fraud action. Bankr. S.D.N.Y. PROCEDURAL POSTURE: Movant purchasers of the bankruptcy debtors’ notes and stocks, who were pursuing a separate securities fraud action, sought to obtain information which the creditors’ committee obtained in discovery, but the objectants who provided such discovery objected to the release of their materials. The purchasers moved for an order requiring the objectants to provide the requested materials pursuant to Fed. R. Bankr. P. 2004. OVERVIEW: The purchasers contended that discovery of the requested materials was related to the bankruptcy since it was necessary to aid the purchasers in obtaining the bankruptcy filings of certain entities for the benefit of the bankruptcy estate. The objectants maintained that the purchasers’ request was a pretext to obtain discovery for use in the securities fraud action against certain of the objectants, since discovery in that action was otherwise stayed by statute pending resolution of motions to dismiss. The bankruptcy court held that the purchasers were not entitled to the requested materials since Rule 2004 could not be used to obtain information for use in the purchasers’ securities fraud action and the purchasers offered no credible bankruptcy purpose for requesting the materials. The purchasers offered no evidence that the bankruptcy fiduciaries would not take any required action, including obtaining bankruptcy filings of other entities, to maximize the estate’s recoveries. Further, the purchasers failed to explain how such action would realistically benefit the purchasers, in view of the unlikelihood of any recovery by the purchasers in the bankruptcy distribution. In re Enron, 2002 Bankr. LEXIS 857, 281 B.R. 836 (Bankr. S.D.N.Y. August 15, 2002) (Gonzalez, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:2004.01
Debt resulting from actual fraud against creditor excepted
from discharge. Bankr. W.D. Pa. PROCEDURAL
POSTURE: Defendant debtor filed a voluntary petition under
chapter 7 of the Bankruptcy Code and stayed a pending fraudulent
transfer action against him. Plaintiff creditor filed an adversary
action against the debtor seeking a determination that a debt owed to it
by the debtor from a judgment was excepted from discharge pursuant to 11
U.S.C. § 523(a)(2)(A). OVERVIEW: The creditor
claimed that the debtor owed a debt from his fraud. The debtor had
appealed the judgment. The creditor asserted that collateral estoppel
prevented the debtor from denying that the debt was the result of his
actual fraud. The bankruptcy court examined and applied Pennsylvania law
regarding collateral estoppel. The court found that not all of the
requirements for collateral estoppel were met. The question whether the
debtor acted with actual intent to defraud was not an issue in the prior
case, as it was in the bankruptcy adversary action. The court did not
believe that the debtor had a full and fair opportunity to litigate the
issue whether he acted with actual intent to defraud the creditor in the
state court action. The court believed, from the totality of the
evidence presented, that the debtor intended to defraud the creditor.
The court concluded that the debtor obtained monetary payments by means
of actual fraud and that he knowingly participated in a scheme to divert
assets for his own use. The court found that section 523(a)(2)(A)
applied to the debt at issue. K-B Bldg. Co. v. Barber (In re
Barber), 2002 Bankr. LEXIS 836, 281 B.R. 617 (Bankr. W.D. Pa.
August 9, 2002) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Relief from stay properly granted to allow secured creditor
to enforce security interest, despite minor error in financing
statement. E.D.N.C. PROCEDURAL
POSTURE: Appellant bankruptcy trustee appealed from an order
entered by the bankruptcy court. The trustee sought review of the
bankruptcy court’s denial of his motion for sale of property free
and clear of liens and granting of appellee creditor’s motion for
relief from the automatic stay. OVERVIEW: The creditor
moved for relief from the automatic stay, seeking leave to foreclose
upon the debtor’s real property collateral and take possession and
dispose of all personal property collateral. The trustee sought
permission to sell the debtor’s real and personal property, with
liens attaching to the proceeds in order of their priority. At the crux
of the dispute was whether the signature affixed to the financing
statement (UCC # 99-015) was sufficient to render the financing
statement valid and enforceable as against the trustee. The trustee
maintained that UCC # 99-015 was invalid and thus that the collateral
described therein was unperfected. The creditor conceded that the
debtor’s signature on the instrument was imperfect, but contended
that the defect was a 'minor error' pursuant to N.C. Gen. Stat. §
25-9-402(8). The bankruptcy court properly concluded that the flawed
signature was a 'minor error' and suggested agency sufficient to render
the financing statement valid. Thus, the creditor was entitled to relief
from the automatic stay imposed by 11 U.S.C. § 362 in order to
enforce valid security interests and liens against the property
described in UCC # 99-015. Callaway v. Hudson United
Bank, 2002 U.S. Dist. LEXIS 15114, — F. Supp.2d —
(E.D.N.C. March 29, 2002) (Boyle, C.D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01
Counsel for debtor in possession owes no fiduciary duty to
any particular creditor. S.D. Tex. PROCEDURAL
POSTURE: Plaintiff company filed suit and asserted claims for
breach of fiduciary duty and tortious interference against defendant law
firm. The law firm worked for a bankrupt corporation whose bank notes
the company purchased and were attempting to resell. The firm moved for
summary judgment. OVERVIEW: There was a controversy
over payment of administrative expenses, specifically attorney fees,
which led to the termination of a purchase transaction. After the
company purchased the outstanding notes held by a bank, it held the
primary lien position on the bankrupt corporation’s assets. When
principals of a yet-to-be-formed purchaser terminated a purchase
transaction for certain assets, the company foreclosed on its security
interests in bankrupt corporation’s assets. If the transaction had
been consummated, the yet-to-be-formed company would have assumed the
notes owned by the company. The company took the position that a letter
demanding the payment of all administrative claims at closing, including
the law firm’s fees, was a breach of the fiduciary duty and that
this breach caused the transaction to fail. The court held that the
cases cited by the company did not support a finding that counsel for
the debtor owed particular fiduciary duties to the estate or its
creditors. A ruling that counsel of a debtor in possession owed a
fiduciary duty to a particular creditor was contrary to the tenet of the
bankruptcy law, which mandated that debtor’s counsel be
disinterested. ICM Notes, Ltd. v. Andrews &
Kurth, 2002 U.S. Dist. LEXIS 7456, 278 F. Supp.2d 117 (S.D.
Tex. April 19, 2002) (Hittner, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.01
Hold harmless clause in separation agreement did not create a
nondischargeable support obligation. Bankr. N.D. Ohio
PROCEDURAL POSTURE: Creditor former husband filed a
complaint seeking a determination that obligations arising from a
divorce were nondischargeable by the debtor ex-wife under 11 U.S.C.
§ 523(a)(5). The former husband moved for summary judgment. The
debts concerned consumer credit debts that the ex-wife was to assume,
and thereafter hold the former husband harmless.
OVERVIEW: The court found the parties’ separation
agreement did not provide for spousal support. The debtor simply
assumed, without any direct obligation to pay the former husband, the
debts. The obligations did not terminate upon the remarriage, death, or
eligibility for benefits. Since the separation agreement held no spousal
support was to be awarded to either party, any obligations contained
therein were viewed as a property settlement. It was not shown that it
was the intent to create a support obligation. While income and custody
concerns could bear on an award of spousal support, it was common for a
parent to be awarded custody of the children without also being awarded
spousal support. The disparity in the parties’ income, while not
insignificant, was not extremely large. The hold harmless clause did
not, standing alone, create a support obligation. The debtor filed
bankruptcy shortly after the divorce, raising questions of whether the
debtor ever actually intended to pay the debts under the separation
agreement. Those were serious questions of fraud. But, section 523(a)(5)
did not make allowances for a party’s fraud. Hanjora
v. Hanjora (In re Hanjora), 2001 Bankr. LEXIS 1882, 276 B.R.
822 (Bankr. N.D. Ohio November 5, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11
Conversion of creditor’s collateral
resulted in nondischargeable obligation. Bankr. N.D.
Ohio PROCEDURAL POSTURE: Plaintiff bankruptcy
creditor brought an adversary proceeding against defendant debtor,
alleging that the creditor’s judgment debt was not dischargeable
under 11 U.S.C. § 523(a)(6) based on the debtor’s willful and
malicious conduct in retaining the proceeds from the sale of collateral
in which the creditor had a security interest. The bankruptcy court
conducted a trial. OVERVIEW: The debtor contended that
he was unaware that the creditor held a first and best security interest
in collateral which the debtor sold, and that the debtor erroneously
thought that his father’s prior security interest did not lapse.
The bankruptcy court held that the creditor’s judgment debt was
not dischargeable, since the debtor failed to rebut the presumption that
the debtor acted willfully and maliciously in failing to protect the
creditor’s security interest in the collateral despite having
knowledge of the implications of the security agreement. Even if the
debtor’s father maintained his security interest, such fact only
implicated the priority of the creditor’s interest and did not
negate it. Further, the debtor’s knowledge that his sale of the
collateral would potentially injure the creditor’s lien rights was
sufficient to support the conclusion that the debtor’s conduct was
willful and malicious. J & A Brelage, Inc. v. Jones (In
re Jones), 2001 Bankr. LEXIS 1892, 276 B.R. 797 (Bankr. N.D.
Ohio September 25, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
Timeliness of proof of claim is determined by
actual receipt by clerk, not date of mailing. Bankr. N.D.
Ohio PROCEDURAL POSTURE: In a bankruptcy action,
creditor bank moved to have its proof of claim deemed timely filed under
the mailbox rule, Fed. R. Bankr. P. 9006(e). OVERVIEW:
The court sent the parties notice of the deadline for filing a proof of
claim. One day prior to the deadline, the bank placed in the mail its
proof of claim to the court. The claim, however, was not actually
received by the clerk of the court until four days after the deadline.
The bank argued that its proof of claim should have been deemed timely
filed because it was mailed prior to the deadline. The court, however,
rejected the applicability of the mailbox rule as it pertained to the
timeliness of a proof of claim. The court found that Fed. R. Bankr. P.
5005(a)(1) provided that a proof of claim could not be considered filed
until it was received by the court. Since no dispute existed that the
proof of claim filed by the bank was received after the deadline set by
the court, the proof of claim could not be considered timely filed.
In re Wallace, 2001 Bankr. LEXIS 1885, — B.R.
— (Bankr. N.D. Ohio November 5, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:5005.02; 10:9006.11
Debtor not entitled to setoff against creditor
who purchased accounts receivable postpetition. E.D.
Wis. PROCEDURAL POSTURE: Plaintiff creditor sued
defendant debtor to collect unpaid balances allegedly owed on accounts
receivable that the creditor acquired pursuant to a bankruptcy court
order which authorized the sale of another company’s assets to the
creditor. Both sides consented to proceed before a magistrate judge. The
creditor and the debtor each moved for summary judgment.
OVERVIEW: When the other company filed for bankruptcy
it owed the debtor a certain amount of money for tires sold on credit to
the company by the debtor. The debtor used the company for certain
transportation services and as a result the debtor owed the company
money for those services. The creditor, pursuant to the bankruptcy
order, purchased the company’s accounts receivable. The debtor
sought a setoff regarding the amount it was owed by the company against
its debt with the company for transportation services. The court held
that the debtor could only obtain a setoff following a free and clear
sale if the setoff was actually obtained prior to the bankruptcy filing.
The debtor did not present facts which indicated that it had actually
obtained a setoff prior to the filing of the voluntary petition for
bankruptcy. As such, there was no factual basis for finding that the
debtor was entitled to a setoff for the money owed to it by the company.
Schneider Nat’l, Inc. v. Bridgestone/Firestone,
Inc., 2001 U.S. Dist. LEXIS 23709, 200 F. Supp.2d 1006 (E.D.
Wis. August 22, 2001) (Gorence, M.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.06
Stipulated relief from stay allowed creditor to
proceed with foreclosure only until confirmation of chapter 11
plan. 9th Cir. PROCEDURAL POSTURE:
Appellant creditors challenged a decision of the district court, which
affirmed a bankruptcy court’s confirmation of a plan reorganizing
the assets of appellee debtor. OVERVIEW: Before the
bankruptcy court confirmed the debtor’s reorganization plan, the
debtor entered into a stipulation with the creditors, approved in a
formal order by the bankruptcy court, that permitted one creditor to
foreclose on several of its liens. The bankruptcy court, however,
confirmed the reorganization plan before the creditor completed
foreclosure on the property and the plan did not permit the creditor to
continue with the foreclosures. The creditors contended that the
bankruptcy court erred by confirming a reorganization plan that did not
incorporate either the terms of the stipulation between the parties or
the bankruptcy court’s order approving it. The appellate court
held that the bankruptcy court did not err in confirming without a
finding of 'special circumstances' a reorganization plan that did not
incorporate the terms of the stipulation or the stay relief order
because neither document clearly indicated that it bound either the
parties or the court in any subsequent reorganization plan.
Atalanta Corp. v. Allen (In re Allen), 2002 U.S.
App. LEXIS 16532, 300 F.3d 1055 (9th Cir. August 16, 2002) (Sneed,
Collier on Bankruptcy, 15th Ed. Revised 3:362.06
Homestead sale proceeds were no longer exempt after being
taken out of filing state which did not recognize extraterritorial
homestead. Bankr. D. Kan. PROCEDURAL
POSTURE: Debtors filed chapter 7 bankruptcy in Kansas. They
sought to claim the proceeds of the sale of their Kansas homestead as
exempt, under 11 U.S.C. § 522(b)(2)(A), intending to reinvest in
Colorado real estate. The trustee objected to the claim of exemption on
the grounds that Kansas did not recognize an extraterritorial homestead.
OVERVIEW: The debtors sold their Kansas homestead and
received the sale proceeds prior to filing in bankruptcy. The debtors
obtained employment in Colorado, establishing a domicile there, and
intended to purchase a home in Colorado. They then filed under chapter 7
in Kansas at a time that they had been domiciled in Kansas for the
greater part of the previous 180 days. The bankruptcy court agreed with
the trustee that the proceeds of sale of the debtors’ Kansas
homestead were not exempt under applicable Kansas law. Though Kansas
homestead laws were to be liberally construed in favor of the exemption,
Kansas Supreme Court holdings were to the effect that Kansas exemption
laws were without effect beyond the territorial boundaries of the state.
The court noted that, had the debtors waited a few more days and filed
their chapter 7 petition in Colorado, they could have claimed
Colorado’s homestead exemption. In re
Ginther, 2002 Bankr. LEXIS 849, 282 B.R. 16 (Bankr. D. Kan.
August 7, 2002) (Nugent, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:348.02; 4:522.01
Bankruptcy court erred by concluding that
trustee had 'commenced distribution' prior to claims filed by taxing
authorities. B.A.P. 10th Cir. PROCEDURAL
POSTURE: The debtor and creditor state taxing authority
appealed from a bankruptcy court order that approved the chapter 7
trustee’s final report and concluded that the trustee had
commenced distribution under 11 U.S.C. § 726(a)(1) before several
taxing authorities filed their claims. They argued that distribution had
not commenced when the final report was filed, thus, the claims
qualified for distribution. OVERVIEW: The appellate
panel found that because 'commences distribution,' as used in 11 U.S.C.
§ 726(a)(1) was not defined in the Bankruptcy Code, and the
language in section 726(a)(1) was unambiguous, the plain meaning of the
term was to be used. After reviewing the definitions of 'commence' and
'distribution,' the panel found that the appropriate time was the time
at which the bankruptcy court approved the final report. Up until that
time, distribution was 'proposed.' The trustee, in his final report,
stated that he had examined all claims filed in the case, and that the
proposed distribution was proper. After the filing of the
trustee’s final report, parties in interest were given a time in
which to object, and therefore, distribution could change. The time the
trustee 'commenced distribution' was the date on which the final report
was approved, not when the final report was filed with the court.
Anderson v. Baer (In re Anderson), 2002 Bankr.
LEXIS 431, 275 B.R. 922 (B.A.P. 10th Cir. April 16, 2002) (McFeeley,
Collier on Bankruptcy, 15th Ed. Revised 6:726.02
Homestead exemption in motor home allowed. Bankr. M.D. Fla. PROCEDURAL POSTURE: Husband and wife debtors filed a chapter 13 bankruptcy. Creditors and the chapter 13 trustee (collectively, creditors) objected to the debtors’ claim of homestead exemption. The creditors contended that the real property could not be exempt because there was no permanent residence on the property, only a motor home. Alternatively, the creditors contended that the debtors did not intend to permanently reside in the motor home. OVERVIEW: The bankruptcy court found the nexus between the motor home and the real property sufficient to satisfy the physical permanency requirement of the homestead exemption with respect to the real property. The debtors testified that the motor home had a permanent sewer and water hookup, underground electricity, and was on a permanent concrete pad. It was irrelevant that the motor home could have been driven away. What was important was that the debtors actually lived on the real property being claimed as exempt; a tent could have established the requisite degree of permanency. The remaining issue was whether the debtors intended to permanently reside on the property on the petition date. The debtors indicated on their bankruptcy filings that they had lived on the real property for about one year prior to their bankruptcy filing. The debtors applied for an ad valorem property tax exemption well before the filing of their bankruptcy petition. The status of property as homestead for ad valorem tax exemption purposes was persuasive as to the debtors’ intent. In re McClain, 2002 Bankr. LEXIS 832, 281 B.R. 769 (Bankr. M.D. Fla. June 13, 2002) (Funk, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:544.01
Obligation to creditor farmer was
nondischargeable due to misrepresentations by debtor developer.
Bankr. M.D. Ga. PROCEDURAL POSTURE: Defendant,
a former real estate developer, filed a petition under chapter 7 of the
Bankruptcy Code. Plaintiff, a farmer who had sold the developer land,
filed a complaint alleging the debt on the underlying sale was
nondischargeable under 11 U.S.C. § 523(a)(2)(A), (4), (6) (West
1993 & Supp. 2001). Plaintiff died prior to trial and the court
substituted plaintiff’s son (hereinafter plaintiff) as the
administrator of his father’s estate. OVERVIEW:
The farmer contended he was persuaded to sell part of his farm by the
developer’s false representation that he would sign and record a
deed to secure debt in favor of the farmer, and, that as a result of the
developer not recording the deed, he had sustained a loss. The farmer
contended further that the developer’s debt was therefore
nondischargeable under section 523(a)(2)(A), (4), and (6). The developer
denied that he agreed to record the deed to secure debt. The court
concluded from the developer’s failure to obtain releases from the
farmer when he sold individual lots in the developed parcel, as called
for under the terms of the original sales contract between the parties,
that the developer knew that the farmer’s deed to secure debt had
not been filed for record. The court found that the developer made a
false representation that he would record the farmer’s deed to
secure debt, and intentionally failed to record the deed to secure debt,
that the farmer’s reliance was justified, and that the farmer
suffered a loss because his deed to secure debt, if recorded, would have
had priority over subsequent liens, including the liens of the banks
that foreclosed. Ozburn v. Moore (In re Moore),
2002 Bankr. LEXIS 420, 277 B.R. 141 (Bankr. M.D. Ga. April 16, 2002)
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Debtor’s obligation to pay
ex-spouse’s student loan, which state court ruled was in nature of
support, was excepted from discharge. Bankr. M.D. Fla.
PROCEDURAL POSTURE: Plaintiff was debtor’s former
wife. Their divorce decree provided that debtor would pay
plaintiff’s student loan. Debtor filed chapter 7. Plaintiff filed
a motion for contempt in state court to enforce the divorce decree.
Plaintiff later filed an adversary proceeding seeking to except the
student loan debt from the discharge. The state court found contempt and
deemed debtor’s obligation was a more of a support financial
obligation. OVERVIEW: The issue was whether
debtor’s obligation to pay plaintiff’s student loan was
excepted from discharge under 11 U.S.C. § 523(a)(5) which provided
that, if a marital obligation was in the nature of alimony or support,
it was nondischargeable. The bankruptcy court noted that state courts
had concurrent jurisdiction with bankruptcy courts to determine whether
an obligation was in the nature of alimony or support for section
523(a)(5) purposes. In the instant action, the state court had already
determined that debtor’s obligation to pay plaintiff’s
student loan was in the nature of support and should not be discharged
in debtor’s bankruptcy. The bankruptcy court found that, because
all of the elements of collateral estoppel were satisfied, the debtor
was estopped from arguing that his obligation to pay plaintiff’s
student loan debt was not in the nature of support. The obligation was
therefore nondischargeable pursuant to section 523(a)(5).
Milford v. Milford (In re Milford), 2002 Bankr.
LEXIS 831, 281 B.R. 742 (Bankr. M.D. Fla. March 5, 2002) (Funk,
Collier on Bankruptcy, 15th Ed. Revised 4:523.11