1 IN THE UNITED STATES BANKRUPTCY COURT 2 FOR THE DISTRICT OF PUERTO RICO
3 IN RE: CASE NO. 15-02855 (ESL)
4 WILFREDO ENRIQUE ARIAS NUSSA CHAPTER 13
5 Debtor 6 OPINION AND ORDER 7 This case is before the court upon the Motion for Summary Judgment (Docket No. 84) 8 filed by creditor Ana Cristina Montaner Rodriguez (hereinafter referred to as “Ms. Montaner”) 9 and the Reply thereto filed by the Debtor (Docket No. 88). Also before the court is Joint Pre- 10 Trial Report filed by the Debtor and Ms. Montaner (hereinafter referred to as the “Parties”) 11 (Docket No. 76). Ms. Montaner argues that she is a secured creditor in the amount of 12 $122,700.00 (Claims Register, proof of claim #10-3). Moreover, she sustains that the basis for 13 her claim is the Debtor’s (her ex-spouse) breach of the stipulations reached between the Parties 14 as part of their divorce petition which were incorporated into the State Court’s Judgment 15 granting the Parties’ consensual divorce petition. Ms. Montaner argues that her claim is secured 16 by her pre-existing interest and/or equitable lien over the property located at La Floresta, Apt. 17 1042, Road 831, Bayamón, Puerto Rico (hereinafter referred to as the “Real Property”) which 18 the Parties purchased during their marriage. The Debtor in his Reply does not contest that Ms. 19 Montaner has a claim secured by a judicial lien but instead argues that the judicial lien can be 20 avoided pursuant to 11 U.S.C. §522(f)(1) because it impairs his homestead exemption. 21 For the reasons stated below, the Motion for Summary Judgment (Docket No. 84) filed 22 by Ms. Montaner is hereby denied. 23 Jurisdiction 24 The court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b). This is a core 25 proceeding pursuant to 28 U.S.C. §157(b)(2)(B). 26
27 1 Procedural Background 2 The Debtor filed a bankruptcy petition under Chapter 13 of the Bankruptcy Code on 3 April 17, 2015 (Docket No. 1). In Schedule A- Real Property, the Debtor listed the Real 4 Property as having a current value as $142,500.00 (Docket No. 1, p. 23). The Real Property is 5 encumbered by two mortgages for a total of $122,700 (Schedule D, Docket No. 1, p.28). The 6 Debtor included Ms. Montaner as a co-debtor of mortgages secured by the Real Property in 7 Schedule H but did not list her as a co-owner in Schedule A. (Docket No. 1, pp.23, 34). The 8 deadline to file proof of claims for non-governmental entities was August, 17, 2015 (Docket 9 No. 6). On June, 17, 2015, Ms. Montaner filed a proof of claim in the amount of $142,500.00 10 claiming $122,700.00 as secured (proof of claim #10-1). The only evidence attached to proof of 11 claim #10-1 was a loan verification statement from Doral Bank. 12 On June, 18, 2015, Ms. Montaner, appearing pro se, filed an Explanatory Motion 13 (Docket No. 12) summarizing the stipulations which she alleged Debtor did not comply with 14 and the status of the State Court Case No. D DI2010-24521. She also requested to be allowed 15 “to continue legal efforts, and/or coordinating meetings with Arias Nussa and his legal 16 representatives in order to market the [Real Property] and promote its sale.” (Docket No. 12, p. 17 2). Ms. Montaner declared that the Debtor had breached the stipulations related to the Real 18 Property which required him to make the monthly mortgage payments and to attempt to re- 19 finance the loan secured by the Real Property. She also stated that in exchange for being 20 released from the mortgage, she agreed to transfer her fifty percent ownership interest to the 21 Debtor. On June 23, 2015, the court entered an Order granting the Debtor, the Chapter 13 22 trustee and all parties in interest fourteen days to reply and/or oppose the motion filed by Ms. 23 Montaner at Docket No.12 (Docket No. 15). 24 On June 25, 2015, the Chapter 13 Trustee filed an objection to proof of claim #10 by 25 Ms. Montaner arguing that it fails to provide evidence of her security interest as required by 26
27 1 Ms. Montaner attached two motions for contempt filed in the State Court case dated January 9, 2015 and February 18, 2015. (Docket No. 12, pp. 5-8). 1 FRBP 3001(d) (Docket No. 16). The Chapter 13 Trustee also argued that there was an 2 inconsistency in the amounts claimed by Ms. Montaner. On June 30, 2015, the Chapter 13 3 Trustee requested an extension of twenty-one (21) after the Debtor files his response to Docket 4 No. 12 to comply with the Order at Docket No. 15 (Docket No. 19) which was granted on July 5 9, 2015 (Docket No. 24). On July 3, 2015, the Debtor requested an extension of twenty eight 6 (28) days to comply with the Order at Docket No. 15 (Docket No. 21) which was granted on 7 July 7, 2015 (Docket No. 23). 8 Thereafter on July 23, 2015, the Chapter 13 Trustee filed an amended objection to proof 9 of claim #10 arguing that: (i) Ms. Montaner has not demonstrated her right to payment pursuant 10 to Section 101(5)(A); and (ii) the amounts in the proof of claim are inconsistent (Docket No. 11 27). On July 31, 2015, the Debtor filed an objection to proof of claim #10 adopting the 12 arguments made by the Chapter 13 Trustee and declaring that the proof of claim is not 13 supported by proper evidence (Docket No. 31). 14 On August 3, 2015, the Debtor filed Debtor’s Reply and Opposition to Explanatory 15 Motion Filed by Claimant Ana Cristina Montaner arguing that Ms. Montaner is requesting 16 relief which cannot be granted by the court as she “is not a creditor but a co-debtor with Debtor” 17 (Docket No. 32, p.1, ¶5). In addition, the Debtor declares that through his bankruptcy and 18 Chapter 13 Plan he “will make the necessary payments to the mortgage loan and eventually, 19 after achieving a better economic position, refinance the property in order to release Ms. 20 Montaner as a co-debtor in the Mortgage loan” (Docket No. 32, p.2, ¶9). On August 24, 2015, 21 the Chapter 13 Trustee filed the Trustee’s Motion to Comply with Order Dkt. 24 arguing that: (i) 22 Ms. Montaner would have to seek relief from the automatic stay to continue the state court 23 actions; (ii) since Ms. Montaner “does not allege to have an ownership right over the [Real 24 Property], thus, it is not clear why she has a right to demand the sale of the property”; and (iii) it 25 is premature to state his position as to the refinancing of the mortgage loans because the Debtor 26 has not filed a motion under Section 364 (Docket No. 42). On August 31, 2015, the court 27 entered an Order scheduling a hearing for October 28, 2015, to consider the Explanatory 1 Motion filed by Ms. Montaner and the Debtor and Chapter 13 Trustee’s replies thereto (Docket 2 No. 45). 3 On September 4, 2015, the court entered an Order granting as unopposed the Chapter 13 4 Trustee’s amended objection to proof of claim #10 and the Debtor’s objection to proof of claim 5 #10 (Docket No. 47). On October 14, 20152, Ms. Montaner filed an amended proof of claim in 6 the amount of $122,700 claiming that it is fully secured (proof of claim #10-2). In addition, she 7 stated that the basis for the claim is the divorce decree in the State Court Case No. DDI2010- 8 2452 and declared that the basis for the perfection was a judicial lien. Moreover, she attached 9 the Judgment and the Divorce Petition which includes the stipulations reached by the Parties as 10 part of the divorce proceedings. Subsequently, on October 27, 2015, Ms. Montaner filed a third 11 amended proof of claim which included an Amended Attachment to Amended Proof of Claim 10 12 (proof of claim #10-3). 13 On October 28, 2015, during the hearing held on confirmation and other contested 14 matters, the court granted Ms. Montaner fourteen (14) days to move for reconsideration of the 15 Order disallowing proof of claim #10 (Docket Nos. 55 (Audio File) and 56 (Minute Entry)). 16 On November 11, 2015, Ms. Montaner filed a Motion for Reconsideration pursuant to 17 Section 502(j) and FRBP 3008 arguing that: (i) Congress has recognized that “in the course of a 18 separation or divorce spouses could incur in new debts that are claimable against a former 19 spouse in a bankruptcy proceeding” and that those debts were codified in Sections 523(a)(5) and 20 523(a)(15); (ii) “a former spouse has a claim based on an obligation originated in accordance to 21 nonbankruptcy law that was incurred by a debtor as part of a divorce proceeding or marital 22 separation settlement” and; (iii) that “a claim exists also, if the claimant has a remedy under 23 nonbankruptcy law to execute and enforce its claim, such as requesting the state court to held 24 [sic] a the noncompliance party in contempt.” (Docket No. 58). Ms. Montaner cites several 25 cases including but not limited to In re Wodark, 425 B.R. 834 (10th Cir. BAP (Colo.) 2010); In 26
27 2 On October 14, 2015, attorney Luis Francisco Zayas Marxuach filed a Motion for Appearance of Counsel on behalf of Ms. Montaner (Docket No. 51). 1 re Gibson, 219 B.R. 195 (B.A.P. 6th Cir. 1998); In re Brown, No. 11-19048-JNF, 2012 WL 2 10191, at *1 (Bankr. D. Mass. Jan. 3, 2012); and In re Burckhalter, 389 B.R. 185, 186 (Bankr. 3 D. Colo. 2008). She sustains that during the course of the divorce proceeding the Debtor 4 incurred in four new obligations: (1) to make the monthly mortgage payments in the amount of 5 $914.13, (2) to perform all necessary transactions with the mortgagor to release her from the 6 mortgage within one year, (3) to inform the State Court of all transactions and efforts made to 7 release her from the mortgage, and (4) to “pay and release Ms. Montaner of, all joint debts in 8 the amount of $29,809.53, particularly the American Express credit card number ending with 9 88054 in the amount of $18,835.20.” (Docket No. 58, p. 13, ¶¶46-48)3. Thus, Ms. Montaner 10 argues that she has a claim against the Debtor because he failed to comply with those 11 obligations which were incorporated into the State Court Judgment. In addition, she argues her 12 claim is secured “by her own share of the apartment, since she could request the sale of the 13 apartment to pay her share of the mortgage and be release [sic] from it.” (Docket No. 58, p. 14, 14 ¶54). Finally, she argues her claim “falls under [the] definition of a claim as per 11 U.S.C. 15 §101(5), since it is one that Debtor “incurred in the course of a divorce decree” as defined in 16 Section 523(a)(15), as recognized by Congress.” (Docket No. 58, p. 15, ¶60). 17 After several procedural events4, on January 27, 2016, the Debtor filed Debtor’s Reply 18 and Opposition to Motion for Reconsideration arguing that Ms. Montaner does not have a claim 19 since she does not have a right to payment pursuant to Section 101(5). In addition, he argues 20 that “the debtor’s obligation was not to satisfy at once the full mortgage balance as it seems to 21 be requested by the claimant in her proof of claim no. 10” but that “[h]is obligation related to 22 payment is to keep current with his mortgage payments until the release of claimant from the 23 mortgage debt was granted.” (Docket No. 72, p. 3, ¶10). Thus, the Debtor argues that Ms. 24 Montaner has not shown that “the debtor incurred in a debt in her favor that satisfies the 25 3 Banco Popular de Puerto Rico also filed proofs of claims as to these joints debts (the mortgage loans and credit 26 card bills). See proofs of claims #1, #4, #7 and #11-2. 4 See Docket Nos. 60, 61, 63, 64 and 65. On December 28, 2015, the court entered an Order granting the Debtor 27 sixty (60) days to reply to the Motion for Reconsideration but advancing that it would “consider the matter on the merits, and not as a default order for failure to timely respond.” (Docket No. 65). 1 qualifying language of sec. 523(a)(15).” (Docket No. 72, p. 4, ¶14). As to the payment of the 2 joint debts, the Debtor sustains that once again “the intention of the debtor was to release Ms. 3 Montaner from all joints debts as was stipulated”. (Docket No. 72, p. 5, ¶16). The Debtor also 4 sustains that the “[c]laimant does not explain in her motion the rationale behind the 5 classification of the alleged debts in her favor as secured. Debtor is not aware of any legal 6 grounds which may support that treatment.” (Docket No. 72, p. 4, n.8) . Moreover, he argues 7 that Ms. Montaner’s claim is not secured because the Divorce Judgment is not a lien as it was 8 not recorded in the Registry of Property as required by Art. 1330 of the Puerto Rico Civil Code. 9 The Debtor also sustains that Ms. Montaner does not meet the definition of a judgment lien 10 creditor. Thus, the Debtor requests that that if the court allows the portion in proof of claim #10 11 related to the payment of the joint of debts, that it be allowed as unsecured claim. Finally, as to 12 the amounts claimed relating to the stipulations reached as to the Real Property, the Debtor 13 argues that it should not be allowed as “it is a personal obligation to perform that is still being 14 addressed by the debtor within his bankruptcy petition and not a claim which is entitled to a 15 right to payment pursuant to Section 101(5)(A).” (Docket No. 72, p. 7). 16 On February 10, 2016, the court entered and Order and Notice scheduling a preliminary 17 pretrial and scheduling conference on March 22, 2016 (Docket No. 73). On March 15, 2016, 18 the Parties filed a Joint PreTrial Report (Docket No. 76). During the hearing held on March 22, 19 2016, the court granted the Parties a period of sixty (60) days to file cross-motions for summary 20 judgment on the issue of whether proof of claim #10-3 is secured or not and stated that if Ms. 21 Montaner moves the court within thirty (30) days, then the Debtor has twenty-one (21) days to 22 reply (Docket Nos. 80 (Minute Entry) and 81 (Audio File)). The court also ordered the Debtor to 23 inform the court within fourteen (14) days on any efforts to relieve Ms. Montaner from the 24 mortgage obligation. 25 On May 2, 2016, Ms. Montaner filed a Motion for Summary Judgment in which she 26 sustains that “the courts have recognized that ex-spouses have an interests [sic] in the marital 27 property, and they should have a remedy to enforce a preexisting right in the property either by 1 a security interest, equitable lien, judicial lien or equitable mortgage.” (Docket No. 84, p.11, 2 ¶17). Ms. Montaner argues that she either has a lien or equitable lien created by the divorce 3 decree since it “conve[yed] the property to the debtor Ms. Arias that was encumbered by his 4 obligation to release creditor Mrs. Montaner as payment for her share in the apartment” and that 5 “Mr. Arias would have to satisfy the conditions in the stipulations by release [sic] Mrs. 6 Montaner from the mortgage to own the apartment.” (Docket No. 84, p. 14, ¶32). In the 7 alternative, Ms. Montaner argues that she “retained her preexisting interests [in the Real 8 Property] until Mr. Arias releases her from the mortgage, establishing an equitable lien to 9 prevent any unjust enrichment, or a security interest, to protect Ms. Montaner’s pre-existing 10 interest.” (Docket No. 84, p. 14, ¶34). Accordingly, she sustains that either she has an “interest 11 securing her claim until the stipulated conditions are met” pursuant to Boyd v. Robinson, 741 12 F.2d 1112, 1114–15 (8th Cir. 1984) or an equitable lien if the court applies In re Donahue, 862 13 F.2d 259, 266 (10th Cir. 1988). (Docket No. 84, p. 15, ¶¶35, 36). 14 On May 21, 2015, the Debtor requested an extension of ten (10) days to file a reply to 15 the Motion for Summary Judgment (Docket No. 85) and the same was granted on May 24, 2016 16 (Docket No. 86). On May 31, 2016, the Debtor filed Debtor’s Reply to Motion for Summary 17 Judgment (Docket No. 88). The Debtor agrees that “Mrs. Montaner’s claim is potentially 18 secured by a judicial lien that is fixed on an interest of the debtor in the real estate property”. 19 (Docket No. 88, p.5, ¶21). Hence, he argues that the true controversy is “whether the judicial 20 lien impairs the debtor’s entitlement to the homestead exemption as provided in 11 U.S.C. sec. 21 522(d)(1).” (Docket No. 88, p.5, ¶21). Accordingly, he argues that the judicial lien impairs the 22 Debtor’s exemption and should be avoided pursuant to Section 522(f). In the alternative, the 23 Debtor sustains that there is no equity in the Real Property to “which the claimant can attach her 24 judicial lien.” (Docket No. 88, p.9, ¶27) 25 26 27 1 After considering the totality of the record, the following facts are uncontested (Docket 2 Nos. 76, 84, 88): 3 Material Uncontested Facts 4 1. On June, 24, 2011, Ms. Montaner and the Debtor filed a Divorce Petition before the 5 6 Puerto Rico Court of First Instance of Bayamon (hereinafter referred to as the “State 7 Court”), Case No. D DI2010-2452 (Docket No. 76). 8 2. The parties owned an equal share of the Real Property. (Docket No. 76). 9 3. The Real Property had a value of $160,000.00 at the time the Divorce Petition was filed 10 (Docket No. 76). 11 4. As part of their Divorce Petition the Parties agreed to the following stipulations: 12 13 a. Ms. Montaner conceded her fifty (50) percent share of the Real Property in consideration that the Debtor would continue to make the mortgage payments in the 14 amount of $914.13 and would assume her share of the mortgage debt by seeking that 15 Ms. Montaner be released from the mortgage obligation. b. The Debtor had one (1) year to release Ms. Montaner from the mortgage and if the 16 transaction could not be completed within the year the Debtor has to render a report of his efforts every six (6) months to the State Court until the release is obtained. 17 c. The Debtor will pay all joint debts in the amount of $59,619.06, including an American Express credit card account in the amount of $18,835.20, releasing Ms. 18 Montaner from such debts and holding her harmless from the payment of any joint 19 debts. (Docket No. 76). 20 5. On June 27, 2011, the State Court entered a marital dissolution Judgment which 21 incorporated the stipulations reached by the Parties. (Docket No. 76) 22 6. On January 9, 2015, Ms. Montaner filed a Motion for Contempt in the State Court 23 24 requesting enforcement of the Judgment. (Docket Nos. 12 and 76). 25 7. On January 14, 2015, the State Court entered an Order ordering the Debtor to present 26 evidence of: the mortgage payments, any efforts that have been made to release Ms. 27 Montaner from the mortgage, and of payments of the credit card debts. (Docket No. 76). 8. On February 18, 2015, Ms. Montaner filed a Second Motion in the State Court 1 2 requesting the sale of the Real Property. (Docket No. 76). 3 9. On February 23, 2015, the State Court entered an order scheduling a contempt hearing 4 as a result of the Debtor’s non-compliance with the Judgment and previous orders. 5 (Docket No. 76). 6 10. On April 17, 2015, the Debtor a bankruptcy petition under Chapter 13 of the Bankruptcy 7 Code on April 17, 2015 (Docket No.1). 8 11. On June, 17, 2015, Ms. Montaner filed a proof of claim in the amount of $142,500.00 9 10 claiming $122,700.00 as secured (proof of claim #10-1). 11 12. On September 4, 2015, the court entered an Order granting as unopposed the Chapter 13 12 Trustee’s amended objection to proof of claim #10 and the Debtor’s objection to proof 13 of claim #10. (Docket No. 47). 14 13. On October 14, 2015, Ms. Montaner filed an amended proof of claim in the amount of 15 $122,700 and claiming that it is fully secured (proof of claim #10-2). 16 14. On October 27, 2015, Ms. Montaner filed a third amended proof of claim which 17 18 included an Amended Attachment to Amended Proof of Claim 10 (proof of claim #10-3). 19 20 Issues 21 The first issue before the court is whether Ms. Montaner has a claim pursuant to Section 22 101(5). If the court finds that Ms. Montaner has a valid claim and is therefore a creditor, it must 23 then determine whether the claim is secured or unsecured. 24 Applicable Law and Analysis 25 (A) Standard for Motion for Summary Judgment 26 Rule 56 of the Federal Rules of Civil Procedure, is applicable to this proceeding by Rule 27 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment should be entered “if 1 the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 2 affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 3 party is entitled to a judgment as a matter of law.” Fed. R. Bankr. P. 7056; see also, In re 4 Colarusso, 382 F.3d 51 (1st Cir. 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 5 (1986). 6 “The summary-judgment procedure authorized by Rule 56 is a method for promptly 7 disposing of actions in which there is no genuine issue as to any material fact or in which only a 8 question of law is involved.” Wright, Miller & Kane, Federal Practice and Procedure, 3d, Vol 9 10A, § 2712 at 198. “Rule 56 provides the means by which a party may pierce the allegations 10 in the pleadings and obtain relief by introducing outside evidence showing that there are no fact 11 issues that need to be tried.” Id. at 202-203. Summary judgment is not a substitute for a trial of 12 disputed facts; the court may only determine whether there are issues to be tried, and it is 13 improper if the existence of a material fact is uncertain. Id. at 205-206. 14 Summary judgment is warranted where, after adequate time for discovery and upon 15 motion, a party fails to make a showing sufficient to establish the existence of an element 16 essential to its case and upon which it carries the burden of proof at trial. Celotex Corp. v. 17 Catrett, 477 U.S. 317, 322 (1986). The moving party must “show that there is no genuine issue 18 as to any material fact and that the moving party is entitled to judgment as a matter of law.” 19 Fed. R. Civ. P. 56(c). 20 For there to be a “genuine” issue, facts which are supported by substantial evidence 21 must be in dispute, thereby requiring deference to the finder of fact. Furthermore, the disputed 22 facts must be “material” or determinative of the outcome of the litigation. Hahn v. Sargent, 523 23 F.2d 461, 464 (1st Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition 24 for summary judgment, the court must view the evidence in the light most favorable to the 25 nonmoving party. Poller v. Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 26 (1962); Daury v. Smith, 842 F.2d 9, 11 (1st Cir. 1988). 27 1 The moving party invariably bears both the initial as well as the ultimate burden in 2 demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 U.S. 3 144, 157 (1970). See also López v. Corporación Azucarera de Puerto Rico, 938 F.2d 1510, 4 1516 (1st Cir. 1991). It is essential that the moving party explain its reasons for concluding that 5 the record does not contain any genuine issue of material fact in addition to making a showing 6 of support for those claims for which it bears the burden of trial. Bias v. Advantage 7 International, Inc., 905 F.2d 1558, 1560-61 (D.C. Cir. 1990), cert. denied, 498 U.S. 958 (1990). 8 The moving party cannot prevail if any essential element of its claim or defense requires 9 trial. López, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that 10 there is an absence of evidence supporting the nonmoving party’s case. Celotex, 477 U.S. at 11 325. See also, Prokey v. Watkins, 942 F.2d 67, 72 (1st Cir. 1991); Daury, 842 F.2d at 11. In 12 its opposition, the nonmoving party must show genuine issues of material facts precluding 13 summary judgment; the existence of some factual dispute does not defeat summary 14 judgment. Kennedy v. Josepthal & Co., Inc., 814 F.2d 798, 804 (1st Cir. 15 1987). See also, Kauffman v. Puerto Rico Telephone Co., 841 F.2d 1169, 1172 (1st Cir. 16 1988); Hahn, 523 F.2d at 464. A party may not rely upon bare allegations to create a factual 17 dispute but is required to point to specific facts contained in affidavits, depositions and other 18 supporting documents which, if established at trial, could lead to a finding for the nonmoving 19 party. Over the Road Drivers, Inc. v. Transport Insurance Co., 637 F.2d 816, 818 (1st Cir. 20 1980). 21 The moving party has the burden to establish that it is entitled to summary judgment; no 22 defense is required where an insufficient showing is made. López, 938 F.2d at 1517. The 23 nonmoving party need only oppose a summary judgment motion once the moving party has met 24 its burden. Adickes, 398 U.S. at 159. 25 The court finds that the relevant uncontested facts show that there are no genuine issues 26 as to any material fact, and the issue before the court is a question of law, that is, whether Ms. 27 Montaner has a claim and whether the claim is secured. 1 2 (B) Definition of the term “claim” pursuant to Section 101(5) 3 A creditor is an “entity that has a claim against the debtor that arose at the time of or 4 before the order for relief concerning the debtor.” 11 U.S.C. § 101(10)(A). Section 101(5) 5 defines the term “claim” as a: 6 “(A) right to payment, whether or not such right is reduced to judgment, 7 liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or 8
9 (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is 10 reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.” 11 U.S.C. § 101(5). 11 12 Thus, the term “claim” includes either a “right to payment” or a “right to an equitable remedy” 13 for a debtor’s breach of performance so long as the breach gives rise to a right to payment. 14 Moreover, “[b]ecause Congress intended the term “claim” to be expansive, the Supreme Court 15 has directed that the term be give the “broadest available definition” to permit the most 16 17 comprehensive relief in the bankruptcy case.” Hon Joan N. Feeney, Hon. Michael G. Williamson 18 and Michael J. Stepan, Esq., Bankruptcy Law Manual § 6:4 (5th ed.2015–1). 19 In addition, the term “debt” is defined as a “liability on a claim.”11 U.S.C. § 101(12). 20 Thus, “a creditor has a “claim” against the debtor and the debtor owes a “debt” to the creditor.” 21 Alan N. Resnick & Henry J. Sommer, 2 Collier on Bankruptcy ¶101.12 (16th ed. 2015). 22 Furthermore, “[a]bsent an overriding federal interest, the existence of a claim in bankruptcy is 23 generally determined by state law.” In re Melillo, 392 B.R. 1, 4 (B.A.P. 1st Cir. 2008), 24 25 quoting Securities Exchange Comm'n v. Cross (In Re Cross), 218 B.R. 76, 78 (9th Cir. BAP 26 1998). 27 In the instant case, this court must determine whether the obligations to pay joint debts to 1 2 third parties arising from the stipulations reached between the Parties as part of their divorce 3 petition and incorporated into the State Court’s Judgment give rise to a “debt.” 4 (C) Section 523(a)(15) 5 Section 523(a)(15) “governs the dischargeability on property settlements debts as 6 opposed to support obligations.” Alan N. Resnick & Henry J. Sommer, 4 Collier on Bankruptcy 7 ¶523.23 (16th ed. 2015). Although Section 523(a)(15) specifically relates to an exception to a 8 discharge (which is not the controversy before the court in the instant case) a discussion of said 9 10 section is helpful in determining whether Ms. Montaner has a “claim” against the Debtor5. 11 A property settlement debt is a debt owed “to a spouse, former spouse, or child of the 12 debtor and not of the kind described in paragraph (5)6 that is incurred by the debtor in the course 13 of a divorce or separation or in connection with a separation agreement, divorce decree or other 14 order of a court of record, or a determination made in accordance with State or territorial law by 15 a governmental unit.” 11 U.S.C. § 523(a)(15). 16 In addition, “when a marital settlement agreement includes an express “hold harmless” 17 18 provision, the requirements of subsection (a)(15) are satisfied and the debtor’s obligation to the 19 nondebtor spouse or child is nondischargeable.” Alan N. Resnick & Henry J. Sommer, 4 Collier 20 on Bankruptcy ¶523.23 (16th ed. 2015). This is so as courts have found that the obligation to 21 “hold harmless” or indemnify a former spouse from payment of a joint debt creates a new 22 debt. See, In re Jaeger-Jacobs, 490 B.R. 352, 357 (Bankr. E.D. Wis. 2013) (“A provision in a 23
24 5 The court notes that this is a Chapter 13 case and that pursuant to 1328(a)(2) debts arising from property settlements are not excepted from the discharge in a Chapter 13 case. See 11 U.S.C. §§ 523(a)(15) and 1328(a)(2); 25 In re Perez, , 2013 WL 959842, at *9 (Bankr. D.P.R. Mar. 12, 2013)(“Property settlements are only dischargeable in a Chapter 13 case after completion of all plan payments.”); In re Brown, 2012 WL 10191, at *1 (Bankr. D. Mass. 26 Jan. 3, 2012)(“Debts of the kind listed in 11 U.S.C. § 523(a)(15), are dischargeable in Chapter 13 cases, see 11 U.S.C. 1328(a)(2), but not in Chapter 7 cases.”). 27 6 Section 523(a)(5) makes reference to domestic support obligations.11 U.S.C. §523(a)(5). The term domestic support obligation is defined in Section 101(14A). 11 U.S.C. §101(14A). divorce decree to hold harmless or indemnify a spouse for joint obligations incurred during a 1 2 marriage creates a “new” debt, running solely between the former spouses.”). However, the 3 debtor’s obligation to pay creditors is discharged, and the non-filing spouse is still liable to 4 creditors for that joint debt. Nevertheless, what is not discharged (unless Section 1328(a)(2) 5 applies as in the instant case) is the debtor’s obligation to hold the spouse harmless and thus the 6 non-filing spouse may seek reimbursement from the debtor for payment of those debts. As the 7 Court explained in In re Clark, 207 B.R. 651, 657 (Bankr. E.D. Mo. 1997): 8 “The debts owed to the joint creditors are discharged as to the debtor only. The 9 obligation that is not dischargeable in these situations is a debtor's responsibility 10 to hold his non-debtor, ex-spouse harmless. The non-debtor ex-spouse may look to the debtor for reimbursement pursuant to any nondischargeable “hold 11 harmless” obligations, but the non-debtor ex-spouse is not immune from pursuit by the primary joint creditors.” 12 The courts are split on whether a divorce settlement decree or judgment that contains an 13 14 obligation to pay a debt to a third party but that does not include an express “hold harmless” 15 provision gives rise to a nondischargeable debt under Section 523(a)(15). In re Read, 2015 WL 16 4178728, at *4 (Bankr. D.R.I. July 10, 2015) (discussing split among courts). Some courts have 17 found that obligations to pay debts to third parties arising from a divorce settlement are debts 18 even if the stipulation or divorce decree did not contain an indemnity or hold-harmless provision 19 as long as non-bankruptcy state law provides the ex-spouse with a remedy to enforce these 20 obligations. See In re Wodark, 425 B.R. 834, 840 (10th Cir. BAP 2010);Gibson v. Gibson (In re 21 22 Gibson), 219 B.R. 195, 205 (B.A.P. 6th Cir. 1998); In re Brown, 2012 WL 10191, at *3 (Bankr. 23 D. Mass. Jan. 3, 2012); In re Burckhalter, 389 B.R. 185, 190 (Bankr. D. Colo. 2008); In re 24 Shreffler, 319 B.R. 113, 120 (Bankr. W.D. Pa. 2004). For example, in In re Wordark, the 25 Bankruptcy Appellate Panel for the Eight Circuit concluded that “[b]ecause state law affords [the 26 ex-spouse] a means of enforcing the separation agreement as part of a judgment, he has a right to 27 payment that is a “debt” that Glennette incurred in connection with the separation agreement.” In 1 2 re Wodark, 425 B.R. 834 at 840; see also In re Burckhalter, 389 B.R. 185, 190 (Bankr. D. Colo. 3 2008)(“Thus, the Court concludes that, so long as Colorado law gives the Plaintiff a right to 4 enforce the allocation of marital debt delineated in the Separation Agreement, and that 5 enforcement mechanism “gives rise to a right to payment,” then the debtor has incurred a debt in 6 the course of his divorce proceeding that is nondischargeable under § 523(a)(15).”). 7 Conversely, other courts have held that obligations to pay debts to third parties are not 8 “debts” pursuant to Section 523(a)(15) if the divorce agreement or stipulation did not include an 9 10 indemnity or hold-harmless clause. In re Owens, 191 B.R. 669, 674 (Bankr. E.D. Ky. 1996); In 11 re Stegall, 188 B.R. 597, 598 (Bankr. W.D. Mo. 1995). Moreover, other courts have held that 12 obligations to pay debts to a third party arising from a property settlement are not “debts” 13 pursuant to Section 523(a)(15). See In re Proyect, 503 B.R. 765, 776 (Bankr. N.D. Ga. 2013). 14 In the instant case the underlying obligations arising from the stipulations reached 15 between the Parties as part of their divorce and incorporated into the Judgment entered by the 16 State Court, which according to Ms. Montaner, give rise to a valid “claim” can be divided in two: 17 18 (1) the obligations relating to the Real Property and (2) the obligations relating to the payment of 19 the joint debts including the payment of the American Express credit card debt. Thus, the issue 20 before the court is whether these obligations are “debts” which give rise to a valid claim. 21 The Debtor does not contest that the stipulation incorporated into the Judgment granting 22 the Parties divorce petition includes a “hold harmless” clause as to the Debtor’s obligation to pay 23 the credit card bills. Thus, the Debtor has incurred in a “debt” and Ms. Montaner has a “claim” 24 25 against the Debtor arising from the Debtor’s obligation to pay the credit card bills and hold her 26 harmless. See, In re Cheatham, 2009 WL 2827951, at *6 (Bankr. N.D. Ohio Sept. 2, 2009)(“By 27 virtue of that hold harmless language, Plaintiff was given a remedy for breach of performance (i.e., were Defendant to fail to hold Plaintiff harmless) that would give rise to a right to 1 2 payment.”) . 3 However, the stipulations obligating the Debtor to pay the monthly mortgage payments 4 do not include an express hold harmless provision. Thus, the court may look to non-bankruptcy 5 state law to determine whether or not Ms. Montaner has a remedy to enforce the Debtor’s 6 obligation to make the monthly mortgage payments. The Supreme Court of Puerto Rico has 7 stated that stipulations contained in a consensual divorce petition constitute a settlement 8 agreement between the former spouses. See Igaravidez v. Ricci, 147 D.P.R. 1 (P.R. Nov. 4, 9 10 1998). In Igaravidez v. Ricci, the Supreme Court of Puerto Rico held that the procedure to 11 enforce these stipulations is to request the execution of the judgment as the stipulations are 12 incorporated into the judicial proceedings7. In the instant case, this is exactly what Ms. Montaner 13 was attempting to do in State Court before the Debtor filed this bankruptcy petition. 14 Accordingly, the court finds that Ms. Montaner has at least contingent “claim” against the Debtor 15 which arises out of the property settlement. The claim is contingent to the extent that she may be 16 required to make these payments in the future8. 17 18 (D) Unsecured Status of Claim and Section 1328(a)(2) 19 Ms. Montaner argues that her claim is somehow secured by her pre-existing interest in 20 the Real Property. A secured claim “is the claim of a creditor who holds a lien on property and 21 has recourse against collateral for payment of the claim.” Hon. Joan N. Feeney, Hon. Michael G. 22 Williamson and Michael J. Stepan, Esq., Bankruptcy Law Manual § 6:2 (5th ed.2015–1). 23 Moreover, the term lien is defined as a “charge against or interest in property to secure payment 24
25 7 The holding of the Puerto Rico Supreme Court was as follows: “Como señalamos anteriormente, el mecanismo que nuestro ordenamiento reconoce para hacer cumplir una estipulación contenida en una petición de divorcio por 26 consentimiento mutuo, lo cual constituye una transacción judicial, es el de ejecución de la sentencia.” 147 D.P.R. 1. 8 The court notes that Ms. Montaner has not alleged, and from the record it does not appear, that she has made any 27 mortgage or credit card payments. In addition, she has not alleged that either Banco Popular de Puerto Rico or any of the credit card companies have made attempts to collect the debt from her. of a debt or performance of an obligation.” 11 U.S.C. §101(a)(37). In the instant case, it is 1 2 evident that Ms. Montaner does not hold a lien on the Real Property. Ms. Montaner is a co-owner 3 and co-debtor on the mortgage loan and mortgage notes held by Banco Popular de Puerto Rico. 4 The party who has a secured claim and holds a lien on the Real Property is Banco Popular de 5 Puerto Rico. See proof of claims #7 and #11-2. Additionally, the State Court did not grant her a 6 lien over the Real Property in the Judgment granting the Parties divorce petition. See Farrey v. 7 Sanderfoot, 500 U.S. 291, 293 (1991) (“To secure this award, the decree provided that Farrey 8 “shall have a lien against the real estate property of [Sanderfoot] for the total amount of money 9 10 due her pursuant to this Order of the Court, i.e. $29,208.44, and the lien shall remain attached to 11 the real estate property ... until the total amount of money is paid in full.”). 12 Ms. Montaner relies on In re Donahue, 862 F.2d 259, 265 (10th Cir. 1988) and argues 13 that the divorce judgment created an “equitable lien” in her favor. Nevertheless, this argument 14 also fails. In In re Donahue the United States Court of Appeals for the Tenth Circuit held that the 15 divorce decree granted the former spouse an “equitable lien or mortgage” and thus the former 16 spouse’s claim was secured. However, in that case the Court held that the divorce decree itself 17 18 created an “equitable lien” noting that: 19 “While the decree did not use the term “lien,” the Property was awarded to Donahue “subject to ... the judgment to” Parker. The judgment to Parker was 20 “payable on February 15, 1983, or ... the sale of the [P]roperty, or a conveyance or mortgage of the [P]roperty, whichever should occur first.” Thus, it is clear that 21 the divorce court intended the Property to secure the debt to Parker.” In re 22 Donahue, 862 F.2d at 265, n.9.
23 Moreover, the Court of Appeals indicated that “[i]n this case, it is clear that the Property was 24 intended to be the source from which the debt to Parker would be paid.” Id. 25 In the instant case, no such language is included in the divorce stipulations which were 26 incorporated in to the Judgment. The Parties agreed that Ms. Montaner would cede her interest in 27 1 the Real Property to the Debtor and in exchange the Debtor agreed to undertake efforts to hav 9 ||the banks release her from the mortgage”. Therefore, the divorce decree did not grant Ms. 3 || Montaner a lien over the Real Property. As previously mentioned, she is a co-owner of the Rea 4 || Property and co-debtor of the mortgages secured by the Real Property. 5 Accordingly, this court finds that Ms. Montaner holds a contingent unsecured claim agains 6 the Debtor, which amount cannot be determined by the court at this juncture. In addition, 4 because her claim is unsecured it will be discharged pursuant to Section 1328(a)(2) if the Debto 8 9 obtains a discharge under Section 1328(a) upon completion of all Chapter 13 plan payments| 10 || Hence, Ms. Montaner’s claim --the unpaid balance owed on the credit card bills and mortgage 11 || secured by the Real Property once the Debtor completes his chapter 13 plan--will be discharged. 12 Conclusion 13 In light of the above, this court finds that Ms. Montaner has an undetermined, 14 contingent, and unsecured claim against the Debtor arising from a property settlement, and an 15 unsecured claim for the obligation relating to the payment of credit cards, both of which will be 16 discharged pursuant to Section 1328(a)(2) if the Debtor obtains a discharge, as debts under 17 Section 523(a)(15) are not excepted. 18 For the reasons stated herein, Ms. Montaner’s Motion for Summary Judgment is (Docket 19 No. 84) is hereby denied. 20 SO ORDERED. 21 In San Juan, Puerto Rico, this 13" day of January, 2017 22 23 24 efnryerlle rique 5. Lamoutte United States Bankruptcy Judge 25 26 ||° The stipulation reads as follows in Spanish: “La Peticionaria Ana Cristina Montaner Rodriguez cede y traspasa s participacién en el referido inmueble al Peticionario, Wilfredo Enrique Arias Nussa, quien se compromete a realiza: 27 || todas las gestiones pertinentes para que el acreedor hipotecario libere a la Peticionaria Ana Cristina Montane Rodriguez de dicha deuda.” (proof of claim #10-3, pp-17-18). -18-