11 U.S.C.S. § 523(a)(5) represents Congress' resolution of the conflict between the discharge of obligations allowed by the bankruptcy laws and the need to ensure necessary financial support for the divorced spouse and children of the debtor. Accordingly, 11 U.S.C.S. § 523 excepts from discharge payments: (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that (A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise other than debts assigned pursuant to 11 U.S.C.S. § 402(a)(26); or (B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.
Appellant filed for voluntary bankruptcy under Chapter 7, 11 U.S.C.S. § 701 et seq. Appellee, appellant's former wife, was listed as the holder of unspecified unsecured claims. Appellee brought a complaint before the bankruptcy court to determine whether obligations assumed by appellant in the parties' separation agreement constituted alimony excepted from discharge under 11 U.S.C.S. § 523(a)(5). Appellant challenged the court's summary judgment that his assumption of five loan obligations pursuant to a separation agreement between appellant and his former wife were in the nature of support or alimony and, therefore, nondischargeable debts.
Did the court err by not considering thedischargeability of each loan obligation assumed individually?
The judgment was reversed, because the court erred by not considering each loan obligation assumed individually, as dischargeability could vary depending upon the type of loan involved, its purposes, and the circumstances of the parties.
The Bankruptcy Court first erred by applying an incorrect legal standard. The Court held that the clear language of the parties' separation agreement controlled the issue of dischargeability "unless the compelling weight of the evidence suggests that enforcement of the agreement would work a manifest injustice." The language of the parties' characterization of the loan assumption does not control. Moreover, the Bankruptcy Court, in effect, shifted the burden of proof from the plaintiff spouse to the debtor to show that the agreement does not mean what it says or works a manifest injustice. Placing this degree of reliance upon the language of the parties' agreement and placing the burden of persuasion on the debtor are legal errors which may not be separated from the court's factual findings in this case. The content of those findings were inextricably dependent upon the focus of the court's inquiry.
The Bankruptcy Court also erred by not considering each loan obligation assumed individually. Many of the factors considered in determining dischargeability could vary depending upon the type of loan involved, its purposes and the circumstances of the parties.