In re Crosswhite

148 F.3d 879 (7th Cir. 1998)

 

RULE:

11 U.S.C.S. § 523 provides the general scheme for establishing exceptions from discharge, and two subsections provide specific protection to the debtor's children, spouse, and former spouse. 11 U.S.C.S. § 523(a)(5) establishes as nondischargeable the debtor's obligations of alimony, maintenance, and support; 11 U.S.C.S. § 523(a)(15) sets forth as nondischargeable any marital debt other than alimony, maintenance, or support that is incurred in connection with a divorce or separation. Subsection (15) then offers two exceptions to that rule of nondischargeability under sub-subsections, or subparts, (A) and (B). Therefore, a subsection (15) property settlement debt is not dischargeable unless, under (A), the debtor does not have the ability to pay the debt from disposable income, or under (B), the benefit to the debtor in discharging the debt outweighs the detrimental consequences to the debtor's former spouse or child.

FACTS:

Under the terms of their divorce agreement, appellee debtor agreed to assume certain marital obligations. After appellee failed to satisfy those debts and filed a Chapter 7 petition, appellant wife paid the amounts owed and brought an adversary proceeding to determine the dischargeability of the property settlement agreement. The bankruptcy court ruled that appellee's obligation was dischargeable under 11 U.S.C.S. § 523(a)(15)(B), and the district court affirmed. Appellant sought further review. 

ISSUE:

Was burden of proof upon the debtor to show that an exception to nondischargeability under § 523(a)(15)(B) applied?

ANSWER:

Yes.

CONCLUSION:

In vacating and remanding with instructions to remand to the bankruptcy court for new factual findings under the proper burden of proof, the court concluded that the lower courts erred in placing the burden of proof under § 523(a)(15)(B) on appellant. The burden of proof was upon the debtor to show that an exception to nondischargeability under § 523(a)(15)(B) applied, and the bankruptcy court was required to consider the clear congressional intent of effecting economic justice between the parties to a marriage and of upholding property settlement agreements in determining whether the benefit to appellee of discharging the debt outweighed the detriment it would cause to appellant.

It is logical and reasonable that the debtor bear the burden of proving either exception to nondischargeability. Certainly the debtor is most able to make the showing, under subpart (A), that he cannot pay the debt. Thus, it is appropriate that the debtor have the burden of proving his inability to pay the obligations in question. The debtor is also the appropriate party to make the showing, under subpart (B), that the benefit he receives from not having to pay the debt at issue is greater than the detrimental effects on the creditor--his spouse, former spouse or child--who then must pay the debt. If Congress had intended that the burden be placed on the creditor/former spouse, the provision would have been reversed to require a showing that the detrimental consequences to the creditor outweigh the benefit to the debtor.

Because the bankruptcy court did not take into account all of the factors that it ought to have weighed and because it did not place the ultimate burden of establishing the § 523(a)(15)(B) exception on the debtor, the court vacated the decision of the district court and remand the case to that court with instructions to remand it to the bankruptcy court for new factual findings made under the proper burden of proof.

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