UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
DEBTOR CASE NO. 91-70246
This matter is before the Court on the debtor's Motion to Find Creditor Diana Blanton in Contempt, filed herein on August 4, 1994. The Motion was heard on September 13, 1994, and a briefing schedule was assigned to the parties. Both the debtor and the creditor have submitted briefs, and the matter is now ripe for decision.
The debtor's Motion contends that creditor Diana Blanton, his former wife ("Diana"), has violated the prohibition against collecting a discharged debt. He states that this is so because she applied funds received from the sale of marital property, upon which she had a judgment lien, to the debt owed for her interest in the property, rather than to a non-dischargeable debt for child support and maintenance.
The record in this case indicates that the parties were divorced in 1989. Diana was awarded child support and maintenance, and as part of the property division between the parties was to receive her equity in the marital residence. In March 1991, she obtained a judgment lien in the sum of $67,453.00, representing $61,900.00 for her equity, and $5,553.00 in child support and maintenance arrearage.
On May 9, 1991, the debtor filed his Chapter 7 petition in this Court. Diana filed a Motion for Relief from Automatic Stay on September 9, 1991, to enforce her lien on the real property. Relief from the automatic stay was granted on December 18, 1991, allowing her to proceed in rem against the property. The discharge was entered in this case on December 4, 1991. The property was sold in May 1992, and an Order of Distribution was entered by the Magoffin Circuit Court on July 25, 1992, showing that Diana was paid $46,457.94.
The debtor's Motion now before the Court argues that Diana should be held in contempt because she applied all of the proceeds to "debts that were heretofore discharged," and then brought garnishment proceedings against the debtor to collect the child support and maintenance, a nondischargeable debt. He maintains that this debt should have been paid in full from the proceeds. He cites neither case nor Code provision in support of his position. In addition, as set out below, Diana applied almost a third of the proceeds to nondischargeable debts for maintenance and child support, and not just to the property division debt.
Property division debts are generally dischargeable (at least for cases filed before October 22, 1994), as contrasted with nondischargeable debts for child support and maintenance. In this instance, however, the in rem judgment for this debt, based on a prepetition lien and running only against the debtor's property, was not affected by the discharge. As pointed out by the Supreme Court in Johnson v. Home State Bank, 111 Supreme Court 2150 (1991):
A defaulting debtor may protect himself from personal liability by obtaining a discharge in a Chapter 7 liquidation. See 11 U.S.C.
At page 2153. Thus, Diana could enforce her prepetition lien in regard to the property settlement after the discharge was entered in this case to the extent of the value of the debtor's non-exempt interest in the property upon which she had obtained a judgment lien.
As set out in her Memorandum, Diana pro-rated the application of the proceeds of the sale of the real estate as follows:
Property settlement: $32,520.57
Child support and maintenance
prior to judgment: 10,220.74
Child support and interest since
Diana's judgment lien secured only prejudgment debt, and the debtor actually benefitted from the application of some of the sale proceeds to nondischargeable postjudgment arrearages. Contrary to the debtor's assertion that none of the proceeds should have been applied to the property settlement debt, arguably $3,716.63 more could have been applied there or to prejudgment arrearages. The proration of the balance of the proceeds between the two types of indebtedness which the lien secured appears appropriate.
An order in conformity with this opinion will be entered separately.
By the Court -
Bruce A. Levy, Esq.
C. Tom Anderson, Esq.