IN RE: THOMAS EUGENE SOPER CASE NO. 91-51538

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

THOMAS EUGENE SOPER CASE NO. 91-51538

DEBTOR

MEMORANDUM OPINION

This matter is before the court on the motion of the debtor to reopen the case in order to schedule his former spouse as a creditor.

FINDINGS OF FACT:

The debtor filed a petition for relief under chapter 7, title 11 United States Code on July 25, 1991. At that time the debtor had remarried and was employed by the United States Postal Service at Frankfort, Kentucky. In his Statement of Income accompanying the petition he did list as income monies payable to him by his former spouse under terms of a separation agreement. In the Statement of Financial Affairs he made no mention of recently concluded marriage dissolution proceedings between himself and his former spouse in the Fayette Circuit Court. Scheduled creditors were noticed that a meeting of creditors as required by section 341 of the Bankruptcy Code would be held on September 26, 1991, that the deadline for filing a complaint objecting to the discharge of the debtor or to the dischargeability of a debt under 11 U.S.C. 523(a)(2), (4), or (6) was 60 days after the meeting of creditors, and that the last day for filing claims was 90 days after the meeting of creditors. The debtor was granted a discharge on February 18, 1992. His bankruptcy case was closed on April 21, 1992. There were no assets to be administered by the trustee.

On May 25, 1990, approximately 14 months prior to the commencement of the debtor's bankruptcy case, the Fayette Circuit Court entered a decree of dissolution of marriage in In re the Marriage of Thomas Eugene Soper and Linda Joyce Hayes Soper and incorporated therein the terms of a separation agreement executed by Thomas Eugene Soper and Linda Joyce Hayes Soper on October 12, 1989. The separation agreement, which was executed in Japan where the debtor, then a technical sergeant with the United States Air Force, and his wife resided at the time, states that the parties were married September 20, 1984 in Naha City, Okinawa, Japan and that two children of the marriage exist, a son beyond the age of majority and a daughter, age 17. The separation agreement provides that Thomas Soper shall have custody of the daughter. Linda Soper agreed to pay to the debtor the sum of $200.00 per month as child support until the daughter was emancipated, to provide one-third of both children's college education expenses (less a setoff of the $200.00 per month support), and to pay one-half of all unforseen or extraordinary medical expenses incurred by or for the children. No spousal support was required by terms of the separation agreement. All sums on deposit in the joint savings account of the parties at the Lackland Federal Credit Union would be property of Thomas Soper. Savings bonds would be property of Linda Soper. The parties owned no real property. Personal property was divided to the mutual satisfaction of both parties. The separation agreement further provides in pertinent part as follows:

12. CURRENT DEBTS: The Husband acknowledges that, unless otherwise indicated in this agreement, he shall be solely responsible for all outstanding debts of the parties, whether incurred individually or jointly, from the date of their marriage through the date of their separation, and that he will hold the Wife harmless therefrom and indemnify her against any and all liability in connection with any such debts.

 

13. FUTURE DEBTS: The parties acknowledge that they have not contracted nor will they contract any further debts in the name of the other and that they will hold the other harmless in the event of a breach of this paragraph. Further, the parties acknowledge that neither shall charge or cause or permit to be charged to or against the other any purchase or purchases which either of them may hereafter make, and neither shall hereafter secure or attempt to secure any credit upon or in connection with the other, or in his or her name, and each of them will promptly pay all debts and discharge all financial obligations which each may incur for himself or herself.

 

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16. SUBSEQUENT DIVORCE: . . . . [I]n the event that an action for divorce is subsequently initiated by either party, they agree that they shall be bound by all the terms of this agreement and that it shall not be merged in any decree or judgment that may be granted in such an action but shall survive same and shall be forever binding and conclusive on the parties. Yet, nothing herein shall be construed to prevent the decree or judgment in any such action from incorporating in full or in substance the terms of this agreement.

Separation Agreement, October 12, 1989.

On May 3, 1993, the debtor by counsel filed a motion to reopen this bankruptcy case in order to add as a creditor Linda Soper, the debtor's former spouse, who was a co-obligor on several credit card debts listed by the debtor on the schedules accompanying his petition for relief. The motion indicates Linda Soper has requested the Fayette Circuit Court to hold the debtor in contempt for failing to pay credit card debts in accordance with terms of the decree of dissolution as hereinabove set forth.

Linda Soper alleges that the debtor failed to comply with the terms of the decree of dissolution by not paying certain debts on which she was jointly liable, that he incurred additional debt on certain credit cards in violation of the terms of the decree of dissolution, that one of the creditors, Pentagon Federal Credit Union, set off a portion of the debt owed by the debtor against a share account maintained by Linda Soper at the credit union, and that other creditors are attempting to collect from her debts for which the debtor assumed sole responsibility in the separation agreement.

The debtor claims he did not list Linda Soper as a creditor because at the time he filed his petition he did not believe she was a creditor. It should be noted, however, that the debtor is represented in this bankruptcy proceeding by the attorney who represented him in the marriage dissolution proceeding and who signed the decree incorporating the separation agreement which obligates the debtor to hold the wife harmless with respect to jointly incurred debts. It is not readily apparent why the debtor and his attorney did not realize the former spouse should have been listed as a creditor.

The debtor listed in his schedules debts owing to, among others, First Interstate Bancard in the amount of $1,768, Pentagon Federal Credit Union, account number XXXXX2012, in the amount of $1852, and Pentagon Federal Credit Union, account number XXXXXXXXXXXX5935, in the amount of $1859.

On April 6, 1990 the balance owed to Pentagon Federal Credit Union on account number XXXXX2-75-6 was $3,016.78. Between April 10, 1990 and August 15, 1991, additional charges were made to this account in the total amount of $1,712.76. Finance charges and late fees continued, and presumably are continuing, to accrue. On June 26, 1992, the credit union applied funds in Linda Soper's share account to the extent of $1,299.64 against an outstanding balance of $3,422.49. The outstanding balance as of January 6, 1993 was $2,399.56.

On April 30, 1990 the balance owed to First Interstate Bancard Center was $1,550.99. Between June 30, 1990 and January 26, 1991, additional charges were made to this account in the total amount of $377.65. Finance charges and late fees continued, and presumably are continuing, to accrue. The balance outstanding as of November 5, 1991 was $2,004.72.

Linda Soper has also received notice from Military Professional Services, Inc., a collection agency, that as of July, 1992 the amount of $1,653.56 is owing. She states this too is a debt assumed by the debtor in accordance with the terms of the decree of dissolution.

Ms. Soper by counsel alleges that charges made on these accounts after the date of the separation agreement were made by the debtor. The debtor has not denied the allegation. Ms. Soper claims she was unaware of the debtor's bankruptcy until the Pentagon Federal Credit Union exercised its contractual right of setoff against funds in her share account. Had she been listed as a creditor in the debtor's schedules she would have had notice of her potential liability on these debts and could have withdrawn her funds from the Pentagon Federal Credit Union to avoid the setoff.

The debtor by counsel states he fully intended to repay the debts assumed in the divorce action, but employment and health problems after his release from the military forced him to seek protection under the Bankruptcy Code fourteen months after the decree of dissolution was entered. The debtor also states that Linda Soper is in default of her obligations under the decree of dissolution to pay monthly child support and to pay certain medical expenses incurred by or for their daughter.

CONCLUSIONS OF LAW:

Title 11 U.S.C. 523(a)(3) provides that an individual debtor is not discharged from a debt neither listed or scheduled in time to permit the creditor to timely file a proof of claim and, if the debt is of a kind specified in 11 U.S.C. 523(a)(2), (4), or (6), to timely request a determination of dischargeability of the debt, unless the creditor had notice or actual knowledge of the case in time for such timely filing or request.

Title 11 U.S.C. 350(b) provides that a case may be reopened to administer assets, to accord relief to the debtor, or for other cause.

A case may be reopened to permit the debtor to list a creditor previously omitted from the schedules if the failure to schedule the debt was inadvertent and did not prejudice the creditor. In re Soult (Soult v. Maddox), 894 F.2d 815, 817 (6th Cir. 1990); In re Rosinski, 759 F.2d 539 (6th Cir. 1985). The case cannot be reopened if the omission was willful, reckless, or fraudulent. Soult, 894 F.2d at 818. The debtor "must advance some justification for the reopening sufficient to show that [the debtor] did not intentionally or recklessly avoid listing the debt." Rosinski, 759 F.2d at 542.

"'Under the Code, only the creditors' rights to participate in a dividend and to obtain a determination of dischargeability are of such importance that their loss mandates exception of a late scheduled debt from discharge.'" Soult, 894 F.2d at 817 (citing Rosinski, 759 F.2d at 542).

Linda Soper stated that the debtor's continued use of joint credit cards after execution of the separation agreement "was fraudulent, and for that reason the debt that he seeks to add may well be nondischargeable anyway." Memorandum in Opposition to Motion to Reopen, June 15, 1993.

A distinction must be made between the debtor's right under 11 U.S.C. 350 to reopen a case to accord relief to the debtor, or for other cause, and an omitted creditor's right to contest the dischargeability of the omitted debt under section 523(a)(3). It seems inappropriate to determine the ultimate issue of the dischargeability of the debt in the context of a motion to reopen a case.

In this case as in the Soult case the omission of the former spouse as a creditor is attributable to oversight or inadvertence on the part of both the debtor and his attorney.

As noted in the Soult case, if assets are subsequently discovered in this case an omitted creditor presenting a tardily filed noncontingent unsecured claim would share in any distribution on a par with unsecured creditors whose claims were timely filed. 11 U.S.C. 726(a)(3)(C). However, there is a distinction to be made in this instance with respect to the former spouse's contingent claims against the debtor. In order to participate in any distribution of assets of his estate on a parity with unsecured creditors whose claims are timely filed she would first have to pay in full the claims on which she is jointly obligated, 11 U.S.C. 502(e), 509(c). Even if she may file claims as permitted by Rule 3005, Federal Rules of Bankruptcy Procedure, in behalf of creditors on whose claims she is jointly obligated, she must nevertheless pay any such claim in full before she may assert a claim in her own right. Moreover, because of the failure to name the spouse as a creditor the claims on which she is jointly obligated increased substantially in amount due to the accrual of interest before she became aware of her former husband's bankruptcy. These are serious questions which this court believes were not resolved by the decision in the Soult case.

Nevertheless, this court believes the appropriate course of action is to permit this case to be reopened and the former spouse to be listed as a creditor. The question as to whether any portion of the indebtedness on which she is jointly obligated is nondischargeable in bankruptcy should be presented to the court by complaint under 11 U.S.C. 523(a)(3), assuming the jurisdiction of this court with respect to that issue has not been preempted as a matter of comity by the motion in the marriage dissolution proceedings to hold the debtor in contempt for nonpayment of the debts on which the former spouse is jointly obligated. This court has exclusive jurisdiction to determine the dischargeability of debts under 11 U.S.C. 523(a)(2), (4), and (6). 11 U.S.C. 523(c). However, it may be that the bankruptcy court and the state court have concurrent jurisdiction to determine the dischargeability of a debt under 11 U.S.C. 523(a)(3) in which event that question should perhaps be determined by the court in which the issue is first raised.

Dated:

 

By the court -

 

 

 

Chief Judge

 

Copies to:

Barbara McDonald Griffin

Robert M. Pfeiffer