Wednesday, May 13, 2009

Post-Petition Marital Dissolution Judgment, Allowed Through Prior Relief from Stay, Creates Valid Secured Claim in Chapter 13 Case

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

In re Goss

Oregon Bankruptcy Court, Case No. 06-31932-rld13

April 29, 2009

This Memorandum Opinion by Judge Randall Dunn, although unpublished, is worthwhile because 1) it addresses and gives good guidance in two areas which Chapter 13 practitioners deal with constantly--relief from stay and objections to claims, and 2) his Opinion sorts through these issues constructively in the very real world of a tough domestic relations dissolution.

I usually start these opinion summaries by getting right to the point with the legal issues and the court's holding(s), but in this case these do not make much sense without the factual context.

The Facts

About two years after the filing of a marital dissolution case and before it went to trial, the husband, Mr. Goss, filed a Chapter 13 case. Ms. Goss filed a motion for relief from stay to be permitted to continue the dissolution case in state court, and relief was granted "to complete dissolution . . . proceedings . . . on all issues." Mr. Goss' Chapter 13 plan, providing nonpriority unsecured claims to be paid 100% plus 3% interest within 60 months, was subsequently confirmed. Ms. Goss did not appeal the order confirming this plan, and Mr. Goss has not modified the plan since then.

Two years after the Chapter 13 filing, the marital dissolution case went to trial and a property division judgment was entered against Mr. Goss for about $181,000, to be paid by December 31, 2008, barely a month after the judgment was entered. A supplemental judgment of about $32,000 based on half of Ms. Goss' attorney fees was also entered against him, because of his "conduct in this litigation, causing significant delay and increased attorney fees."

Ms. Goss filed two proofs of claim, for $181,000 on the property division, secured by debtor’s real property, and for $32,000 on the attorney fees, as a priority unsecured claim in the nature of a domestic support obligation. Mr. Goss objected to the proofs of claim, wanting to have them both treated as nonpriority unsecured claims.

Ms. Goss also filed a motion for relief from stay to enforce the dissolution judgment. Judge Dunn’s Memorandum Opinion resolves both the relief from stay and claims objection matters.

The Issues

The judge isolated these issues:

1) Should the Property Division Judgment claim be allowed as a claim secured against Mr. Goss’s real property?

2) Should relief from stay be granted to allow Ms. Goss to enforce the Property Division Judgment claim?

3) Should the Attorney Fees Judgment be treated as a claim?

4) Is Mr. Goss’s objection to the Attorney Fees Judgment claim ripe for determination?

The Holdings

1) Under Oregon law, a marital dissolution property claim unresolved on the date of bankruptcy filing is a vested, inchoate claim arising out of the spouses’ co-ownership of marital property, which became, through the bankruptcy court-permitted post-petition dissolution judgment, a judgment lien on Mr. Goss’ real property. Because the judgment “created a new property interest in place of the prepetition co-ownership interest,” the underlying debt is neither a dischargeable pre-petition debt nor a preferential transfer of a security interest in the real property. Furthermore, the post-petition judgment’s creation of the lien did not violate the automatic stay since “[t]his result was authorized by [the prior] order granting relief from the automatic stay.”

2) With debtor current on his support obligations but not having paid anything on the dissolution judgment, which was to have been paid in full shortly after the entry of that judgment, the judge found no “cause” to grant relief from stay to Ms. Goss to execute on her judgment lien. His decision was based largely on “evidence that there is equity in Mr. Goss’s real property adequate to pay the Property Division Judgment, and if some time is allowed for the real estate market to improve, Ms.Goss may continue to receive support payments and Plan payments . . . and, ultimately, receive payment in full of the Property Division Judgment as well.”

3) Under Oregon law, at the time when the dissolution proceeding was filed Ms. Goss had a potential, inchoate and unliquidated claim for attorney fees in that proceeding, and so this was a valid prepetition claim in Mr. Goss’ Chapter 13 case.

4) Whether or not this claim for attorney fees should be treated as a priority one is an issue not ripe for determination because under the current 100%-plus-interest plan the claim must be paid in full either way. Only if the plan is modified to pay a priority domestic support claim differently than a nonpriority unsecured one would the controversy be ripe for judicial resolution.

New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

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