Memorandum Decision re:

Original Filed October 18, 1999


In re: Case No. 97-59240-ASWSA Chapter 7 RODGER DALE ODOM, Debtor __________________________________/ Adv. Pro. No. 98-5043 Chapter 13 ANGELINE M. WALLER, Plaintiff, vs. RODGER DALE ODOM, Defendant __________________________________/ MEMORANDUM DECISION I. BACKGROUND

This matter came before the Court for trial on July 29, 1999 on the complaint of Plaintiff Angeline M. Waller ("Plaintiff") against Defendant and Debtor Rodger Dale Odom ("Debtor"). In her complaint, Plaintiff, the former wife of the Debtor, asks the Court to except a divorce-related marital debt from Debtor's Chapter 7 discharge, pursuant to § 523(a)(15) of the Bankruptcy Code1.

The marital debt at issue is a judgment by Bay Federal Credit Union ("Bay Federal") against both Plaintiff and Debtor for credit card purchases made during their marriage. Upon the dissolution of the marriage, the Superior Court of the State of California ordered Debtor to hold Plaintiff harmless from liability for any Bay Federal debt. Thereafter, Debtor filed under Chapter 7 of the Bankruptcy Code and sought to have the Bay Federal debt discharged. Plaintiff brought this adversary proceeding to determine the dischargeability of this debt.

At trial, Bruce Lindsey, Esq. represented the Plaintiff and Merrill Zimmershead, Esq. represented the Debtor. Both Plaintiff and Debtor testified and submitted to cross-examination.

The following represents the Court's findings of fact and conclusions of law, pursuant to Rule 7052.


Plaintiff and Debtor are former spouses. Together, they have one child -- Amy Odom, born on August 23, 1981 -- of whom they share legal custody.

On May 1, 1996, Plaintiff's petition for divorce was heard in the Superior Court. That Court entered a Dissolution of Marriage Judgment shortly thereafter, on May 31, 1996. Three subsequent orders, dated March 17, 1997, October 15, 1997 and October 16, 1998, further modified the original judgment, addressing child support and custody issues, and the division of marital property and debts.

Under the judgment and subsequent orders, Plaintiff and Debtor received joint legal custody of their daughter, Amy, with primary physical custody being awarded to Plaintiff. Plaintiff also received an award of monthly child support in the amount of $1,000, with the proviso that support cease when Amy reached the age of 18.

In dividing the marital property, the judgment awarded, and assigned all debts attached to, real property in Aromas, California to Plaintiff. Plaintiff also received a quitclaim deed from the Debtor, which relinquished his rights in the Aromas property. Debtor, in turn, received real property in San Juan Bautista, California ("Chittenden"). Plaintiff was to assume responsibility for all payments past due on Chittenden's first mortgage; Debtor was to assume responsibility for payments due on Chittenden's first mortgage for the month of May 1996 only, and back payments for the property's second and third mortgages. Debtor was awarded properties in Arizona, and Plaintiff provided quitclaim deeds that relinquished any interest that she might have in those properties.

The judgment divided the marital debt as follows: Plaintiff was to hold Debtor harmless from liability for the First Union and Shell credit cards; Debtor was to hold Plaintiff harmless from liability for the Bay Federal VISA credit card.

On December 10, 1996, Bay Federal filed a complaint in California Municipal Court against both the Plaintiff and Debtor, alleging that: they had received a VISA line of credit on October 23, 1991; they had defaulted on their installment payments; and Bay Federal was exercising its right to accelerate the entire balance due on the contract. Subsequently, on May 15, 1997, Bay Federal obtained a default judgment of $15,043.35 against both Debtor and Plaintiff.

On October 31, 1997, Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. As of that time, Debtor had made no payments toward the Bay Federal judgment which had been assigned to him in the divorce; instead, Debtor attempted to discharge this debt in his bankruptcy case.

On February 6, 1998, Plaintiff filed the instant Adversary Proceeding, alleging that the Bay Federal judgment was nondischargeable in Debtor's bankruptcy pursuant to § 523(a)(15) of the Bankruptcy Code.

At trial, both Plaintiff and Debtor introduced into evidence exhibits which detailed their respective finances from January 1998 to March 29, 1999. This evidence is contained in two California Judicial Counsel Forms: Form 1292.11, entitled Schedule of Assets and Debts and Form 1285.50, entitled Income and Expense Declaration. These Forms and the parties’ testimony constituted the bulk of evidence before the Court.

Debtor’s Income and Expenses

Debtor is currently a roofing contractor with California Roofing Company, Inc., where he has been employed since February of 1996. His gross annual income for 1998 was $70,000, or an average of $5,833 per month. Debtor testified that his gross income for 1999 is less, approximately $4,400 per month. Debtor explained that he had received a work-related bonus for 1998, but not yet for the current year. Because issuing the bonus is solely within his employer's discretion, Debtor could not predict if he would receive one for the current year. Nor could the Debtor determine the amount of a potential one since any bonus would be based on the company's annual profits, which varied from year to year.

In addition to a potential work-related bonus, Debtor excluded two items from his current gross monthly income: a monthly stipend of $500, which Debtor received from his employer for work-related car expenses, and rental income in the amount of $975. Debtor testified that he does not consider the $500 car stipend to be income because it simply compensates Debtor for the work-related use of his vehicle. He also believes the depreciation of his vehicle, which results from extensive work-related use, far exceeds the amount of this $500 stipend. He testified that the subject vehicle, a 1996 Dodge truck, has some 213,000 miles on the odometer, and will soon have to be replaced at Debtor’s own expense. As to the rental income, Debtor testified that he is currently renting a mobile home to a Ms. Cindy Turner, from whom he receives $975.00 a month in rent "when she pays." In the past, Debtor has rented this mobile home to other tenants, with rent ranging from $800.00 to $950.00 a month.

Debtor presented his current monthly expenses -- all of which were unchallenged by the Plaintiff:

Mortgage $ 1950.00 Homeowner’s insurance $ 123.00 Chrysler Credit (car payment for 1994 Dodge Truck) $ 389.00 Food and Household Supplies $ 250.00 Food (Eating Out) $ 50.00 Utilities $ 125.00 Telephone $ 75.00 Laundry $ 50.00 Clothing $ 75.00 Entertainment $ 50.00 Transportation and Auto Expenses $ 100.00 Court-ordered Child Support $ 1000.00

TOTAL MONTHLY EXPENSES . . . . . $ 4,237.00

Debtor also presented evidence as to his assets which, along with any encumbrances, are as follows:

Description of Asset Current Fair Market Value of Asset Amount of Money Owed or Encumbrance
1991 Chittenden Pass San Juan Bautista, CA $ 326,000 $ 310,000
Living Room Furniture Washer and Dryer Refrigerator $ 1,000 $ 2,800
1994 Dodge Pickup $ 3,000 $ 3,000
TOTAL $ 330,000 $ 315,800
NET EQUITY $ 14,200

Plaintiff’s Income and Expenses

Plaintiff is currently a bookkeeper with Sakata Ranches, Inc., where she has been employed since January 1988. She also has a small tax preparation business. Her total gross annual income for 1998 from both sources was $34,698, or an average of $2,891.50 a month. Plaintiff testified that the tax preparation business is insubstantial, grossing a modest $698 for 1998; she predicted that future gross earnings will be less than $1,000 per year.

Plaintiff’s current gross monthly income, which includes income from her tax business, is only $ 2,000. Plaintiff testified that her average gross monthly income for 1998 was considerably higher than currently because she received vacation pay in the amount of $1,000 in exchange for forgoing any vacation time, and she received severance pay in the amount of $7,000 when her job was terminated on December 31, 1998. Her termination resulted from her employer’s decision to implement a computerized system. However, because of Plaintiff’s knowledge about the location of files and other data, she has remained on a month-to-month basis only.

Plaintiff testified that, because she expects to be terminated, she continues to search for other employment. As a high school graduate with no college degree, Plaintiff explained that job prospects in her field are limited because, with the increasingly competitive job market, candidates without computer training or other advanced degrees, such as a C.P.A. or B.A. degree, are severely disadvantaged.

Plaintiff lists her current monthly expenses as follows:

1st Mortgage - $ 492.00

(held by CoAmerica)

2nd Mortgage - (held by Plaintiff’s Parents, Mr. And Mrs. Waller) $ 377.00

Sum Total of Mortgage Payments: $ 869.00

Real Property Taxes $ 30.00 Homeowner’s Insurance $ 68.00 Medical and Dental Expenses $ 60.00 Child’s Education $ 400.00 Food and Household Supplies $ 200.00 Utilities $ 105.00 Telephone $ 35.00 Laundry and Cleaning $ 40.00 Clothing $ 225.00 Transportation and Auto Expenses $ 372.00 Wells Fargo Bank (Credit Card) $ 58.00 Bank of the West (Motor home) $ 226.00 CoAmerica (1995 Toyota) $ 375.00

TOTAL MONTHLY EXPENSES . . . . . $ 3,063.00

Plaintiff’s assets along with encumbrances are as follows:

Assets Fair Market Value Encumbrances

1971 Silvercrest $ 105,200.00 $ 12,500.00 Mobile Home 18475 1st Mortgage(CoAmerica) Rea Ave., Aromas, CA $ 58,000.00 2nd Mortgage (Plaintiff’s Parents) $ 23,000.00 3rd Mortgage (Plaintiff’s Fianc§) Judgment Lien (Bay Federal) Furniture $ 1,000.00 1988 Izuzu I Mark $ 400.00 1987 EMC Motor home $ 10,000.00 $ 8,000.00 1995 Toyota Pickup $ 10,000.00 $ 8,000.00 Savings Account $ 1,000.00 Checking Account $ 100.00 Tax Refund $ 5,000.00 Mutual Fund $ 1,000.00 IRA $ 21,000.00 Tax Business(Equip) $ 1,000.00 Hot Tub $ 150.00 Horsewalker $ 750.00 2 Horses 2

TOTAL $ 156,600.00 $ 109,500.00
NET EQUITY $ 47,000.00

§ 523(a)(15), which governs the circumstances under which a marital obligation will be exempted from discharge, provides:

(a) A discharge under . . this title does not discharge an individual debtor from any debt -- (15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record. . . unless -- (A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of debtor or a dependent of the debtor...; or (B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.

The statutory language of § 523(a)(15) excludes from its reach support-related marital debt as described in § 523(a)(5); therefore, a necessary first step in analyzing § 523(a)(15) is to determine whether a marital debt is support or non-support. If the marital debt is deemed to be in the nature of support, such as child or spousal support, then such debt will be nondischargeable pursuant to §523(a)(5). If the debt is determined to be non-support, however, then such debt will be nondischargeable pursuant to §523(a)(15) unless the debtor can show either: (1) under subsection (A), the inability to pay; or (2) under subsection (B), that the benefit to the debtor of discharge outweighs the harm to the ex-spouse. The importance of the distinction between support and non-support marital debt is clear: the former is nondischargeable under § 523(a)(5) without further inquiry; the latter is nondischargeable under § 523(a)(15) unless the debtor can satisfy either of the two exceptions under subsections (A) or (B).

In determining whether a marital debt is in the nature of support, the court “must look beyond the language of the decree to the intent of the parties and to the substance of the obligation.” Shaver v. Shaver, 736 F.2d 1314, 1316-17 (9th Cir. 1984)(“Shaver”). In Shaver, the Court of Appeals listed several factors to be considered in characterizing a marital debt as support-related:

...If an agreement fails to provide explicitly for spousal support, a court may presume that a so-called “property settlement” is intended for support when the circumstances of the case indicate that the recipient spouse needs support. See Stout v. Prussel, 691 F.2d 859, 861 (9th Circuit 1982). Factors indicating that support is necessary include the presence of minor children and an imbalance in the relative income of the parties. In re Woods, 561 F.2d 27, 30 (7th Cir. 1977). Similarly, if an obligation terminates on the death or remarriage of the recipient spouse, a court may be inclined to classify the agreement as one for support. Id.; see also Matter of Albin, 591 F.2d 94 (9th Cir. 1979); In re Ferradino,14 Bankr.N.D.Ga.1980). A property settlement would not be affected by the personal circumstances of the recipient spouse; thus a change in those circumstances would not affect a true property settlement, although it would affect the need for support. The court will look also to nature and duration of the obligation to determine whether it is intended as support. Support payments tend to mirror the recipient spouse’s need for support. Thus, such payments are generally made directly to the recipient spouse and are paid in installments over a substantial period of time. Matter of Albin, 591 F.2d 94, 97 (9th Cir. 1979); In re Smith, 436 F. Supp. 469 (N.D.Ga. 1977).

Additionally, the bankruptcy court is not bound by the state court’s characterization of a marital debt as support-related. Rather, the “federal interests reflected in the Bankruptcy Act” require an independent determination of the nature of the martial obligation. Shaver at 1316 citing Erspan v. Badgett, 647 F.2d 550 (5th Cir. 1981), cert. denied, 455 U.S. 945, 102 S.Ct. 1443, 71 L.Ed.2d 658 (1982).

If the debt is deemed to be non-support, then its dischargeability is governed by § 523(a)(15), which provides that non-support related debt will be dischargeable if (1) debtor is unable to pay the debt; or (2) the benefit of discharge outweighs the harm to the ex-spouse. In this case, neither party contends that the subject debt is in the nature of support under § 523(a)(5), and both presented evidence only with respect to the dischargeability of the debt under § 523(a)(15).

Neither the Code nor the legislative history provide any guidance on the test for determining Debtor’s ability to pay, the factors to consider in balancing the hardships, and the question of who -- Debtor or ex-spouse -- bears the burden of proof for each of the two exceptions under § 523(a)(15). However, the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) recently established the analytical framework for determining the dischargeability of marital debt under § 523(a)(15) in In re Jodoin, 209 B.R. 132 (9Th Cir. BAP 1997) (“Jodoin”).

Analyzing the first exception under § 523(a)(15) -- Debtor’s inability to pay -- the BAP in Jodoin adopted an expanded view of the “disposable income” test of § 1325(b)(2). Id. at 142. Under the disposable income test, the court asks “[w]hat funds are available to the Debtor to pay the obligation after deducting 'reasonably necessary' expenses”. Id., quoting Dressler v. Dressler, 194 B.R. 290, 304 (Bankr.D.R.I. 1996)(“Dressler”). The BAP cautioned, however, that a “proper application of [the disposable income test] should take into account the prospective income that the debtor should earn [as well as] the debtor’s reasonable expenses.” Id. Such an approach, reasoned the BAP, would allow court scrutiny of manipulative behavior on the part of debtors, who might be tempted to “sacrifice their own financial well-being to spite their ex-spouse.” Id. If the debtor can satisfy the inability to pay exception of § 523(a)(15)(A), pursuant to the disposable income test, the Court will discharge the marital obligation.

Where the debtor cannot prove inability to pay, the marital obligation will still be discharged if debtor can prove that the benefit of discharge outweighs the harm to the ex-spouse. This is essentially a fact-based inquiry, which “primarily focuses upon the total economic situation of the parties in their new lives.” Id. at 143.

In analyzing both the ability to pay and the balance of the hardships test, the BAP in Jodoin adopted the majority view that the appropriate time for analyzing the ability to pay and hardship tests is the date of trial. The BAP reasoned that “...§ 523(a)(15) instructs us to look out the windows. It calls for a ‘current circumstances’ review of non-support divorce obligations and the consequences of discharge upon them.” Id. at 142 quoting Dressler at 300.

The BAP also adopted the majority approach with respect to the allocation of burdens, holding that the debtor had the burden of proof with respect to both the inability to pay and the balance of the hardships tests. Id. at 141. The BAP reasoned that the statutory structure of § 523(a)(15) creates an exception within an exception: non-support obligations are excepted from discharge pursuant to § 523(a)(15), but, within that exception, some marital debts are excepted from nondischargeability if either the ability to pay or the balance of hardships tests is met. Id. at 141. The BAP drew an analogy between the “exception within an exception situation” of § 523(a)(15) and the case of Hill v. Smith, 260 U.S. 592, 43 S.Ct. 219, 67 L.Ed. 419 (1923), wherein the Supreme Court held “that the party claiming the exception to a statutory provision is required to prove the exception.” Id.

IV. Discussion

In order to have the Bay Federal debt discharged, the Debtor must prove either: (1) under subsection (A), the inability to pay the debt; or (2) that the benefit of discharging the debt will outweigh the harm to the Plaintiff.

A. Debtor's Ability to Pay Under Subsection (A) of § 523(a)(15)

To prevail under subsection (A), Debtor must demonstrate an inability to pay as measured by the "disposable income" test of § 1325; that is, Debtor must show inability to pay the debt and reasonably necessary expenses.

With respect to Debtor’s current disposable income, Debtor testified that his gross income for 1998 was $70,000, or an average of $5,833 a month. Debtor also testified that he hopes to earn close to his 1998 gross income of $70,000 for the current year. Currently, however, Debtor has a gross monthly income of $4,400. Out of this $4,400, Debtor must pay monthly expenses of $4,237, leaving a disposable monthly income of $163. The Court notes that Plaintiff did not challenge any of these expenses as being unreasonable.

Debtor’s alleged disposable monthly income of $163 is considerably understated. Two sources of income, both excluded from Debtor's monthly income, demonstrate that Debtor's disposable income is actually much higher. The first source of income is monies which Debtor receives from the rental of a mobile home on his property. Debtor testified that he receives $975 a month from his current tenant, “when she pays.” Although Debtor failed to specify how often he received this rental income, he testified that, in the past, he has rented this mobile home to other tenants for between $800 and $950 a month. Debtor provided no evidence of his expenses for maintaining this property.

Secondly, Debtor was required to pay $1,000 in monthly child support pursuant to a state court order. However, since August 23, 1999, when Debtor’s child turned 18, Debtor was no longer be obligated under court order to provide such support. Therefore, Debtor’s disposable income is now increased by $1,000 per month.

Adding the terminated monthly child-support payments of $1,000 to Debtor’s alleged disposable monthly income of $163 produces a total disposable monthly income of $1,163. Adding the rental income of $975 to this total would yield an even more generous disposable monthly income of $2,138.

Given that the Court finds Debtor's disposable monthly income to be at least $1,163, and possibly close to $2,138, Debtor has failed to demonstrate inability to pay under subsection (A) of § 523(a)(15).

B. Balancing the Hardships Between the Debtor and Plaintiff under Subsection (B) of § 523(a)(15)

Not withstanding his ability to pay the Bay Federal debt, Debtor may still prevail if he can meet the requirements of subsection (B); namely, that the benefit to him from discharge outweighs the detrimental consequences to the Plaintiff.

In balancing the hardships between Debtor and Plaintiff, the Court examines the total economic circumstances of each party in their new lives.

There is a wide disparity between the parties’ incomes, and consequently, in their respective ability to shoulder the burden. While the Debtor enjoys a disposable monthly income of between $1,163 and $2,138, Plaintiff, with a gross monthly income of $2,000 and monthly expenses of $3,063.00, has no disposable income. Rather, Plaintiff has a sizeable monthly deficit of $1,063.

Second, while the Plaintiff’s financial future is problematic at best, the Debtor’s financial future includes steady income from employment as a contractor, a position he has held since February of 1996. By stark contrast, Plaintiff, as a month-to-month employee, is subject to termination at any time. Moreover, given Plaintiff’s lack of education, Plaintiff will likely find it difficult to locate other employment. Coupled with the lack of a monthly disposable income -- indeed, Plaintiff’s financial situation shows a monthly deficit -- Plaintiff’s reduced opportunities for finding employment indicate that she will suffer the greater hardship if the Bay Federal debt is discharged. Debtor, on the other hand, receives steady income as a roofing contractor and, as of 1998, earned a gross annual income of $70,000. In addition, Debtor may receive a work-related bonus which could raise his income for 1999 up to, or in excess of, that for 1998.

A third consideration in the balancing of hardships is available income from the parties’ new relationships or spouses. Although both parties maintain new relationships in the aftermath of their divorce, the evidence suggests that these new partners are not contributing significantly to either party’s household. Plaintiff testified that her fianc§ only contributes half of the food for the household; all of their other finances are kept separate. Similarly, Debtor testified that his fianc§e, who works for his employer and earns an hourly wage of $10, has not yet contributed to Debtor’s household.

Based on all of these factors, the Court concludes that the discharge of the Bay Federal debt would impose a burden on the Plaintiff that far outweighs the benefit to the Debtor if the debt were discharged as to him. Since the Debtor has failed to satisfy the balance of hardships test under subsection (B), the Bay Federal debt is nondischargeable under § 523(a)(15)(B).


For the foregoing reasons, Debtor’s obligation to pay the Bay Federal Judgment, a non-support marital obligation, is nondischargeable pursuant to § 523(a)(15). Debtor has failed to carry his burden of proving either an inability to pay under subsection (A) or that the benefit of discharge would outweigh the detriment to the Plaintiff under subsection (B). Counsel for the Plaintiff is directed to prepare a form of order and submit it to the Court after having presented it for review as to form and substance upon counsel for the Debtor.

DATED: October 18, 1999 ___________________________________ ARTHUR S. WEISSBRODT UNITED STATES BANKRUPTCY JUDGE 1Unless otherwise noted, all statutory references are to the Bankruptcy Code, 11 U.S.C. section 101 et seq., and all "Rule" references are to the Federal Rules of Bankruptcy Procedure. 2Plaintiff did not indicate the value of these 2 horses in her exhibit. However, Plaintiff did testify that both horses belonged to her daughter. CANB DocumentsNorthern District of California