Judge Godoy Exempts From Debtor’s Discharge Debts Triggered by Divorce Decree Which Originated Under Prenuptial and Postnuptial Agreements It
Judge Godoy Exempts From Debtor’s Discharge Debts Triggered by Divorce Decree Which Originated Under Prenuptial and Postnuptial Agreements It
often said that the purpose of the Bankruptcy Code is to provide the “honest but unfortunate” debtor with a “fresh start”. However, there are certain debts which, as a matter of public policy, Congress exempted
from a debtor’s discharge (i.e. are “nondischaregeable”). These include “domestic support obligations,” §523(a)(5), and debts owed “to a spouse, former spouse, or child of the debtor . . . that [are] 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,” §523(a)(15).
In a recent case, the Judge Godoy held that a debt owed pursuant to a prenuptial agreement was nondischargeable under §523(a)(15) because it was triggered by a divorce proceeding. Similarly, a debt owed under a contract entered into by the ex-spouses when they were married related to the dissolution of a mutually owned corporation in the event of a divorce was also nondischargeable under §523(a)(15).
What is interesting about this case is that the creditor ex-spouse originally attempted to obtain a declaration of nondischargeability based on the debts having been incurred on account of fraud. Those claims were dismissed as time barred. However, in the same proceeding, the debtor filed a counterclaim seeking a declaration that the ex-spouse’s proofs of claim were not “domestic support obligations” and were, therefore, dischargeable.
According to Judge Godoy the court could not provide the requested relief “because even if we found that the debt in question is not a domestic support obligation […] there are other grounds for nondischargeability under section 523(a) that Ms. Santiago did not include in her complaint but that are not time barred, most notably section 523(a)(15).” In other words, Judge Godoy all but told the creditor ex-spouse to file a new complaint but this time to pursue relief under §523(a)(15).
If you are surprised by the fact that the court essentially told the creditor ex-spouse to pursue a different relief from the one it decided to pursue, you are not alone. To be fair, the court was put in a tough position because it knew it could not provide the relief requested by the debtor, but not for the reasons set forth by the creditor.
It is true that there are certain matters which bankruptcy judges are called to evaluate independently. But, sometimes, even in adversary proceedings, bankruptcy judges take a more active role by suggesting alternative grounds for relief or by deciding matters based on arguments not advanced by any party.
Has this happened in your experience? Is it appropriate for bankruptcy judges to assume a more active role than, for example, district judges? Does it make a difference if such active role is assumed in the main case versus an adversary proceeding?