BASIL H. LORCH, III, Judge.
This matter came before this Court for trial on January 25, 2000, on Plaintiff's Complaint to Determine Dischargeability of Debt alleging nondischargeability under 11 U.S.C. § 523 (a)(15). The parties filed a Joint Pre-Trial Statement on November 3, 1999.
The Court, having reviewed the testimony adduced at trial, together with the exhibits and pleadings of record, finds that the Plaintiff has made a prima facie showing of nondischargeability under section 523(a)(15). Insofar as the Debtor has failed to establish grounds for exception under 523(a)(15)(A) or (B), the debt is held to be nondischargeable under 11 U.S.C. § 523(a)(15).
IT IS SO ORDERED this 6th day of April, 2000, at New Albany, Indiana.
MEMORANDUM
This adversary proceeding was tried before the Court on January 25, 2000. The Plaintiff alleges, in her Complaint, that the subject debt should be excepted from discharge under section 523(a)(15) of the Bankruptcy Code. Based upon the testimony and evidence adduced at trial, the Court now makes the following Findings of Fact:
1. On or about March 25, 1999, the Defendant, Terry L. Crayden ["Debtor"], entered into a Settlement Agreement with Plaintiff, Janet M. Crayden ["Crayden"], in which the Debtor received as his sole and separate property one (1) 1998 Dutchman Motor Home. The Debtor agreed to assume the outstanding indebtedness on the motor home due to NBD Bank and hold Crayden harmless thereon.
2. On or about April 30, 1999, the Harrison Circuit Court entered a Decree of Dissolution of Marriage which incorporated the terms of the aforesaid Settlement Agreement, specifically:
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5. The Husband shall take, as his sole and separate property free from any and all claims of the Wife, all right, title and interest in and to the 1998 Dutchman Motor Home, on which there remains an outstanding indebtedness and he shall indemnify and hold the Wife harmless upon all outstanding indebtedness thereon.
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3. On August 5, 1999, the Debtor initiated a proceeding under Chapter 7 of the Bankruptcy Code wherein he seeks to discharge the stated obligation.
4. The Debtor earned gross income of approximately $58,000 in 1997 and 1998, and $70,400 in 1999. He earns $19.36 per hour as a union electrician. At some point subsequent to the divorce, the Debtor quit working overtime and his income dropped to approximately $893 per week gross or approximately $46,000 annually.
5. Crayden earns $10.75 per hour and has two dependants.
6. The Debtor purchased a home for $112,000 approximately one month after his divorce and a couple of months prior to filing his bankruptcy petition. In addition, the Debtor has at least $7,000 in equity in forty (40) acres of undeveloped real estate in South Dakota.
Discussion
Because the Debtor was ordered to assume the subject debt to NBD and hold Crayden harmless in the Decree of Dissolution, the Plaintiff seeks to have the debt excepted from discharge under section 523(a)(15) of the Bankruptcy Code. Under that provision, the Court must make a series of determinations. The Plaintiff must first prove that 523(a)(15) applies, then the burden shifts to the Debtor to prove either 523(a)(15)(A) or (B). See, Matter of Crosswhite, 148 F.3d 879 (7th Cir. 1998). Under the initial inquiry, Crayden must establish that the debt was incurred by the Debtor in the course of the divorce or in connection with a divorce decree or similar agreement. The Debtor has argued that Crayden failed to make that showing.
The Court is satisfied that the indebtedness to NBD was "incurred" in the course of the divorce or separation. Those cases which the Debtor cites in support of his argument are not inapposite. In the cases cited by the Debtor, the courts noted that joint debts to a third party with no hold harmless language were dischargeable under 523(a)(15). Because there is a hold harmless clause in this Separation Agreement, however, it can easily be argued that such language "created" a debt not otherwise in existence. See, e.g., Stegall v. Stegall, 188 B.R. 597 (W.D.Mo. 1995); Gibson v. Gibson, 219 B.R. 195 (6th Cir. BAP. 1998). Prior to the entry of the Settlement Agreement and Decree of Dissolution, the Debtor had no obligation to Crayden to pay the debt to NBD. Because the Debtor agreed to hold Crayden harmless on that debt, and was ordered to do so, his debt to her was "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. . ."
Having concluded that the debt fits within the exception to dischargeability provided in 523(a)(15), it must then be ascertained whether the Debtor has shown that he fits within an exception to the exception, as provided in subparts (A) and (B). Unless the Debtor can demonstrate that either he lacks ability to pay or that his benefit from discharge exceeds the detrimental effect on Crayden, the debt is excepted from discharge. The initial question is whether the Debtor is unable to pay under subpart (A).
The Debtor testified that after the divorce, he "didn't have the responsibilities of . . . all the bills that we had when we were married and family and things like that. And so I just decided, yeah, I'm gonna get out and go caving with my buddies — that's my sport that I do — and spend time working around the house and doing things, and that's what I do." He acknowledged that "I only work when I have to." [Deposition, p. 46, lines 7-12, 15-16.]
It's clear from the Debtor's testimony that immediately after the divorce, he was dissatisfied with the property settlement. He then became aware of the fact that he owed more money on the motor home than it was worth. He decided to make a lifestyle change. He purchased a home for $112,000 and decided to work just enough to pay his bills. Then he filed bankruptcy to shed himself of his debt on the motor home.
In assessing a debtor's ability to pay, the Court need not only consider the debtor's current financial situation, but may consider the debtor's opportunities for more lucrative employment and the extent to which the debtor has previously made a good faith effort to fully employ himself and to satisfy the debt in question. Matter of Huddelston, 194 B.R. 681 (Bankr.N.D.Ga. 1996). Furthermore, the standard is not that of inconvenience. The debtor must show that he lacks the ability to pay the debt from income and property not necessary for the support of himself and his dependents. Id. at 686 (citations omitted). The Court will assume, therefore, that the Debtor can not presently earn sufficient income to pay the debt without impacting his chosen lifestyle. But does he have the ability to pay the debt from income and property not necessary for his support? Clearly, to some extent, he does.
The Debtor owns 40 acres of undeveloped property in Custer, South Dakota. He has testified that he has at least $7,000 of equity in the property and that figure is likely higher. Although the Debtor purchased the property with the intention of someday retiring to South Dakota, it certainly is not necessary for his support. Therefore, at least to the extent of the equity in that property, he has a present ability to pay the debt to NBD.
Although the Debtor presented little evidence to assist the Court with an analysis under 523(a)(15)(B), the Court finds that a balancing test would weigh in favor of the Plaintiff.
When balancing the equities under subpart (B), many courts, including the Seventh Circuit, have recognized that a debtor's underemployment is a factor to consider. Crosswhite, 148 F.3d 879. And see, In re Asbill, 236 B.R. 192 (Bankr.D.S.C. 1999) (and cases cited therein). That rationale is consistent with Indiana state court decisions wherein child support obligations are based upon potential income in cases where a party is voluntarily underemployed. Ind. Child Support Guideline 3(A). See, e.g., In re Paternity of Buehler, 576 N.E.2d 1354 (Ind.Ct.App. 1991).
The Debtor is single, has no dependants, and earns $19.36 per hour. His gross income in 1999 was $70,417.61. His only secured debts are on his residence, his vehicle and his real estate in South Dakota. The creditor is working for $10.75 per hour and has two dependants. Although the Court can appreciate the Debtor's desire to slow down and enjoy life, the fact remains that his metamorphous into a man of leisure is at the expense of his ex-wife. The detriment to her is too great.
The Court finds that the Debtor has failed to meet his burden of establishing the 523(a)(15) exception contained in subparts (A) or (B). With his equity in real estate and proven ability to earn, he can pay the debt. Based upon the foregoing, the debt to Janet Crayden, created by the hold harmless provision of the Decree of Dissolution, is excepted from discharge under 11 U.S.C. § 523(a)(15). Judgment is entered in favor of the Plaintiff.
IT IS SO ORDERED AND ADJUDGED this 6th day of April, 2000, at New Albany, Indiana.
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