Bendetti v. Gunness

Ninth Circuit BAP
In order to be non-dischargeable under 523(a)(5) or 523(a)(15), the debt must be owed to or recoverable by a spouse, former, spouse, or child of the debtor. The Gunness court found the plain language of the Bankruptcy Code requires this type of familial relationship as a prerequisite for nondischargeability under either of these sections. In distinguishing Chang v. Beaupied (In re Chang), 210 B.R. 578 (9th Cir. BAP 1997), and other cases that focus on the nature of the underlying debt (or "bounty of the debt"), the court noted that an adverse ruling on the dischargeability issue would not affect the finances of a spouse, former spouse, or child of the Debtor's--as the creditors admittedly had no actual or former familial relationship with the actual Debtor at issue.
Procedural context:
Appeal to the Ninth Circuit Bankruptcy Appellate Panel from a Bankruptcy Court's summary judgment ruling in an adversary proceeding.
A Chapter 7 Debtor brought an adversary proceeding seeking to establish that debt she owed to her husband's former spouse (which was also payable in part to the ex-wife's attorney) was dischargeable because neither Section 523(a)(5) nor 523(a)(15) applied. The debt stemmed from an $280,000 attorney fee award in a state court fraudulent transfer proceeding that was made part of the divorce proceedings between the Debtor's spouse and his ex-wife. In short, the creditor claimed the Debtor was made part of these proceedings because the Debtor's husband fraudulent transferred assets to the Debtor years earlier that should have been distributed as part of the divorce proceedings. The Debtor argued neither 523(a)(5) nor 523(a)(15) applied because the debts were not owed to "a spouse, former spouse or child of the debtor." Both the Bankruptcy Court and Ninth Circuit BAP agreed, distinguishing a line of authority that focuses on the nature of the underlying debt, and not who the debt is owed to.
Kurtz, Pappas, and Ballinger (by designation)

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