845 F.3d 256
7th Cir.2016Background
- Karen Smith filed Chapter 13 bankruptcy in July 2011; her husband did not join the petition and was not listed as a co-debtor.
- Capital One (through Kohn Law Firm) sued Smith’s husband in Wisconsin state court in July 2014 on his Capital One credit card debt; judgment entered for Capital One in August 2014 but was not enforced.
- Smith initiated an adversary proceeding in bankruptcy court alleging violations of the co-debtor stay (11 U.S.C. § 1301) and related consumer/debt-collection statutes, arguing Wisconsin marital law (Wis. Stat. § 766.55) made her husband’s debt her "consumer debt."
- Bankruptcy court granted summary judgment for Smith, concluding the husband’s debt was a debt of the debtor and thus protected by the co-debtor stay.
- District court reversed on interlocutory appeal, holding the co-debtor stay does not cover a non-filing spouse’s debt merely because a creditor could seek marital property under state law; Smith appealed to the Seventh Circuit.
- Seventh Circuit affirmed the district court: the co-debtor stay protects only debts that are the filing debtor’s own consumer debts; Wisconsin marital statutes do not convert a non-incurring spouse’s debt into the filing spouse’s debt for § 1301 purposes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 1301’s co-debtor stay apply where state marital law allows collection from marital property? | Smith: Wisconsin law makes husband’s credit-card debt a "debt of the debtor" because marital property can satisfy the debt, so § 1301 bars suit against husband. | Capital One/Kohn: § 1301 protects only debts that are the debtor’s own consumer debts; state law allowing remedy against marital property does not convert the creditor’s target into the debtor’s debt. | Held for defendants: § 1301 does not cover a non-filing spouse’s independent debt merely because state law allows collection from marital property. |
| Should the Court read "debt of the debtor" to include any "liability on a claim" potentially enforceable against the debtor’s property? | Smith: statutory definitions of "debt" and "claim" support a broad reading to include liabilities enforceable against the debtor’s property. | Defendants: statutory context, other provisions using "claim," and canonical avoidance of superfluity counsel a narrower reading. | Held for defendants: read narrowly; Congress’s differing word choice indicates § 1301 requires the debt be the debtor’s own. |
| Would adopting Smith’s reading render the automatic stay redundant? | Smith: overlap is not dispositive; co-debtor stay should still apply. | Defendants: Smith’s reading duplicates protections of the automatic stay (§ 362), which is disfavored. | Held for defendants: Smith’s reading would create redundancy; interpretation must avoid making § 362 superfluous. |
| Does Wisconsin law (including § 766.55 and the doctrine of necessaries) create direct liability on the non-incurring spouse such that § 1301 applies? | Smith: Wisconsin marital statutes and necessaries doctrine can produce liability against non-incurring spouse, bringing the debt within § 1301. | Defendants: Wisconsin statutes are procedural and permit collection from marital property but do not create direct liability against non-incurring spouse; Smith waived the necessaries theory by raising it first on appeal. | Held for defendants: Wisconsin law does not automatically convert husband’s debt into Smith’s; necessaries argument waived and unsupported on the record. |
Key Cases Cited
- Russello v. United States, 464 U.S. 16 (statutory language omitted in one section but included in another indicates deliberate congressional choice)
- River Rd. Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (statutory interpretation disfavoring superfluous readings)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (supreme court treatment of related statutory principles)
- TRW Inc. v. Andrews, 534 U.S. 19 (cardinal rules of statutory construction to avoid rendering words superfluous)
- In re Behrens, 900 F.2d 97 (finality and appealability of district-court decisions on bankruptcy interlocutory orders)
- In re Jartran, 886 F.2d 859 (when remand leaves only ministerial tasks, order may be final)
- Chi. Reg’l Council of Carpenters Pension Fund v. Schal Bovis, Inc., 826 F.3d 397 (standard of review for summary judgment)
- St. Mary’s Hosp. Med. Ctr. v. Brody, 186 Wis.2d 100 (Wisconsin law: § 766.55 does not create a direct cause of action against the noncontracting spouse)