Clarence Calhoun appeals the Bankruptcy Court’s summary judgment that his assumption of five loan obligations totaling $27,564.14 pursuant to a separation agreement between Calhoun and his former wife were “in the nature of” support or alimony and therefore nondischargeable debts under 11 U.S.C. § 523(a)(5). 1 We reverse and remand for further proceedings consistent with this opinion.
Appellant filed for voluntary bankruptcy under Chapter 7,11 U.S.C. § 701 et seq., on July 1, 1980. His former wife, appellee Jo Ann Long, was listed as the holder of unspecified unsecured claims. Appellee Long brought a complaint before the Bankruptcy Court to determine whether obligations of $21,611.32 2 assumed by the appellant in the parties’ separation agreement constituted alimony excepted from discharge under 11 U.S.C. § 523(a)(5).
Calhoun and Long were married, both for the second time, on October 2, 1976. No children resulted from their marriage. Each had children from their first marriages. On November 14, 1979 the couple entered into a separation agreement in which Calhoun, unrepresented by counsel, 3 agreed to assume five debts jointly incurred during the marriage and to hold Long harmless for their payment. The agreement characterizes this assumption as alimony and support although it is found in the section of the document labeled Division of Property. Another section labeled Alimony states that there shall be no alimony other than that provided in the debts and obligation section. An Ohio Common Pleas Court subsequently incorporated this agreement into a divorce decree dissolving the marriage.
The five obligations assumed by Calhoun include:
(1) A note for $8,670 to the First National Bank of Massillon which financed a swimming pool at the home owned by the appellee Long;
(2) A note for $11,000 to Floyd Schalmo, the proceeds from which were used to consolidate the couple’s debts including $5,000 for Calhoun’s business, Bimbo’s Place, and $6,000 for utilities, car payment and prior debts;
(3) Visa card charges of $1,076.38 incurred to pay for Calhoun’s expenses at a truck driving school;
(4) Mastercharge card charges of $824.22 for Calhoun’s expenses while “on the road”;
(5) A note of $5,998.40 for the purchase of a 1977 Dodge Tradesman Van titled to Calhoun.
At the time of their separation Calhoun had sold his business and had been laid off from his job as a meat cutter. His earnings for the prior three years were approximately $10,000 to $15,000 in 1977, $7,500 in 1978, and a loss in 1979. His current income is approximately $950.00 per month from which he is required to pay approximately $300.00 per month for support of two children from his previous marriage and $707.00 per month on the debts he assumed in the parties’ separation agreement. Long
This case presents the issue of when a debtor’s assumption of joint debts and the undertaking to hold a former spouse harmless as part of a marriage separation agreement constitutes support or alimony payments to the former spouse resulting in non-dischargeable debts under 11 U.S.C. § 523(a)(5). 4
Section 523(a)(5) represents Congress’ resolution of the conflict between the discharge of obligations allowed by the bankruptcy laws and the need to ensure necessary financial support for the divorced spouse and children of the debtor. Accordingly, § 523 excepts from discharge payments:
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act); or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support(.)
The initial question is whether those obligations not payable directly to the former spouse are nondischargeable under § 523(a)(5). The Senate and House Reports contain conflicting language. At one point they seem to indicate payments must be made directly.
Paragraph (5) excerpts from discharge debts to a spouse, former spouse, or child of the debtor for alimony to, maintenance for, or support of, the spouse or child. This language, in combination with the repeal of section 456(b) of the Social Security Act (43 U.S.C. 656(b)) by section 327 of the bill, will apply to make nondis-chargeable only alimony, maintenance, or support owed directly to a spouse or dependent. See Hearings, pt. 2, at 942. (emphasis supplied)
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 364 (1977) reprinted in [1978] U.S.Code Cong. & Ad.News, 5787, 6320; S.Rep. No. 95-989, 95th Cong., 2d Sess. 79, reprinted in [1978] U.S.Code Cong. & Ad.News 5865. The remaining portion of the report, however, refutes any direct payment requirement in the case of an agreement to hold a spouse harmless on joint debts.
This provision will, however, make non-dischargeable any debts resulting from an agreement by the debtor to hold the debtor’s spouse harmless on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations that are similar to considerations of whether a particular agreement to pay money to a spouse is actually alimony or a property settlement. See Hearings, pt. 3, at 1287-1290.
Id.
The Second Circuit rejected a requirement of direct payment in
In re Spong,
If the debtor has assumed an obligation of the debtor’s spouse to a third party in connection with a separation agreement, property settlement agreement, or divorce proceeding, such debt is dischargea-ble to the extent that payment of the debt by the debtor is not actually in thenature of alimony, maintenance, or support of debtor’s spouse, former spouse, or child. 5
24 Cong.Rec. H11,096 (daily ed. Sept. 28, 1978) (remarks of Rep. Edwards); Id. at S17,412 (daily ed. Oct. 6, 1978) (remarks of Sen. DeConcini).
See
Bankruptcy court decisions have uniformly found hold harmless clauses to create nondischargeable obligations.
E.g., In re Petoske,
In accordance with the express language of § 523(a)(5) the bankruptcy courts have uniformly required that joint obligations assumed by the debtor as a part of a separation or divorce settlement must be “actually in the nature of” alimony or support in order to be excepted from discharge.
E.g., In re French,
What constitutes alimony, maintenance, or support, will be determined under the bankruptcy law, not State law. Thus, cases such as In re Waller,494 F.2d 447 (6th Cir.1974), are overruled, and the result in cases such as Fife v. Fife,1 Utah 2d 281 ,265 P.2d 642 (1952) is followed. The Proviso, however, makes non-dis-chargeable any debts resulting from an agreement by the debtor to hold the debt- or’s spouse harmless, on joint debts, to the extent that the agreement is in payment of alimony, maintenance, or support of the spouse, as determined under bankruptcy law considerations as to whether a particular agreement to pay money to a spouse is actually alimony or a property settlement, (emphasis supplied)
S.Rep. No. 95-989, 95th Cong., 2d Sess., 79, reprinted in [1978] U.S.Code Cong. & Ad. News 5787, 5865. See also H.R. No. 95-595, 95th Cong., 1st Sess., 364 (1977), reprinted in [1978] U.S.Code Cong. & Ad.News 5963, 6320.
Yet, while it is clear that Congress intended that federal not state law should control the determination of when an assumption of joint debts is “in the nature of” alimony or support, it does not necessarily follow that state law must be ignored completely. It is unlikely that Congress could have intended such a result. The underlying obligation to provide support in the first place is necessarily determined by state law. The federal bankruptcy courts are obviously not empowered to create an obligation to support where it did not previously exist. Moreover, there is “no federal law of domestic relations.”
DeSlyva v. Ballentine,
Neither the case law nor legislative history, however, resolve the extent to which resort to state law would be appropriate. The rationale that has prevailed in varying degrees before most bankruptcy courts as well as the Second Circuit in
In re Spong
is that while state law is not binding, it nonetheless may provide a useful source of “guidance.”
E.g., Id.; In re King;
Other bankruptcy courts have simply recited those factors most often considered relevant by state courts generally in determining whether to grant support without reference to any particular state’s law.
See, e.g., In re Petoske,
Fairly divergent dispositions have resulted from utilization of the above factors. The initial difficulty is that every assumption of a joint loan obligation in a divorce settlement at least indirectly contributes to support. The former spouse is relieved of payments on that debt and thus has funds for other purposes including necessary support. Support in this broad sense results even if the assumption of joint marital debts is actually a division of property. It is clear from the statute and legislative history that Congress could not have intended that all assumptions of joint debts would be nondischargeable. Such assump
We believe that the initial inquiry must be to ascertain whether .the state court or the parties to the divorce intended to create an obligation to provide support through the assumption of the joint debts. If they did not, the inquiry ends there. There is no basis for the bankruptcy court to create a non-dischargeable obligation for the debtor that the state court granting the divorce decree or the parties to that proceeding did not create. In making this determination the bankruptcy court may consider any relevant evidence including those factors utilized by state courts to make a factual determination of intent to create support. 8
This finding of intent does not, however, control the ultimate issue of whether the assumption of joint debts was actually in the nature of support for purposes of federal bankruptcy. If the bankruptcy court finds, as a threshold matter, that assumption of the debts was intended as support it must next inquire whether such assumption has the
effect
of providing the support
necessary
to ensure that the daily needs of the former spouse and any children of the marriage are satisfied. The distribution or existence of other property, for example, may make the continuing assumption of joint debts unnecessary for support, as might drastic changes in the former spouse’s capabilities for self-support.
9
Substance must prevail over form.
E.g., In Matter of Gentile,
If the bankruptcy court finds the loan assumption too excessive to be fairly considered “in the nature of” support it must then set a reasonable limit on the nondis-chargeability of that obligation for purposes of bankruptcy. Use of factors similar to those a state court would employ to formulate a reasonable limit on support may be used to serve that limiting function in the context of a dischargeability determination. In such cases the bankruptcy courts should consider such traditional state law factors as the relative earning powers of the parties, their financial status, prior work experiences or abilities, other means of support and other facts relevant to the substance of the result achieved by the loan assumption in order to determine how much of the debt assumed can be fairly considered “in the nature of” support for purposes of federal bankruptcy. 12
The bankruptcy court’s determination of whether a loan assumption constitutes a nondischargeable support obligation is a factual finding only reviewable in the court of appeals under the clearly erroneous standard of Fed.R.Civ.P. 52.
13
See Matter of Coil,
The Bankruptcy Court first erred by applying an incorrect legal standard. The Court held, that the clear language of the parties’ separation agreement controlled the issue of dischargeability “unless the compelling weight of the evidence suggests that enforcement of the agreement would work a manifest injustice.” 14 The language of the parties’ (or state courts’) characterization of the loan assumption does not control. Moreover, the Bankruptcy Court, in effect, shifted the burden of proof from the plaintiff spouse 15 to the debtor to show that the agreement does not mean what it says or works a manifest injustice. Placing this degree of reliance upon the language of the parties’ agreement and placing the burden of persuasion on the debtor are legal errors which may not be separated from the court’s factual findings in this case. The contents of those findings were inextricably dependent upon the focus of the court’s inquiry.
The Bankruptcy Court also erred by not considering each loan obligation assumed individually. Many of the factors considered in determining dischargeability could vary depending upon the type of loan involved, its purposes and the circumstances of the parties.
See, e.g., In re Nelson,
Accordingly the judgment of the Bankruptcy Court is reversed and the case remanded for further proceedings consistent with this opinion.
Notes
. The summary judgment was based upon the parties’ stipulation of facts, the pleadings and arguments of counsel.
. The appellant Calhoun correctly notes that the Bankruptcy Court found $27,564.14 in non-dischargeable debts even though the appellee only challenged $21,611.32 of the appellant’s claimed dischargeable debts. On remand the Bankruptcy Judge should reconcile and explain this discrepancy.
.Mr. Calhoun, although unrepresented, makes no claim that he misunderstood the nature of his obligations under the parties’ separation agreement. The parties agree that the terms of the agreement were explained to Calhoun by Long’s counsel and Calhoun’s consent to its terms voluntarily given. The absence of counsel is only relevant in cases in which the debtor did not understand the nature of his obligation created by the parties’ consent agreement.
But see Matter of Gentile,
. There are two distinct obligations involved in an agreement to assume former joint marital debts — the underlying debt owed to the mutual creditor and the obligation owed directly to the former spouse to hold the spouse harmless on that underlying debt. It is only the discharge-ability of this latter obligation which is at issue in the present case.
. These remarks were offered jointly by sponsors from both houses of Congress in lieu of a conference report on the Act. As such they are of greater value in interpreting legislative intent than the statements of individual legislators ordinarily are.
See National Woodwork Manufacturers Ass’n v. NLRB,
. The latter approach of evaluating the extent of any underlying state law duty to support is arguably in contradiction to Congress’ intent that state law not be controlling. The obvious temptation is to treat as conclusive any finding that a duty to support at a specific level would exist under state law. Succumbing to such a temptation would clearly circumvent the legislature’s intent that considerations particular to federal bankruptcy law shall be determinative of dischargeability issues.
. These factors include: the nature of the obligations assumed (provision of daily necessities indicates support); the structure and language of the parties’ agreement or the court’s decree; whether other lump sum or periodic payments were also provided; length of the marriage; the existence of children from the marriage; relative earning powers of the parties; age, health and work skills of the parties; the adequacy of support absent the debt assumption; and evidence of negotiation or other understandings as to the intended purpose of the assumption.
. See discussion on pp. 1107-1108.
. At issue in the present case is solely the dischargeability of a continuing obligation to hold the former spouse harmless on past marital debts. There has been no claim made that Calhoun is in arrears on past payments due under this obligation. The dischargeability of such unpaid past liabilities requires an analysis distinct from consideration of whether the continuing obligation to hold harmless may be discharged.
.We recognize that such inquiry may, in effect, modify a judgment or decree of a state court. In view of the congressional mandate to apply a federal standard, this cannot be avoided. Actual interference, however, will probably be minimal. In a contested case the likelihood that the state court would have awarded
. If the circumstances of the debtor have changed from the time the obligation to the former spouse to pay joint debts was created so as to make such support now inequitable the bankruptcy court may consider the debtor’s current general ability to pay insofar as it relates to the continuing obligation to assume the joint debts.
. We emphasize that the nature of this final inquiry as to whether the loan assumptions would constitute an excessive degree of support beyond that which any state court would reasonably allow given the parties’ relative circumstances, is a limited one. It is not intended that the Bankruptcy Court sit as a “super-divorce” court. Rather, the purpose of such inquiry is to ensure that the degree of support represented by the loan assumptions, particularly in uncontested cases, does not clearly exceed that which might reasonably have been awarded as support by a state court after an adversarial proceeding.
.The parties here claim to have taken a direct appeal by agreement to the Sixth Circuit pursuant to 28 U.S.C. § 1293(b). Section 1293(b) is not actually effective until April 1, 1984. However, this section refers to the note preceding 28 U.S.C. § 1471 as controlling appeals during the transitional period. That note, Pub.Law 95-598, Title IV, § 405, 92 Stat. 2686, authorizes the same form of appeal by stipulation described in § 1293(b).
. Apart from consideration of whether the assumption of joint debts is so excessive as to be unreasonable, the bankruptcy court may not find an assumption dischargeable merely on general equitable considerations. This limitation on the court’s inquiry is apparent when § 523(a)(5) is compared to § 523(a)(8) which governs the dischargeability of student loans. The latter discharge exception specifically provides that the Bankruptcy Court may find a student loan debt dischargeable if equitable considerations so warrant even though otherwise defined as a nondischargeable debt. The former has no such provision. Because of Congress’ silence, as well as the undesirable increased potential for second guessing state Court decrees, we believe that § 523(a)(5) is limited to consideration of whether the assumed debt is actually in the nature of support as defined in this opinion.
See In re Nelson, II,
. It is the spouse’s burden to establish nondis-chargeability.
See In re Daiker,