E. Deborah Stout v. Elliott Prussel

The district court reversed a judgment of the bankruptcy court and held that the obligation of Prussel to hold Stout, his wife, harmless from a Small Business Administration (SBA) loan was an obligation for and in the nature of support and therefore non-dischargeable in bankruptcy. 11 U.S.C. § 523 (a)(5). We conclude that the bankruptcy judge was within his discretion in granting Prussel a discharge for this obligation and therefore reverse.

Prussel’s obligation arose from a property settlement agreement which was incorporated into the Interlocutory Judgment of Dissolution of Marriage. The effect of sub-paragraph 7 of the property settlement agreement was that Stout took the family residence subject to the existing encumbrances and held Prussel harmless from liability thereon while Prussel took the pharmacy business and held Stout harmless on the SBA loan that had been obtained by them jointly to finance that business. Since the family residence constituted part of the security for repayment of the SBA loan, Stout became obligated by the settlement agreement to remove the SBA lien as soon as possible. Prussel filed a petition in bankruptcy wherein he sought to discharge his…