Efforts to Collect Domestic Support Violates Automatic Stay

Posted by NCBRC - March 28, 2022

An ex-husband’s efforts to collect medical expenses and a $50.00 direct payment ordered by the Family Court violated the automatic stay, where, unlike the debtor’s other domestic support obligations which he collected through wage garnishment, payment for the debts was not limited to non-estate property as required by the domestic support exception to the automatic stay. In re Dougherty-Kelsay, No. 19-8013 (B.A.P. 6th Cir. March 21, 2022).

The Sixth Circuit affirmed. Dougherty-Kelsay v. Kelsay (In re Dougherty-Kelsay), No. 22-5270 (6th Cir. Oct. 17, 2022) (unpublished).

The debtor and her husband divorced with three minor children. In May, 2017, the ex-husband filed a motion seeking an order against the debtor for domestic support and for contempt. The Family Court ordered $617.60 in monthly domestic support to be garnished from the debtor’s wages. The order included division of the children’s medical expenses with the debtor responsible for 68% and her ex-husband responsible for the remaining 32%. The order specified that the parent incurring the expense was to invoice the other parent within 30 days, and that parent then had 30 days to pay their share of the expense. The court did not resolve the contempt issue in that order. When the debtor later failed to pay certain medical expenses according to the order, her ex-husband moved a second time for an order of contempt. While that motion was pending, one of the parties’ children incurred $112.00 in medical expenses for an injury.

On January 25, 2018, the debtor filed for chapter 7 bankruptcy. Her amended bankruptcy schedules listed the ex-husband and his attorney as interested parties. She filed a suggestion of bankruptcy in the Family Court and notified the ex-husband of the automatic stay.

On February 19, 2018, the Family Court found the automatic stay was inapplicable under the domestic support exception in section 362(b). The court went on to find that the debtor owed in $1,270.66 in domestic support arrears. With the exception of the first $50.00, the Family Court ordered the domestic support obligation added to the amount of the debtor’s monthly garnished wages in $50.00 increments. Unfortunately, the Family Court also ordered that the debtor’s first payment of $50.00 be paid by check to the ex-husband at the next child visit.

After the February 19 hearing, the ex-husband continued to make payment demands of the debtor including the $112.00 medical expense. The ex-husband also filed a third contempt motion including the debtor’s failure to pay that medical expense and failure to make the first $50.00 in-person payment during the child visit.

In the meantime, the State of Kentucky intercepted the debtor’s state and federal tax refunds and transferred them to the Department of Child Support for application to the debtor’s outstanding domestic support obligation.

The debtor filed a motion with the bankruptcy court seeking a finding that the ex-husband’s post-petition collection efforts, including the third contempt motion, violated the automatic stay.

The bankruptcy court found that the Family Court had jurisdiction to hold the February 19 hearing and that, under section 362(b)(2)(A)(ii), the order relating to the amount of outstanding child support obligations and the order to increase the amount of garnished wages was within the exception to the automatic stay. The court also found that intercepting the tax refunds did not violate the stay under section 362(b)(2)(F). With respect to the contested medical expense, the court found it arose post-petition and was therefore not subject to the stay.

With respect to the $50.00 in-person payment, however, the bankruptcy found that order did not fall under the domestic support exception to the automatic stay because it did not limit collection to non-estate assets. The court further found that the ex-husband’s attempts to collect that $50.00, including his third motion for contempt, violated the automatic stay. The bankruptcy court awarded the debtor attorneys’ fees in the amount of $4,313.75, and punitive damages of $1,000.

The ex-husband appealed to the Bankruptcy Appellate Panel for the Sixth Circuit.

The panel found that the debtor did not carry her burden of proving a stay violation with respect to the Family Court’s February 19 order finding the amount of the outstanding support obligations, or by ordering payment of those obligation through wage garnishment and interception of tax refunds. Specifically, setting the amount was subject to the exception in section 362(b) related to establishing or modifying domestic support obligation. Section 362(b)(2)(C) excepts from the stay orders for garnishing wages for the purposes satisfying domestic support obligations. And section 362(b)(2)(F) permits tax refunds to be intercepted for that purpose.

However, the Family Court’s February 19 order of contempt against the debtor did not fall under any of those exceptions to the stay as the order did not establish or modify a domestic support obligation but sought to compel payment of those obligations under threat of sanctions. The panel found the finding of contempt to be void.

The panel turned next to the question of whether the ex-husband’s attempt to collect the $112.00 medical expense and the $50.00 in-person payment violated the stay.

With respect to the medical expense, the panel first found that the bankruptcy court erred in finding that the expense was not subject to the stay because it was incurred post-petition. In fact, while the ex-husband did not send the invoice to the debtor until after she had filed her bankruptcy petition, the child’s injury and hospital visit occurred pre-petition. The panel found, therefore, that under the definition of “claim,” the expense was pre-petition.

Having found that both debts were subject to the automatic stay, the only question was whether they fell under the domestic support exception. The panel found they did not. Section 362(b)(2)(B) provides that the stay does not apply to collection of domestic support obligations “from property that is not property of the estate.” The panel found the ex-husband’s attempts to collect these debts other than by wage garnishment were not limited to non-estate funds. For that reason, the Family Court order requiring the debtor to pay the first $50.00 by check was void, and the ex-husband’s collection efforts relating to both the $50.00 and the medical expense violated the automatic stay.

Turning to the amount of sanctions, the panel found that the ex-husband made several collection attempts and filed a third contempt motion to collect on debts that were protected by the automatic stay. The panel found this conduct to be willful under section 362(k) and approved the portion of attorney fees awarded by the bankruptcy court, as well as the $1,000 punitive sanction.

DoughertyKelsay BAP 6th March 2022

Dougherty-Kelsay 6th Cir. Oct 2022

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