DCS Properly Sought to Collect Child Support after Settlement

Posted by NCBRC - August 31, 2022

The Oregon Division of Child Services did not violate the automatic stay or the terms of the confirmation order when it engaged in collection activities where the efforts related to a time not covered by the debtor’s settlement agreement with his ex-wife forgiving all child support payments predating the adoption of their child. In re Bronson, No. 20-30704 (Bankr. D. Ore. Aug. 23, 2022).

The chapter 11 debtor’s ex-wife, Ms. Drinkward, filed a claim in his bankruptcy for overdue pre-petition child support arrears in the amount of $11,226. The debtor’s plan proposed to make monthly payments to each holder of a Domestic Support Obligation and provide full repayment of outstanding child support arrears before any payments to unsecured creditors would take place. In an effort to collect on the child support debt, the DCS intercepted the debtor’s post-petition, pre-confirmation, CARES Act payment of $1,200 and applied it to the overdue child support. In addition, the debtor’s passport was withheld by the State Department due to child support arrears.

The debtor and Ms. Drinkward then entered into a settlement agreement under which the debtor agreed to facilitate the adoption of their child by one of Ms. Drinkward’s family members, and Ms. Drinkward agreed to release the debtor from any and all domestic support claims arising before the August 12, 2020, date of the agreement. On October 15, 2020, the debtor’s plan as originally proposed was confirmed. On January 28, 2021, the debtor’s child was adopted and his legal obligation to pay child support ceased.

Between February 1, 2021, and February 4, 2022, the DCS sent the debtor three statements demanding minimum payments of $660 and erroneously listing total arrears of $2,750. Of the $660 minimum payment, however, the statements specified “$450 was for current child support, $100 was for current cash medical, and $110 was an ‘amount to pay on arrears.’” In what the court deemed to be acknowledgment of the settlement agreement, the statement also stated: “If you have a written agreement to pay a different amount, it is not reflected above.”

The debtor sought an order of contempt, arguing that the DCS violated the automatic stay and failed to comply with the confirmed chapter 11 plan when it intercepted his CARES Act check, when it sent statements seeking payment, and when it caused the debtor’s passport to be withheld. The case came before the court on the debtor’s motion for summary judgment.

The court noted that, under the terms of the confirmed plan and the terms of the settlement agreement, the debtor had an obligation to make five child support payments between August 12, 2020, and January 28, 2021, which he did not make. While the DCS misstated the amount due on arrears in the post-confirmation statements, the court found it correctly stated the total amount due between those dates as $2,750.

Under sections 362(b)(2)(B) and (F), the automatic stay does not prohibit collection of domestic support obligations from non-estate property including by means of interceptions of tax refunds. The court found the CARES Act payment was in the nature of a tax refund. Therefore, the DCS had the right to intercept the check to recover the debtor’s domestic support obligation.

The court found the question of whether the billing statements violated the stay turned on when those statements were sent. The statements sent post-petition, pre-confirmation did not violate the stay because the DCS had the right to collect child support payments under section 362(b)(2)(B) and, although some of the debtor’s property had become part of his bankruptcy estate, the court found it likely that the debtor retained some property outside the estate. It found therefore that the DCS properly sought to collect against non-estate property. Turning to the statements sent post-confirmation, the court found no violation of the stay because the estate property had revested in the debtor and, therefore, the stay was no longer in place.

Nor did the post-confirmation statements violate the confirmed plan. The statements merely sought the payments the debtor was obligated to pay under the express terms of the plan which obligated the debtor to make all child support payments he owed. Though the settlement agreement curtailed the debtor’s child support obligations, the statements sent by the DCS were for obligations that fell between the August 12, 2020, pre-debt forgiveness date and the January 28, 2021, adoption date. Thus, the statements were for debts the debtor still owed under the confirmed plan. The court considered the fact that the statements listed arrearages that exceeded the debtor’s obligations under the plan and the settlement agreement, but found the lower minimum payment demand in addition to the disclaimer in the statements that “If you have a written agreement to pay a different amount, it is not reflected above,” indicated that the DCS contemplated a correction in the arrearage amount.

Finally, the court denied the debtor’s motion for summary judgment with respect to the passport, citing lack of sufficient evidence to draw any conclusions as to what action the DCS took and when it took it. For its part, the DCS claimed simply to have notified the state department prior to the debtor’s bankruptcy of the delinquency and to have taken no post-petition action. While neither party presented evidence other than their assertions, the court found the burden of proof was on the debtor. Therefore, the claim for violation of the stay based on deprivation of his passport failed.

With respect to the debtor’s claim that the confirmation of his plan triggered an obligation on the part of the DCS to take steps to have the passport released, the court disagreed. It found that even under the most favorable factual circumstances, the debtor owed some amount in child support after his plan was confirmed. The court found the DCS had no obligation to take steps to get the debtor’s passport released while the debtor still owed child support payments.

The court denied the debtor’s motion for summary judgment in its entirety.

Bronson Bankr Ore Aug 2022

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