Department of Revenue May Not Collect Child Support Arrearage Outside Chapter 13 Plan

 

Dempsey v. Florida Department of Revenue, U.S. District Court Eastern District of Tennessee, filed 6/20/17.

Before the U. S. District Court are cross-appeals filed by Debtor-Appellant Kenneth Andrew Dempsey and Creditor-Appellee the Florida Department of Revenue (the “Department”). Dempsey and the Department both appealed the bankruptcy court’s order, in which the bankruptcy court denied Dempsey’s motion for contempt, but found that language in Dempsey’s confirmed Chapter 13 plan foreclosed the Department’s ability to collect child support arrearages outside of the payment terms specified in Dempsey’s Chapter 13 plan.

On May 16, 2014, the bankruptcy court confirmed Dempsey’s Chapter 13 plan, which provided for payment in full of his child support arrearage. The confirmed Chapter 13 plan specifically provides: “Miami Dade Child Support – Arrearage Child Support to be paid in full inside the plan.”

On or around March 30, 2015, the Department issued a wage withholding order to Dempsey’s employer in connection with his child support arrearage, which resulted in his employer withholding wages from his paycheck on multiple occasions. It is undisputed that the Department was aware of Dempsey’s bankruptcy case and the bankruptcy court’s Chapter 13 confirmation order when it issued the wage withholding order to Dempsey’s employer.

On May 9, 2016, Dempsey filed a motion for contempt, arguing that, by issuing its wage withholding order, the Department violated the bankruptcy court’s confirmation order specifying
that Dempsey’s child support arrearage would be paid in full “inside the plan.”

On June 6, 2016, the bankruptcy court issued an order denying Dempsey’s motion for contempt. In its order, the bankruptcy court ruled that, although the confirmation order “require[d] the Department to discontinue all collection activity outside the plan once the plan is confirmed, . . . the plan was not sufficiently clear and definite in this requirement to provide a
basis for a finding of contempt.”

 

The U.S. District Court wrote that:

As the basis for its current appeal, the Department argues it is permitted to seek collection of Dempsey’s child support arrearages despite the bankruptcy court’s confirmation order, advancing the same arguments it presented to the Eleventh Circuit in Gonzalez. The Court finds the Eleventh Circuit’s analysis in Gonzalez persuasive and, for the same reasons articulated by the Eleventh Circuit, finds that the Department is precluded from pursuing collection of Dempsey’s child support arrearages outside the parameters of his confirmed Chapter 13 plan. Accordingly, the Court concludes that the bankruptcy court did not err in enjoining the Department from continuing to pursue collection of Dempsey’s child support arrearages outside the terms of his Chapter 13 plan.

In this case, the Court does not have a definite and firm conviction that the bankruptcy court committed a clear error in judgment in denying Dempsey’s motion for contempt. Dempsey is correct that the confirmed Chapter 13 plan provides that “Miami Dade Child Support – Arrearage Child Support to be paid in full inside the plan.”  At the time the bankruptcy court confirmed the plan, however, there remained some question as to whether a domestic support obligation creditor could continue to pursue collection of arrearages postconfirmation. Compare In re McGrahan, 459 B.R. 869 (B.A.P 1st Cir. 2011), with In re Gellington, 363 B.R. 497 (Bankr. N.D. Tex. 2007). And, although the Court ultimately agrees with the reasoning set forth in Gonzalez, the Eleventh Circuit did not issue its opinion until August 11, 2016—more than two months after the bankruptcy court issued its order denying Dempsey’s motion for contempt. Under these circumstances, the Court agrees with the bankruptcy court’s finding that, although the confirmation order “require[d] the Department to discontinue all collection activity outside the plan once the plan is confirmed, . . . the plan was not sufficiently clear and definite in this requirement to provide a basis for a finding of contempt.” Accordingly, the Court finds that the bankruptcy court did not err in denying Dempsey’s motion for contempt.

 

http://www.ncbrc.org/wp-content/uploads/Dempsey-ED-Tenn-opinion-June-2017.pdf

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