Halbert v. Dimas (In re Halbert), Case No. 16–13005

Citation576 B.R. 586
Decision Date16 November 2017
Docket NumberCase No. 16–13005,Adv. No. 16–00479
Parties IN RE Tyeane HALBERT, Debtor. Tyeane Halbert, Plaintiff, v. James T. Dimas, in his official capacity as the Secretary of the Illinois Department of Human Services, and State of Illinois, Department of Human Services, Defendants.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

Ainat Margalit, Chicago, IL, for Plaintiff.

Illinois Department of Human Services, Chicago, IL, pro se

Robert Lynch, III, Office of the Illinois Attorney General, Chicago, IL, for Defendants.

Memorandum Opinion and Order

Hon. Deborah L. Thorne, United States Bankruptcy Judge

Introduction

This case presents the question of whether or not a debt is in the nature of support when it is owed to a governmental unit based on the overpayment of funds that had been disbursed for the purpose of allowing the Debtor, Ms. Halbert ("Debtor" or "Halbert"), to purchase food in support of herself and her two minor children. Within the 90–day preference period, the Illinois Department of Human Services ("DHS") obtained a payment on just such a debt out of the Debtor's tax refund. The Debtor sued to recover it as a preference.1 DHS countered that the payment is protected by § 547(c)(7), which insulates bona fide transfers or payments made on account of debts that are, among other things, in the nature of support (including assistance provided by a governmental unit) of a given debtor's spouse, former spouse, or child (or that child's parent). The Debtor urges this court to focus on the fact that the debt owing to the government is a new debt and is separate from the payment of monies to her that gave rise to the debt. The new debt is a return debt for money that should never have been paid in the first place, she argues, and it is not in the nature of support of her children because that debt financially benefits only the government. DHS counters that any such new debt for reimbursement will never directly be in the nature of support of the Debtor's children. A reimbursement debt owed to the government is in the nature of support, it argues, when it is based on or related to actions by the government that had the effect of supporting the Debtor's children. Here, that would include the provisioning of funds allowing the Debtor to purchase food for her household.

For the following reasons, this court concludes that the debt is not in the nature of support of the Debtor's children. A debt owed to a governmental unit for benefits that may have been used to support a given debtor's children does not automatically retain the supportive nature of those benefits. Rather, such a debt is simply a debt owed for the return of benefits that should never have been paid at all. The payment made on the debt, therefore, is avoidable by the Debtor as a preference.

Background 2

Beginning in 2009, the Debtor applied for and received Supplemental Nutrition Assistance Program ("SNAP")3 benefits from DHS for herself and her two minor children. The applications required the Debtor to disclose the number of persons in her household, which came to three: herself and her two minor children. From October to December of 2009, the Debtor received payments in the total amount of $1,008. Then, from August of 2010 to January of 2011, she received total payments amounting to $2,386. These benefits had been awarded based on a household size of three. Thereafter (in March of 2011), DHS determined that the Debtor had failed to disclose certain income, and, therefore, all of the benefits received had been overpaid, amounting to a total overpayment of $3,394. Payments were made and applied on $1,473 of that amount, leaving $1,921 owing. In 2015, DHS utilized its offset rights to intercept the amount owing for overpayment from Halbert's income tax refund. It received the $1,921 owed to it by Halbert. Halbert is now trying to recover that amount as a preferential transfer.

Both parties have filed motions for summary judgment. DHS asserts that it fits within the preference exception for payments on debts constituting "domestic support obligations."4 It argues that because the debt is for the overpayment of funds used to support Halbert's children, the debt is "in the nature" of support of those children under § 101(14A). This line of reasoning finds support in several cases considering the issue of government overpayment of benefits that are deemed to be in the nature of support of the debtor's children. Halbert argues that the debt is for the return of value/funds that should never have been paid in the first place, and is, therefore, not "in the nature of support" because the debt owing back from the Debtor to DHS is an independent debt. That debt, she argues, is certainly not for the support of her spouse or children, but rather only benefits the government. This line of reasoning primarily finds support in a great many cases considering the issue of overpayments of child or spousal support by one ex-spouse or child's parent to another.

Discussion 5
Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure applies here, as this is an adversary proceeding and both parties have filed motions for summary judgment.6 Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

All relevant and material facts have been stipulated to for the purpose of deciding the only question at issue here: whether the amount paid to DHS by the Treasury Department was a payment on a debt that was in the nature of support under § 101(14A)(B); the answer to this question determines which party is "entitled to judgment as a matter of law."7 Even on cross-motions for summary judgment with stipulated facts, however, the court still "reviews the evidence on summary judgment under the substantive law and based on the evidentiary burden the party will face at trial on the particular claim." United States v. State Farm Mut. Auto. Ins. Co., 1992 WL 229120, at *1 (D. Kan. Sept. 11, 1992) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). Here, as the prima facie preference case is not in dispute, that burden rests on DHS under the substantive law applicable to preference defenses. 11 U.S.C. § 547(g) ; Unsecured Creditors Comm. of Sparrer Sausage Co., Inc. v. Jason's Foods, Inc., 826 F.3d 388, 393 (7th Cir. 2016).

Preference Elements and the Defense in § 547(c)(7)

The Bankruptcy Code provides: "Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property ...." 11 U.S.C. § 547(b). The transfer at issue here is the Treasury Department's payment to DHS of a portion of the Debtor's tax refund for the 2015 tax year on account of SNAP overpayments made by the state agency to the Debtor.8 This was a transfer of an interest of the Debtor in property, because the right to receive the tax refund was the Debtor's property at the time of the payment from the Treasury Department to DHS.9

Further, the transfer of the debtor's property must be "to or for the benefit of a creditor." 11 U.S.C. § 547(b)(1). Based on the overpayment of benefits, DHS became the Debtor's creditor. See 7 C.F.R. § 273.18(a)(1)(i), (2) ("A recipient claim is an amount owed because of: (i) Benefits that are overpaid ... (2) This claim is a Federal debt ...."). DHS was the recipient of the transfer of funds from the Treasury Department out of the Debtor's tax refund. The transfer must then be on account of an antecedent debt, or a debt that arose prior to the transfer. 11 U.S.C. § 547(b)(2). There is no dispute that the debt created by the overpayment of benefits arose prior to the actual transfer.10 The Debtor was insolvent at the time,11 the transfer was made within 90 days of the petition,12 and it allowed DHS to receive more than it would have in an ordinary chapter 7 distribution.13

Thus, the transfer meets the prima facie elements of a preference; the real question here, however, is whether it fits within one of the exceptions provided for in § 547(c). Specifically, a transfer that is otherwise a preference may not be avoided "to the extent such transfer was a bona fide payment of a debt for a domestic support obligation." 11 U.S.C. § 547(c)(7). The transfer from the Treasury Department out of the Debtor's property was undoubtedly a bona fide payment of a debt, namely the debt owing to DHS for overpayment of benefits, but is that debt owed to DHS for overpayment also a "domestic support obligation"?

Domestic Support Obligation

In formulating its answer, this court notes that it "begin[s] with the understanding that Congress ‘says in a statute what it means and means in a statute what it says there,’ " Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (quoting Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) ). Statutes, however, must be construed as a whole, and their provisions should not be read in isolation. King v. Burwell, ––– U.S. ––––, 135 S.Ct. 2480, 2489, 192 L.Ed.2d 483 (2015) ; Graham Cty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 290, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010).

Domestic support obligation is defined in the Bankruptcy Code (the "Code"). For a debt to constitute a domestic support obligation, it must first be owed to a "spouse, former spouse ... or a governmental unit." 11 U.S.C. § 101(14A)(A). There is no dispute that DHS is a governmental unit and that the debt was owed to DHS. The debt must further be established or created by any number of orders, decrees, or agreements incident to any number of family court proceedings or by "a determination made in accordance with applicable nonbankruptcy law by a governmental unit." Id.§...

To continue reading

Request your trial
5 cases
  • In re Hawk, Case No. 17-81809
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Central District of Illinois
    • January 9, 2019
    ...overpayment of food stamp benefits was in nature of support and entitled to priority as a DSO). Other courts disagree. In re Halbert, 576 B.R. 586 (Bankr. N.D. Ill. 2017) (debts for reimbursement of government overpayments are not in the nature of support); In re Hickey, 473 B.R. 361 (Bankr......
  • In re Muhammad, Case No.: 17–11935–7
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Western District of Wisconsin
    • June 1, 2018
    ...of food stamp benefits and argued the debt was for the return of funds that should not have been paid in the first place. 576 B.R. 586 (Bankr. N.D. Ill. 2017). Because the debt at issue was owed to the government, she argued payment of it did not benefit her or her children. Therefore, it w......
  • Indiana ex rel. Ind. Dep't of Workforce Dev. v. Brown (In re Brown), Case No. 16-32385 HCD
    • United States
    • United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana
    • May 22, 2018
    ...statute what it says there. Hartford Underwriters Insurance Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000); see also In re Habert, 576 B.R. 586, 591 (Bankr. N.D. Ill. 2017).Page 13 A full reading of the Indiana statute convinces the court that the civil penalties under I.C. § 22-4-1......
  • In re Dennis, s. 18-2899 & 18-2952
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • June 27, 2019
    ...been paid at all. The payment made on the debt, therefore, is avoidable by the Debtor as a preference." Halbert v. Dimas (In re Halbert) , 576 B.R. 586, 589 (Bankr. N.D. Ill. 2017).II. ANALYSIS We review a bankruptcy court’s legal conclusions de novo . In re Doctors Hosp. of Hyde Park, Inc.......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT