In re Christakos

• Decision Date: 20 June 2016
• Docket Number: Case No. 16–60082
• Citation: 553 B.R. 371
• Parties: In re: Amber Nicole Christakos, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Missouri

553 B.R. 371

In re: Amber Nicole Christakos, Debtor.

Case No. 16–60082

United States Bankruptcy Court, W.D. Missouri.

Signed June 20, 2016

J. Paige Wright, Licata Bankruptcy Firm, Springfield, MO, for Debtor.

MEMORANDUM OPINION

Arthur B. Federman, Bankruptcy Judge

The Chapter 7 Trustee objected to Debtor Amber Nicole Christakos's claimed exemption in “ongoing child support” under § 513.430.1(10)(d) of the Missouri Statutes as “alimony, support or separate maintenance.” The Debtor responds that the postpetition child support is not property of the Debtor because it belongs to the child, or, alternatively, it is not property of the estate because it is a personal right. For the reasons that follow, I conclude that the Debtor's right to collect postpetition child support is not an asset of the estate, and the Trustee has no claim to such funds. The Trustee's objection to the Debtor's exemption claim will, therefore, be OVERRULED.

The Debtor receives $1,014 per month in child support. As of the petition date, child support payments were current. The Chapter 7 Trustee argues that the Debtor's right to receive postpetition child support payments accrued prepetition when the state court Judgment and Decree of Dissolution was entered on May 7, 2015; thus, the postpetition payments are an asset of the bankruptcy estate, subject to an allowed exemption of $750 per month.¹ The Trustee, therefore, asks this Court to order the Debtor to turn over to the Trustee, each month, the sum of $264, representing the excess child support over the $750 exemption. However, the exemption provisions only apply as to property that is property of the estate, which the Debtor claims they are not. I turn to that issue first.

Property rights of debtors are determined under state law.² Once a debtor's right to property has been established under state law, the determination as to whether such property is property of the bankruptcy estate is a matter of federal law.³ As relevant here, § 541 of the Bankruptcy Code provides:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interest of the debtor in property as of the commencement of the case.

....

(5) Any interest in property that would have been property of the estate if such interest has been an interest of the debtor on the date of filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—

....

(B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree.

....

(d) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, ... becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.⁴

The Debtor contends that child support is not an asset of the Debtor, or the bankruptcy estate, because the recipient of such an award is obligated under Missouri law to use the funds for the benefit of the children for whom it is awarded. The Trustee makes three arguments in response:

1. That since the Debtor here listed the right to postpetition child support as an asset of the estate, and claimed it as exempt property; she should be estopped from now contending that the child support is not an asset of the estate.

2. That in any event, the postpetition child support is an asset of the estate under § 541(a)(1) of the Bankruptcy Code because the Debtor had the right to those funds on the date the bankruptcy petition was filed, and that the Debtor does not have a fiduciary obligation to use those funds in the best interest of the child, but is free to use them as she chooses.

3. That even if the Debtor were not entitled to the postpetition child support on the date the bankruptcy was filed, then under § 541(a)(5), any funds the Debtor actually receives in the 180 days after bankruptcy are an asset of the estate, subject to any exemption in such funds validly claimed by the Debtor.

I consider each of these arguments in turn.

ESTOPPEL DOES NOT APPLY

The Trustee argues that the Debtor should be deemed to have admitted that the postpetition child support is property of the estate because she listed it on Schedule B, or that she should be estopped from arguing otherwise.

“Judicial estoppel is an equitable doctrine that ‘prevents a party from asserting a claim in a legal proceeding that is inconsistent with a claim taken by that party in a previous proceeding.’ ”⁵ “While ‘the circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle,’ three factors inform a court's decision about whether it should apply.”⁶

First, a party's later position must be “clearly inconsistent” with its prior position. Second, a court should consider whether a party has persuaded a court to accept its prior position “so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled. Finally, a court should consider whether the party asserting inconsistent positions “would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”⁷

“In enumerating these factors, we do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel. Additional considerations may inform the doctrine's application in specific factual contexts.”⁸ Judicial estoppel is an equitable doctrine, which is discretionary even when all of the elements are present.⁹

None of the elements of judicial estoppel is present here. First, listing an asset on Schedule B is not “clearly inconsistent” with the position that it is not an asset of the estate. Section 541 provides that the estate includes “all legal or equitable interests of the debtor in property.” Even though I conclude below that the ongoing child support is ultimately not an asset, the Debtor was required to list it. Indeed:

As § 727(a)(4)(A) makes clear, the [Bankruptcy] Code requires nothing less than a full and complete disclosure of any and all apparent interests of any kind . The debtor's petition, including schedules and statements, must be accurate and reliable, without the necessity of digging out and conducting independent examinations to get to the facts.¹⁰

Although the Debtor has taken the position that her postpetition child support was not property of the estate, she was nevertheless absolutely required to list it: “questions of whether ... assets titled in a debtor's name are, or are not, property of the estate are not questions a debtor should decide.”¹¹ Thus, listing the child support on Schedule B was not “clearly inconsistent” with the argument that it was not property of the estate; rather, listing it was required. Moreover, because she was required to list it, the Debtor's claiming an exemption in it was prudent,¹² particularly since the question of whether it was an asset of the estate had not yet been determined.

Second, there is no indication that the Debtor has persuaded any court to accept the position that postpetition child support is property of her bankruptcy estate. No one has been misled here.

And, finally, the Trustee has not alleged that the Debtor “would derive an unfair advantage” by listing the child support, or that doing so imposed an unfair detriment to the Trustee or the bankruptcy estate.

In sum, the Debtor was entirely correct in listing the child support on Schedule B and debtors collecting postpetition child support in the future should continue to do so. The Trustee's estoppel argument is rejected.

THE POSTPETITION CHILD SUPPORT IS NOT PROPERTY OF THE DEBTOR'S BANKRUPTCY ESTATE

11 U.S.C. § 541(a)(1) and § 541(d)

As stated above, § 541(a)(1) provides that a debtor's bankruptcy estate broadly includes “all legal and equitable interests of the debtor in property as of the commencement of the case.”¹³ However, § 541(d) provides that “property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest ... becomes property of the estate only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.” The question here is: What is the nature of the Debtor's interest in the postpetition child support? Are custodial parents free to use child support as they wish, or do they hold such funds in trust for their children?

Missouri law does not expressly define ownership interests in child support awards. The duty to pay child support comes from § 452.340.1 of the Missouri Statutes, which provides that, “[i]n a proceeding for dissolution of marriage, legal separation or child support, the court may order either or both parents owing a duty of support to a child of the marriage to pay an amount reasonable or necessary for the support of the child....”¹⁴

Nevertheless, the Missouri Supreme Court has said, “[t]he principal object of a child support order is to provide for the welfare of the children.”¹⁵ And Missouri appellate courts have consistently held that a parent owes something akin to a fiduciary duty to use child support in the best interests of the children.

Thus, in Block v. Lieberman,¹⁶ where the Missouri Court of Appeals was called upon to decide whether a custodial parent had standing to sue to collect child support for her child after the child turned 21 years of age, the court held that, “[t]he award of child support, although made to the mother, is for the benefit of the children, who because of their minority,...