In re Muhammad
| Decision Date | 01 June 2018 |
| Docket Number | Case No.: 17–11935–7 |
| Citation | 586 B.R. 753 |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
| Parties | IN RE: Maryam Elisheba MUHAMMAD and Terry D. Briggs, Debtors. |
Maryam Elisheba Muhammad, pro se.
Terry D. Briggs, pro se.
Debtors Maryam Muhammad ("Muhammad") and Terry Briggs (collectively "Debtors") filed this chapter 7 petition on May 29, 2017. They received a discharge on November 28, 2017.
From 2012 to 2014, Muhammad participated in the FoodShare program provided by the state of Wisconsin. Though the parties do not explicitly address her application for benefits, she apparently applied for the FoodShare program to support herself and her grandchild. In 2014, the state sent notices to Muhammad indicating she had received an overpayment of benefits through the program. The notices asserted she provided inaccurate income and housing information to the Wisconsin Department of Children and Families ("DCF") resulting in overpayment in the amount of $5,520.92. The notices also described an appeals process in which she could have requested a hearing on the matter.
Muhammad did not request a hearing and did not pay the debt. She received a discharge on November 28, 2017. In March of 2018, DCF intercepted Debtors' tax refund to satisfy part of the overpayment. Debtors assert the amount of the refund was $3,436.00, while DCF says the amount was $3,402.50. Muhammad then brought this Motion for Contempt against DCF to recover the tax intercept (the "Motion"). Debtor alleges the overpayment debt was discharged in her chapter 7. The Motion asks the Court to hold DCF in contempt for violation of the discharge injunction, to compel return of the tax refund, for costs and attorneys' fees, and for punitive damages. DCF responds that the overpayments were in the nature of a domestic support obligation and thus were not discharged.
There is a split of authority on whether overpayments for government benefits are "domestic support." While some cases hold programs such as FoodShare benefits are nondischargeable when incurred to support children, that is not the end of the inquiry. The lynchpin is whether the overpayment in this case meets all of the requirements of 11 U.S.C. § 523(a)(5) because the overpayment went toward supporting Muhammad's grandchild.
Under section 523(a)(5), a debt "for a domestic support obligation" is nondischargeable. The Code defines "domestic support obligation" as a debt that is:
11 U.S.C. § 101(14A).
The overpayment satisfies three prongs of the definition for a domestic support obligation: it is owed to a governmental unit, it was established under nonbankruptcy law by a governmental unit, and it is not assigned to a nongovernmental entity. That leaves the question of whether the overpayment obligation is "in the nature of support" under section 101.
A number of courts have addressed whether debt for overpayment of benefits by the government constitutes a domestic support obligation. In Wis. Dep't of Workforce Dev. v. Ratliff , the Eastern District encountered a nearly identical fact pattern, except the benefits went toward supporting debtor's children. 390 B.R. 607 (E.D. Wis. 2008). There, debtor claimed the overpayment was not support under section 101 because it exceeded what she needed to support her family. The court rejected debtor's argument and concluded the overpayment qualified as support because it was "allocated to [debtor] for the support of her children ... based on her income and reported household size." Id. at 616. In reaching its conclusion, that court did not rely on the debt's nexus to debtor's duty of familial support. See 2 Collier on Bankruptcy ¶ 101.14A. Rather, it "held that because the debt provided support for the debtor's spouse and children, was owed to a governmental unit, and had been determined owing by a governmental unit, it was a domestic support obligation." Id. In other words, that court did not restrict the term "governmental unit" to one traditionally involved in providing food stamps or other family support.
In a similar case, a court in the Northern District of Illinois reached the opposite conclusion. In Halbert v. Dimas (In re Halbert) , the debtor received overpayment 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 was not "support" as contemplated in the statute. The court agreed with the debtor and ruled the overpayment debt "is merely a debt to the government for the return of benefits that should never have been paid." Id. at 598. In reaching its conclusion, the court noted "virtually any incorrect payment by the government to a household is in most cases used to provide support to the household." Id. at 595, quoting 2 Collier on Bankruptcy ¶ 101.14A.
Meanwhile, the Ninth Circuit has taken a more moderate approach. In Rivera v. Orange Cnty. Prob. Dep't , the court addressed a situation where the County Probation Department held a claim for the costs of support of a minor. 832 F.3d 1103 (9th Cir. 2016). California law required parents of juvenile detainees to pay for the basic living expenses of their children while they were detained. Debtor's son had been in juvenile detention and she received a bill for his costs upon his release. The court remarked the definition of support in section 101 was drafted to avoid "[hindering] the enforcement of family obligations in circumstances in which the government's family support infrastructure—the network of foster systems, aid agencies, family courts, and the like—has intervened on a ... child's behalf." Id. at 1107. Because the Probation Department is not part of a "family support infrastructure," the court determined the debt was not support under section 101, even though it technically went toward the costs of supporting a child. Id.
Lending support to the Rivera approach, Collier's suggests it more closely reflects the intent of Congress. It instructs:
An interpretation more faithful to the purpose of the domestic support obligation definition would require (1) that the debt have a nexus to failure to meet the debtor's familial support obligations and (2) that the determination by a governmental unit be one made by a governmental unit that carries out the functions of determining family support.
Of the three approaches, the approach taken by the Ninth Circuit most closely tracks the intent and language of the Code. Under Ratliff , arguably any overpayment from the government would be termed domestic support. If, for instance, a debtor received an incorrect tax refund and then bought groceries for her child, the refund would be domestic support and therefore nondischargeable. That result would be particularly harsh on low income debtors because it imposes a nondischargeable debt even though the debtor did nothing to affirmatively create the debt. Rather, the nondischargeable obligation would be created solely through the mistake of the government. Such a result seems fundamentally unfair to debtors who may not realize they received an overpayment and spend every dollar, including their annual tax refunds, toward supporting their households. The intent of section 101 is to "include debts to governmental units arising from a statutory duty to support dependents," not to impose a nondischargeable albatross on unsuspecting taxpayers. 2 Collier on Bankruptcy ¶ 101.14A.
On the other hand, the ruling in Halbert arguably opens the door to encouraging dishonesty and mishandling of government resources. The Debtors here and in Halbert misrepresented their personal information when seeking government assistance. Regardless of whether that misrepresentation was intentional, the Debtors received benefits to which they were not entitled. Hypothetically under Halbert , debtors could flagrantly misrepresent their information on their applications for assistance, receive inflated benefits, then discharge the resulting debt. That result also seems fundamentally unfair to the government and to people who are honest in their applications for assistance. The pool of government resources allocated to assistance for low income individuals is limited. DCF has formulated a procedure to ensure those resources are allocated to people who need them most. If a debtor receives ill-gotten benefits and does not pay them back, then government resources are effectively diverted away from honest people who are genuinely and most desperately in need of help.
In addition, the Halbert approach is open to attack for several other reasons. First, it arguably encourages a lack of care when submitting information to assistance programs. It would be difficult for the government to verify the income and housing information of every individual who applies for assistance. And, in any case, the applicant is in the best position to know his or her personal information. If an obligation resulting from benefit overpayments is not domestic support and therefore is dischargeable, then there is little consequence for debtors in bankruptcy who fail to accurately represent their information.
Second, it renders section...
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