In re Perry
| Decision Date | 19 September 2000 |
| Docket Number | Bankruptcy No. 00-70101-S. Adversary No. 00-7011-S. |
| Citation | 254 BR 675 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Robert J. PERRY, Debtor. Robert J. Perry, Plaintiff, v. Division of Child Support Enforcement Department of Social Services Commonwealth of Virginia, Defendant. |
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Timothy V. Anderson, Virginia Beach, VA, for plaintiff.
G. Scott Darnell, Virginia Beach, VA, for defendant.
STEPHEN C. ST. JOHN, Bankruptcy Judge.
This matter came upon a Complaint to Determine the Dischargeability of a Debt filed by Robert J. Perry, the debtor. On August 15, 2000 this Court conducted a trial to determine the dischargeability of the debtor's debt to the Division of Child Support Enforcement Department of Social Services of the Commonwealth of Virginia ("Department"). After taking the matter under advisement, this Court makes the following findings of fact and conclusions of law.
The issue before this Court is whether the debtor may receive a discharge of his debt owed to the Commonwealth of Virginia ("Commonwealth"). Moreover, if the debt may not be discharged, under which provision of Title 11 is the debt nondischargeable? To solve this issue, the debt must be divided into two types of debt. The debt at issue before this Court arises from payments the Department made to the debtor's spouse under the Aid to Families with Dependent Children (AFDC) program. The stipulated facts demonstrate that the debt consists of AFDC payments made before and after the Department issued the Administrative Support Order ("ASO") in 1990.1
In 1988, the debtor's wife applied for AFDC benefits. As required by law, the debtor's wife assigned her child support rights to the Department in exchange for AFDC benefits. As a result, in July 1990 the Department issued an ASO to accomplish two objectives. First, the ASO ordered the debtor to reimburse the Department $3021.00 for public assistance paid to the debtor's spouse from July 1988 until June 1990 ("reimbursement debt"). Second, the ASO ordered future child support payments in the amount of $231 per month. The debtor failed to make such payments. As a result of the assignment of child support rights to the Department, the debtor's failure to pay according to the terms of the ASO resulted in another debt to the Department in the amount of $6008.93 for the payments missed since the Department issued the 1990 ASO ("postjudgment debt").
The debtor neither appealed to an administrative hearing officer nor did the debtor appeal to the Virginia Beach Juvenile and Domestic Relations Court. On June 5, 1995 Judge William T. Stone of the Juvenile and Domestic Relations District Court of the City of Virginia Beach entered an order enforcing the 1990 ASO.
On January 21, 2000 the debtor filed a voluntary petition for bankruptcy under Chapter 7. On Schedule F, the debtor listed the Department as holding an unsecured nonpriority claim. Seeking to discharge this debt through his Chapter 7 bankruptcy, the debtor filed a Complaint to Determine the Dischargeability of this debt against the Commonwealth of Virginia.2 Combining the reimbursement and postjudgment debts, the debtor is attempting to obtain a Chapter 7 discharge of his debt of $9029.93. The amount of this debt has been appropriately limited to the amount stated in the ASO pursuant to the requirement that "where there has been a court order for support, final decree of divorce ordering support, or administrative order under the provisions of this chapter for support, the debt shall be limited to the amount of such order or decree." Va.Code Ann. § 63.1-251 (Michie 1995). The debtor and the Commonwealth also have stipulated that the assignment of child support rights is required under 42 U.S.C. § 608(a)(3) (section 408(a)(3) of the Social Security Act) and that the Department is an agency created under part D of the Social Security Act. See 42 U.S.C. § 601 et seq. (West 2000).
The distinction between the postjudgment debt and the reimbursement debt is a distinction of great importance to the parties in this case, although this Court is of the impression that the distinction is largely academic and blurred in its practical impact. Nonetheless, to illustrate the potential importance of the distinction, the reimbursement and postjudgment debts must be evaluated independently to determine if, and on what grounds, these debts are nondischargeable. The Court first addresses the nondischargeability of the postjudgment debt. Next, the Court focuses on the most contentious issue presented, namely the nondischargeability of the reimbursement debt.
As to the postjudgment debt, both parties agree that it is nondischargeable. The parties, however, disagree as to the basis for making such a holding. The Commonwealth urges this Court to hold the postjudgment debt nondischargeable under 11 U.S.C. § 523(a)(5), whereas the debtor argues that the debt is nondischargeable only under 11 U.S.C. § 523(a)(18) and 42 U.S.C. § 656(b). Although the postjudgment debt is nondischargeable under § 523(a)(18), it is also nondischargeable under § 523(a)(5), as well as under § 656(b) of the Social Security Act.
Section 523(a)(5) of the Bankruptcy Code excepts from discharge any debt to a spouse "in connection with a separation agreement, divorce decree, or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit. . . ." 11 U.S.C. § 523(a)(5). The exception to the rule applies if the debt has been assigned, either voluntarily or by operation of law. See id. § 523(a)(5)(A). This exception, however, does not apply if the assignment is made pursuant to 42 U.S.C. § 608(a)(3). See id. Therefore, to determine if a debt is nondischargeable under § 523(a)(5), the Court must analyze to whom the debt is owed and from what the debt derives.
In the instant case, the debt is based upon the debtor's child support obligation owed to his spouse. As the parties have stipulated, the debtor's spouse was required to assign her child support rights under 42 U.S.C. § 608(a)(3) in order to receive AFDC benefits. Therefore, the instant case presents an example of the Bankruptcy Code's provision to allow assignment of child support debts pursuant to the Social Security Act and still prohibit the dischargeability of such a debt in bankruptcy.
The second issue to confront is from where the debt derives. The debt in this case is not "in connection with a separation agreement, or divorce decree." Id. Nonetheless, this debt does fall under § 523(a)(5) because it was made in connection with an order from a court of record, or, in the alternative, from a determination by a governmental unit consistent with the law in the Commonwealth. See id. It has been held that a Juvenile and Domestic Relations Court in Virginia is a court of record for purposes of § 523(a)(5) even though Virginia may label it a court not of record. See Croteau v. Croteau (In re Croteau), 246 B.R. 254, 257 (Bankr. E.D.Va.2000). Therefore, the 1995 order entered by the Virginia Beach Juvenile and Domestic Relations Court enforcing the ASO should be sufficient for the purposes of § 523(a)(5). In the alternative, the Croteau court held that a juvenile and domestic relations court would constitute a governmental unit. See id. at 258. Either way, an order from such a court or governmental unit would meet the requirement set out in § 523(a)(5). Having met the statutory requirements, this Court holds the postjudgment debt to be nondischargeable under § 523(a)(5).
To be nondischargeable under § 523(a)(18), the debt must be "owed under State law to a State," be "in the nature of support, and . . . enforceable under Part D of title IV of the Social Security Act (42 U.S.C. 601 et seq.)." The parties in this case have stipulated that the postjudgment debt is enforceable under 42 U.S.C. § 601 et seq. Moreover, the postjudgment debt is owed to the Commonwealth under its state law. Finally, as discussed below, the governing state law is a remedial measure designed to enforce a noncustodial parent's child support obligations. Therefore, the debt is in the nature of support. Finding all elements to be present, this Court holds that the postjudgment debt is nondischargeable under § 523(a)(18).
Section 656(b) of the Social Security Act is a mirror image of § 523(a)(18). Consequently, this Court's analysis of its application to the instant case is very similar to the analysis reviewed above. Section 656(b) prohibits the discharge of a debt in bankruptcy if the debt is "in the nature of support and . . . enforceable under the Social Security Act." 42 U.S.C. § 656(b). As noted above, the parties have agreed that the postjudgment debt is enforceable under the Social Security Act. Moreover, this Court has already held that the postjudgment debt is in the nature of support and owed to the Commonwealth under its law. Therefore, the postjudgment debt is also nondischargeable under § 656(b).
The most contested issue before this court is whether the reimbursement debt is nondischargeable. The debtor argues that the reimbursement debt is dischargeable because (1) the reimbursement debt, including the ASO, is invalid under state law; (2) the imposition of the reimbursement debt by the ASO violates the Ex Post Facto Clause of the Constitution; (3) the circumstances surrounding the imposition of the ASO, specifically the reimbursement debt, violated Perry's due process rights; and (4) § 523(a)(5) of the Bankruptcy Code does not apply to deny the dischargeability of the reimbursement debt.6 The Court rejects all of these arguments.
As a preliminary matter, however, the Court...
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