In re Wallen

• Decision Date: 14 July 1987
• Docket Number: Adv. No. 5-83-0548.,Bankruptcy No. 5-83-00433
• Citation: 75 BR 897
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re Brian William WALLEN and Robin Lynn Wallen a/k/a Robin Kripps, Debtors. Brian William WALLEN, Plaintiff, v. COMMISSIONER OF INCOME MAINTENANCE, STATE OF CONNECTICUT, Defendant.

75 B.R. 897 (1987)

In re Brian William WALLEN and Robin Lynn Wallen a/k/a Robin Kripps, Debtors.

Brian William WALLEN, Plaintiff, v. COMMISSIONER OF INCOME MAINTENANCE, STATE OF CONNECTICUT, Defendant.

Bankruptcy No. 5-83-00433, Adv. No. 5-83-0548.

United States Bankruptcy Court, D. Connecticut.

July 14, 1987.

COPYRIGHT MATERIAL OMITTED

Francis X. Dineen, New Haven Legal Assistance Ass'n, Inc., New Haven, Conn., for plaintiff.

Wilbur Ward Dinegar, Asst. Atty. Gen., State of Conn., Hartford, Conn., for defendant.

MEMORANDUM OF DECISION

ALAN H.W. SHIFF, Bankruptcy Judge.

The plaintiff,¹ a chapter 7 debtor, instituted this adversary proceeding pursuant to Bankruptcy Code §§ 727(b) and 523(a)(5)(A), seeking a determination that a debt allegedly arising from the assignment of support rights to the defendant State of Connecticut ("State") as a condition for receiving Aid to Families with Dependent Children ("AFDC") under Title IV-D of the Social Security Act, as amended, is dischargeable. In addition, the plaintiff's second count requests compensatory damages for contempt and violation of his civil rights arising out of the interception and retention of his 1982 federal income tax refund or, in the alternative, the recovery of that refund.²

BACKGROUND

Under the AFDC program established by the Social Security Act of 1935, as amended, 42 U.S.C. §§ 601 et seq., the federal government provides partial reimbursement to participating states which render financial assistance to families with needy dependent children. See Lukhard v. Reed, ___ U.S. ___, 107 S.Ct. 1807, 1810, 95 L.Ed.2d 328 (1987); King v. Smith, 392 U.S. 309, 316, 88 S.Ct. 2128, 2133, 20 L.Ed.2d 1118 (1968); Gardenia v. Norton, 425 F.Supp. 922, 925 (D.Conn.1976). In order to receive federal funds, a participating state must administer the program in conformity with the Act and regulations of the United States Department of Health and Human Services (formerly the Department of Health, Education, and Welfare). See Lukhard, supra, 107 S.Ct. at 1810; King, supra, 392 U.S. at 316-17, 88 S.Ct. at 2133. The 1974 amendments to the Social Security Act³ require that a state providing AFDC benefits receive an assignment of support rights⁴ from the applicant or recipient which creates a debt owed to the state by the individual responsible for such support. The Omnibus Budget Reconciliation Act of 1981 ("Budget Act")⁵ authorizes the Secretary of the Treasury, under certain conditions, to intercept and transmit directly to a state any federal income tax refund due individuals who are delinquent in making child support payments which have been assigned to the state under the AFDC program.

The following facts, relevant to the issues presented in this proceeding, are viewed in the context of that statutory scheme:

1. The plaintiff's family, including his two minor children, Cheryl and Dawn, received public assistance from the State under the AFDC program for various periods from December, 1972 through July, 1982.⁶

2. On December 30, 1975 and December 29, 1978, the plaintiff's wife, Robin Wallen, executed documents for the State entitled "Assignment of Rights to Support, Pursuant to Title IV of the Social Security Act as Amended," whereby she assigned to the State "all the support rights (accrued, pending and continuing) which she had against the plaintiff Brian Wallen for the support of" Cheryl and Dawn, respectively.⁷

3. During March, 1978, the plaintiff signed a support agreement with the State which required him to reimburse the State for AFDC payments received on behalf of Cheryl.⁸

4. On June 26, 1979, as a result of a petition for support filed by the State, the plaintiff was ordered to make payments to the Family Relations Division of the Connecticut Superior Court to reimburse the State for AFDC it had expended on behalf of Dawn.⁹

5. The aforementioned assignments, agreement, and court order created a debt owed by the plaintiff to the State.

6. In September, 1982, the plaintiff's name was certified to the United States Treasury through the Office of Child Support Enforcement of the Department of Health & Human Services in order to offset his 1982 federal income tax refund against his delinquent support obligations to the State.¹⁰

7. On April 29, 1983, the plaintiff and his wife filed a joint petition for relief under chapter 7 of the Bankruptcy Code. A debt of approximately $15,000.00 owed to the State for AFDC payments received by the plaintiff's family was included in his Schedule A-3. The plaintiff also listed a 1982 federal income tax refund in the amount of $449.00 as exempt property on his Schedule B-4.

8. On September 22, 1983, the plaintiff and his wife received a discharge in bankruptcy.

9. On or before May 11, 1983, the State received a United States Treasury check, dated May 5, 1983, for $390,453.39, of which $441.97 was identified on May 16, 1983 as the plaintiff's intercepted 1982 tax refund and was credited to his AFDC account on that date.

10. On May 12, 1983, the State received notice of the plaintiff's chapter 7 petition at the Bureau of Collection Services to which Department of Income Maintenance accounts are referred for collection.

DISCUSSION

I

DISCHARGEABILITY OF DEBT ARISING OUT OF ASSIGNMENT OF SUPPORT OBLIGATION

(a) Governing Law

The plaintiff contends that the determination of the dischargeability of his AFDC debt is limited to and governed exclusively by Code § 523(a)(5)(A). Prior to the enactment of the Budget Act, Code § 523(a)(5)(A) (1978) provided in pertinent part:

(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that —

(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise; . . .

Section 2334(a) and (b) of the Budget Act amended the Social Security Act and Code § 523(a)(5)(A), respectively, as follows:

(a) Section 456 of the Social Security Act is amended by adding at the end thereof the following new subsection:

"(b) A debt which is a child support obligation assigned to a state under section 402(a)(26) 42 U.S.C. § 602(a)(26) is not released by a discharge in bankruptcy under Title 11, United States Code."

(b) Section 523(a)(5)(A) of title 11, United States Code, is amended by inserting before the semicolon the following: "(other than debts assigned pursuant to section 402(a)(26) 42 U.S.C. § 602(a)(26) of the Social Security Act)".

According to the plaintiff, his AFDC debt is dischargeable because it does not come within the (a)(5)(A) exception to discharge, and that result is not altered by the Budget Act amendments. Similar arguments were made without success by the same attorney in In re Leach, 15 B.R. 1005 (Bankr.D. Conn.1981) and in In re Esposito and In re Marro, 31 B.R. 872 (Bankr.D.Conn.1983) (consolidated for trial). As this court observed in Esposito:

The debtors seek to distinguish Leach and In re Spell 650 F.2d 375 (2d Cir. 1981) (courts must apply the law in effect at the time dischargeability is determined).¹¹ by a progression of arguments which inter alia contend that the purpose of the Budget Act is to protect children, that the Budget Act must be read with Code section 523(a)(5)(A) to apply only in cases where the obligation arises out of a separation agreement, divorce decree, or property settlement agreement, and that there is a conflict between Code section 727(b) and the Budget Act which must be resolved in favor of the debtors\' discharge of the child support obligation. The debtors further argue that even if the Budget Act excepts child support obligations assigned to the State, its application in these cases would be retroactive and thus improper. Finally, the debtors contend that they have a vested right to a discharge of these obligations.

There is no merit to the debtors\' claims. A traditional approach to statutory construction is to analyze the language of a statute in the context of legislative intent on the assumption that the legislative branch chose particular words to accomplish a specific purpose.

Here, the debtors\' argument seems to suggest that Congress is without authority to amend the law or to provide for limitations upon a debtors\' discharge in any body of law other than the Bankruptcy Code. Congress labors under no such restraint. It is abundantly clear from the plain language of the Budget Act that Congress intended to modify the statutory formula for discharge under Code sections 727(b) and 523(a)(5)(A) by amending section 456 of the Social Security Act. The effect of the amendment, for the purposes of these proceedings, was to add to the exceptions to discharge provided by Code section 523(a), an additional exception — to wit, debts which are child support obligations assigned to the State under 42 U.S.C. § 602(a)(26). (footnotes omitted).

In re Esposito, supra, 31 B.R. at 875-76.

As a variation on the Leach, Esposito, and Marro theme, the plaintiff argues that Budget Act subsections 2334(a) and (b) are inconsistent. As the plaintiff reasons, since Congress enacted two separate subsections concerning the effect of an assignment made under the AFDC program, those subsections must have different meanings. According to the plaintiff, subsection (a), amending the Social Security Act, is a general provision relating to the rights of the debtor's family after discharge, while subsection (b), amending Code § 523(a), is a specific provision pertaining to the rights of the state after discharge. Therefore, the plaintiff contends, under rules of statutory construction, the more specific bankruptcy provision must prevail, which, he claims applies only when there has been a "separation agreement, divorce decree or property settlement...