State of Oregon v. Richards

• Decision Date: 02 May 1984
• Docket Number: Bankruptcy Adv. No. 83-0141.,Civ. No. 84-34-FR
• Citation: 45 BR 811
• Parties: STATE OF OREGON, Department of Human Resources, Plaintiff, v. Terry Wayne RICHARDS, Defendant.
• Court: U.S. District Court — District of Arizona

45 B.R. 811 (1984)

STATE OF OREGON, Department of Human Resources, Plaintiff, v. Terry Wayne RICHARDS, Defendant.

Civ. No. 84-34-FR, Bankruptcy Adv. No. 83-0141.

United States District Court, D. Oregon.

March 2, 1984.

Supplemental Order May 2, 1984.

Dave Frohnmayer, Atty. Gen., James Van Dyke, Asst. Atty. Gen., Portland, Or., for plaintiff.

Mark A. Sherman, McMinnville, Or., for defendant.

OPINION AND ORDER

FRYE, District Judge:

The matter before the court is plaintiff, State of Oregon's, appeal from the Judgment entered on September 14, 1983, by the Honorable Folger Johnson, Bankruptcy Judge.

The issue in this case is whether child support payments assigned by a spouse of a debtor to the State of Oregon under section 402(a)(26) of the Social Security Act, 42 U.S.C. § 602(a)(26), are dischargeable in bankruptcy, notwithstanding the fact that the child support obligation debt did not arise "in connection with a separation agreement, divorce decree, or property settlement agreement." The bankruptcy court held that the debt was dischargeable, 33 B.R. 56, and the State of Oregon appeals.

FACTS

The debtor/defendant Richards and his wife were separated for approximately one year. In order to receive funds from the Aid to Families with Dependent Children (AFDC) program during the separation, Mrs. Richards assigned all of her child support rights against her husband to the State of Oregon pursuant to section 402(a)(26) of the Social Security Act. Mrs. Richards received AFDC funds for about one year. In July, 1981, the State brought a proceeding against Mr. Richards under the provisions of the Parental Responsibility for Dependent Children statute, ORS 416.400 et seq. This statute provides in general that

any payment of public assistance by the State made to or for the benefit of any dependent child, including any payment made for the benefit of the caretaker of the child, creates an obligation, to be called the "state debt," which is due and owing to the State by the parents of the dependent child in an amount equal to the amount of public assistance so paid. . . .

ORS 416.410. However, the statute directs the Department of Human Resources to take into account the financial situation of the parents in arriving at the determination of how much child support the parents are required to pay. See ORS 416.420. Under this statute, the State obtained a finding in the Yamhill County Circuit Court that the debtor, Mr. Richards, owed an obligation to the State of Oregon in the amount of $150 for each of the twelve months Mrs. Richards received AFDC benefits from the State. Mr. Richards has payed $50 of this obligation; the remaining $1750 is the debt at issue in this case.

LEGAL ANALYSIS

The first issue involves an apparent conflict between two federal statutes. Section 523(a)(5)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(5)(A), reads as follows:

(a) A discharge under section 727, 1141, or 1328(b) 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 (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act);

This section provides an exception to the ordinary rule that all debts are discharged in bankruptcy. Its basic purpose is to insure that child support payments will continue to be paid to the custodial parent even though the noncustodial parent has filed for bankruptcy. This nondischargeability provision is subject to two limitations, however: (1) the debt at issue must arise "in connection with a separation agreement, divorce decree, or property settlement agreement," and (2) if the debt has been assigned by the custodial parent, then the debt remains dischargeable, unless the assignment was pursuant to section 402(a)(26) of the Social Security Act, in which case the debt is nondischargeable.

The facts are undisputed that (1) the debt at issue does not arise in connection with a separation agreement, divorce decree, or property settlement agreement, and (2) Mrs. Richards did assign all rights to child support payments to the State of Oregon under section 402(a)(26) in order to receive AFDC. The bankruptcy court's reasoning was as follows: The general rule is that debts are dischargeable. Child support payments are nondischargeable if they fall within the "in connection with" language quoted above. Because this child support obligation did not fall within that language, the section does not apply to it, and hence the debt falls within the general rule of dischargeability.

However, the bankruptcy judge chose not to apply a second statute that arguably makes the debt nondischargeable. Section 456(b) of the Social Security Act, 42 U.S.C. § 656(b), reads:

A debt which is a child support obligation assigned to a State under section 402(a)(26) is not released by a discharge in bankruptcy under title 11, United States Code.

The bankruptcy court's decision not to apply this statute seems to be based on two grounds. First, the bankruptcy judge asserted that "it was the intent of Congress that all matters relating to dischargeability and the discharge of debtors be found in the Bankruptcy Code and not in isolated provisions in nonbankruptcy laws." Findings and Conclusions at 3. Second, the court noted that section 456(b) and the "other than debts assigned pursuant to Section 402(a)(26)" language in section 523(a)(5)(A) were enacted into law at the same time as section 2334 of the Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35:

CHILD SUPPORT OBLIGATIONS NOT DISCHARGED BY BANKRUPTCY

Sec. 2334. (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) 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) of the Social Security Act)".

(c) The amendments made by this section shall become effective on the date of the enactment of this Act.

Because in the bankruptcy court's view the "operative" portion of this section is subsection (b), and because subsection (b) only effects a change in the law with respect to child support obligations falling within the "in connection with" language of section 523(a)(5)(A), the bankruptcy judge ruled that subsection (a) did not have the effect of broadening the general class of child support obligations subject to nondischargeability beyond that defined by section 523(a)(5)(A).

There is logical merit to the bankruptcy court's analysis. Essentially, the bankruptcy court's decision has the effect of reading into the phrase "child support obligation," as used in section 456(a) of the Social Security Act, the same "in connection with" restriction on nondischargeability contained in section 523(a)(5) of the Bankruptcy Code. That the creation of section 456(b) and the amendment to section 523(a)(5)(A) occurred at the same time and within the same section of Pub.L. No. 97-35 supports an inference that the drafters of the statute intended both subsections to do the same thing. Moreover, interpreting "child support obligation" in section 456(b) to include obligations not falling within the "in connection with" language of section 523(a)(5)(A) creates an anomalous situation in which all child support obligations are subject to the "in connection with" limitation in order to be nondischargeable except the limited class of child support obligations assigned pursuant to section 402(a)(26) of the Social Security Act. Arguably, had Congressional intent been to broaden the nondischargeability provisions for such a limited class of cases, such intent would have been made more apparent, as for example through an express amendment to the Bankruptcy Code itself, and most likely through an amendment to section 523(a)(5)(A) itself. Yet such an amendment was not made.

However logical the bankruptcy court's structural analysis, it is contrary to the plain meaning of the statutes as well as to what little legislative history is available. The bankruptcy court may not ignore section 456(b) simply because it is not a part of the Bankruptcy Code. On its face, section 456(b) makes child support obligations assigned to the State of Oregon pursuant to section 402(a)(26) nondischargeable, notwithstanding the fact that the child support obligation does not fall within the "in connection with" language of section 523(a)(5). Moreover, legislative history supports the view that the phrase "child support obligation" in section 456(b) should not be restricted by the "in connection with" language. The purpose of section 2334 of the Omnibus Budget Reconciliation Act of 1981 was stated to be as follows:

Child support obligations not discharged by bankruptcy.—When the Congress enacted the child support legislation in 1974 it included a provision which prohibited the discharge in bankruptcy of a child support obligation which had been assigned to a State as a condition of AFDC eligibility. This Social Security Act provision was subsequently repealed by section 328 of Public Law 95-598 (the 1978 revision of the Bankruptcy Act).

The committee amendment would reinstate the provision previously in effect declaring that a child support obligation assigned to a State as a condition of AFDC eligibility is not discharged in bankruptcy, effective October 1, 1981.

S.Rep. No. 139, 97th Cong., 1st Sess. at 442 (1981), reprinted in 1981 U.S.Code Cong. & Ad.News 396 at 708; see also H.R.Rep. No....