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In re Spencer

United States Bankruptcy Appellate Panel of the Eighth Circuit

June 13, 2016

In re: Michael Eugene Spencer; Patricia Anne Spencer, Debtors
v.
Michael Eugene Spencer; Patricia Anne Spencer, Movants - Appellees State of Missouri, Department of Social Services, Family Support Division, Claimant - Appellant

         Submitted May 19, 2016

          Appeal from United States Bankruptcy Court for the Western District of Missouri - Kansas City.

         For State of Missouri, Department of Social Services, Child Support Enforcement, Claimant - Appellant: Michael David Morris, Assistant Attorney General, Attorney General's Office, Jefferson City, MO.

         For Michael Eugene Spencer, Patricia Anne Spencer, Movants - Appellees: Colin Nacy Gotham, Evans & Mullinix, Shawnee, KS.

         Before KRESSEL, SALADINO and NAIL, Bankruptcy Judges. SALADINO, Bankruptcy Judge, dissenting.

          OPINION

         KRESSEL, Bankruptcy Judge.

         The State of Missouri, Department of Social Services, Family Support Division appeals from the bankruptcy court's July 28, 2015 contempt order and August 11, 2015 sanction order. The bankruptcy court found the division in contempt and imposed sanctions against the division for willful violation of the discharge injunction in attempting to collect on a support debt after the debtors obtained a discharge. The bankruptcy court imposed sanctions against the division for such contempt. We have jurisdiction over this appeal under 28 U.S.C. § 158(b). We reverse.

         BACKGROUND

         Michael Spencer and Patricia Spencer jointly filed a chapter 13 petition on October 12, 2010, listing Michael's former spouse as the holder of an unsecured priority claim categorized as a domestic support obligation. Subsequently, the Missouri Division of Child Support Enforcement, acting on behalf of Michael's former spouse, filed a proof of claim for an unsecured priority claim in the amount of $36,026.27 as of the petition date for support arrears that Michael owed to his former spouse. The underlying support obligation was created by a June 1, 2001 marital dissolution judgment and decree from the Circuit Court of Jackson County, Missouri, which ordered Michael to pay maintenance support in the amount of $1,200.00 per month, minus any amounts Michael paid for child support for ten years beginning May 1, 2001; the judgment also ordered Michael to pay child support in the amount of $800.00 per month, beginning March 1, 2001. The record does not reflect that the 2001 judgment was ever modified.

         After discovering that it had incorrectly calculated Michael's monthly support obligation as $400.00 per month instead of the 2001 judgment amount of $1,200.00 per month from 2005 to 2011, the division amended its proof of claim to claim $88,026.27 as the updated total amount of arrears owed to Michael's former spouse as of the petition date.

         The debtors objected to the amended proof of claim. The bankruptcy court held a hearing to determine the amount of the claim. On August 9, 2011, the court sustained the debtors' objection to the amended claim, disallowing the amended amount of $88,026.27, and allowing the claim as originally filed in the amount of $36,026.27. Citing Missouri case law, the bankruptcy court found that the division had waived a portion of the support arrears by acquiescing in lower payments after the children were emancipated. The division did not seek reconsideration of the order sustaining the objection, did not appeal the order, and did not object to confirmation of the debtor's proposed plan, which proposed to pay the division the allowed claim amount of $36,026.27. The division also did nothing to alert the debtors or the court to the fact that it did not feel bound by the court's determination of its claim. The court confirmed the debtors' plan.

         In accordance with their confirmed plan, the debtors paid the division's allowed claim for support arrears in the amount of $36,026.27. The debtors completed all of their plan payments early, so they filed a motion for discharge, asserting that pursuant to § 1328(a), " all amounts payable under any judicial or administrative order or by statute for domestic support obligations that were due on or before the date upon which this certification was signed, including all payments due under the plan for amounts due before the petition was filed, have been paid." No objections were filed to the debtors' motion for discharge. On March 26, 2015, the court entered an order granting the debtors a discharge under 11 U.S.C. § 1328(a).

         After the debtors received a discharge, the division issued a May 7, 2015 income withholding order to Michael's employer to collect past-due child support and past-due spousal support. After receiving a copy of the withholding order, counsel for the debtors sent a letter to the division, requesting that the division release the order. In the letter, counsel stated that Michael received a discharge, that the support arrears debt was paid and discharged under the debtors' plan, that any remaining balance of arrears was invalid, and that the continued collection of the debt violated the discharge order and was subject to sanction. After receiving no reply from the division, the debtors filed a motion for contempt and for sanctions against the division for violating the discharge injunction. In its response, the division argued that support arrears were nondischargeable domestic support obligations, excepted from discharge under § § 1328(a)(2) and 523(a)(5). The division further argued that the bankruptcy court lacked subject matter jurisdiction to decide issues relating to the modification of a child support order and child support obligations.

         On July 28, 2015, the court granted the debtors' motion for contempt, concluding that the division's post-discharge attempt to collect support arrears willfully violated the discharge injunction, and determining that the debtors would be awarded attorney's fees as a sanction against the division for contempt. The court stated that Michael's prepetition support obligation was satisfied in full and that Michael owed " no prepetition or pre-discharge debt" to the division or his former spouse. The court then ordered the division to cease all further collection activity against Michael. The court also directed the debtors to submit a statement of attorney's fees to assess the amount of the sanction. Later, the debtors filed the attorney's fees ...


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