By Ryan C. Wood
What is considered a domestic support obligation is no easy accomplishment given the state of the Bankruptcy Code and case law. The Ninth Circuit Bankruptcy Appellate Panel recently tackled this issue in the case In re: Maria Rivera, Bankr. Case No. 11-22793 from the Bankruptcy Court for the Central District of California. The debtor’s minor son was incarcerated for almost two years by Orange County, California. Orange County charged minor son’s parent, Maria Rivera, for the cost of the son’s incarceration. Ms. Rivera paid back Orange County about half of the amount owed prior to filing for bankruptcy protection in 2011 under Chapter 7 of the Bankruptcy Code. Is the amount still owed to Orange County considered a domestic support obligation pursuant to Bankruptcy Code Section 523(a)(5) and therefore excepted from discharge? Meaning, can the amount owed to Orange County not be discharged in bankruptcy?
Prior to the passage and implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) Ms. Rivera’s bankruptcy attorneys had a good argument. The changes to Section 523(a)(5), according to the Ninth Circuit Bankruptcy Appellate Panel, except, or make not dischargeable claims owed to municipalities like Orange County for the incarceration of a minor child. The new Section 523(a)(5) provides that a discharge under section 727 . . . does not discharge an individual debtor from any deb . . . for a domestic support obligation. Section 101(14A) helps with a definition of what a domestic support obligation is.
Section (14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
Governmental Unit Incarceration Bill Except From Discharge
One of the largest and most significant changes bankruptcy lawyers should note is the adding of “governmental unit” in Section 101(14A)(ii). Prior to BAPCPA the debt needed to be recoverable by a person, a spouse, former spouse, child or child of the debtor. The Ninth Circuit Bankruptcy Appellate Panel looks to the plain language of the Bankruptcy Code to help with their decision in this case. The 9th Circuit BAP correctly points out that Orange County’s claim: (1) accrued before the order of relief; (2) is owed to a governmental unit; (3) was incurred for the support of Debtor’s child as “assistance provided by a governmental unit;” (4) was established before Debtor’s bankruptcy by an order of the state court; and (5) has not been assigned to a nongovernmental entity for collection.
Maria Rivera argued with the 9th Circuits interpretation of factor number three listed above. Was the amount billed by Orange County incurred for the support of the debtor’s child as assistance provided by a governmental unit? The 9th Circuit BAP analyzed this issue by looking to California state law. California state law provides for reimbursement of expenses incurred by a governmental unit for costs of support while incarcerated can only be the actual costs incurred by the county for food, food preparation, clothing, personal supplies and medical expenses not to exceed $30.00 per day. California courts have upheld Cal. Welf. & Inst. Code Section 903(c) for the billing of reasonable costs expended for support and maintenance of the minor while placed outside the family home.
After carefully examining the changes Congress made to Section 523(a)(5) and Section 101(14A) the Ninth Circuit Bankruptcy Appellate Panel upheld the lower bankruptcy court’s order determining the debt owed to Orange County, a governmental unit, was excepted from discharge as a domestic support obligation. A debt owed for a minor child to a governmental unit is not dischargeable and excepted from discharge pursuant to Section 523(a)(5) of the Bankruptcy Code.
