Welcome to the ILNBlog, Discussing the Northern District of Illinois Bankruptcy Court

This 7th Circuit opinion slipped under my radar, but it affirmed a good series of opinions from local bankruptcy judges regarding the overpayment of government benefits, and their lack of DSO character. One case that I wish I could have back involved a Chapter 7 client who called many years after their bankruptcy to complain that DHS was still coming after them for an overpayment of food stamps. When I called the attorneys for DHS, they explained that they were arguing that the overpayment was a DSO because it was for the Debtor's kids. After quite a bit of research, I eventually dropped the issue and explained to the client that he's out of luck. Not so, according to some recent opinions. But let's look at the statute first. (14A)The term “ domestic support obligation ” means a debt... that is— (A) owed to or recoverable by...a governmental unit ; (B) in the nature of alimony, maintenance, or support ( including assistance provided by a governmental unit ) of suc...

One common issue in Chapter 13 plans is how to deal with assets of unknown value that are later liquidated to cash. The personal injury lawsuit that may or may not have unexempt net value, for instance. Similarly, there can be some question of what happens to the proceeds of an asset with a known value that is sold during a Chapter 13, like the sale of a home. After some recent research, I don't think many attorneys are currently handling these assets properly, including myself. One case that comes to mind is a client that wished to use a cash-out refinance of a home to fund a needed project, and we worried about the Trustee wanting some of the funds paid into the plan. I make the argument to a colleague that the Debtor had already paid into the plan a large sum of money. The amount of the cash out actually was less than the exemption, if I recall. The colleague suggested that there would be an issue with, essentially, separating the asset from the exemption. The home value w...