Domestic Support Over-payments

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 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...by reason of applicable provisions of...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.

On the face of the statute, it does appear to be a DSO, and it was by my reading. This definition was expanded, by my understanding, with BAPCPA in 2005 to include this additional language about governmental units. The worry was that DSO debt would be assigned to a governmental unit or collected by the government and it would lose its DSO character:

BAPCPA carries forward the core purpose of the DSO exception by ensuring that bankruptcy will not hinder the enforcement of family obligations in circumstances in which the government's family support infrastructure—the network of foster systems, aid agencies, family courts, and the like—has intervened on a spouse's, former spouse's, or child's behalf. Rivera, 832 F.3d at 1107.

But as Judge Thorne states, citing Collier on Bankruptcy,

Moreover, as noted by one respected treatise, "virtually any incorrect payment by the government to a household is in most cases used to provide support to the household." 2 Collier on Bankruptcy ¶ 101.14A, at 96.1. In re Halbert, 576 BR 586, 595 (Bankr. ND IL 2017).
The solution, as the 7th Circuit states, is that the debt was caused by overpayment of governmental support, but the debt itself is not support. Non-custodial parents are not supporting the government - they owe a debt because they were overpaid support.

The Debtors do not owe DHS money for support payments; they owe DHS because they received money they were not statutorily entitled to. Because such a payment is not in the nature of alimony, maintenance, or support, we agree with the bankruptcy court decision that this is merely an overpayment of benefits and not a domestic support obligation. In Re Dennis (7th Cir. 2019) (decided June 27, 2019). 

A good outcome that is not exactly obvious at first look.

Local Cases:

In re Halbert, 576 BR 586 (Bankr. ND IL 2017) (Judge Thorne).

In re Vanhook, 426 B.R. 296 (Bankr. ND IL 2010) (Judge Squires).