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Bankruptcy –  Post-petition payments can’t be sought for child support

The Bankruptcy Code is clear that when a Chapter 13 plan is not confirmed, the trustee must return post-petition payments to the debtor. As a result, the child support division could not levy on funds held by the trustee because they must be returned to the debtor.

Background

In July 2016, Barry Webb filed a voluntary petition for relief under Chapter 13 in the United States Bankruptcy Court for the Western District of Virginia. At the time, Webb owed nearly $75,000 to the Virginia Department of Social Services, Division of Child Support Enforcement for unpaid child support. In January 2017, the Division filed a proof of claim setting Webb’s child support indebtedness in the amount of $74,277.32.

Webb began making post-petition payments to the trustee while awaiting confirmation of his proposed Chapter 13 plan. However, despite four attempts, Webb was unable to propose a confirmable Chapter 13 plan. The bankruptcy court, with Webb’s consent, dismissed the case. At the time of dismissal, Webb had paid the trustee $3,000.

Virginia Code § 63.2-1929 permits the division to serve a notice of levy upon “any person, firm, corporation, association, political subdivision or department of the Commonwealth.” Citing that statute, the division served the trustee with an order to surrender to the division the $3,000 in post-petition payments the trustee held. The trustee filed a motion in the bankruptcy court seeking direction as to whom he should pay the post-petition funds. After a hearing, the bankruptcy court directed the trustee to return the funds to Webb. The division appealed to the district court, which affirmed the bankruptcy court’s decision.

Analysis

Section 1326(a)(2) plainly states that when the bankruptcy court does not confirm a plan, the Chapter 13 trustee “shall return” post-petition payments to the debtor. Congress has carved out an exception to this clear rule only for “payments not previously paid and not yet due and owing to creditors” under §1326(a)(3) and after deducting “any unpaid claim allowed under section 503(b).” The parties fully agree that neither of these exceptions apply in this case. Consequently, that leaves only the clear statutory direction to the trustee who “shall return any such payments … to the debtor[.]”

Congress could have added other exceptions to this rule, but it did not. Thus, Congress’ intention “is unmistakably clear in the language of the statute”: when a case is not confirmed, the trustee must return the post-petition payments to the debtor. Here, Webb’s Chapter 13 plan was not confirmed. Pursuant to the plain language of the statute, the trustee must now return those post-petition payments to him.

Notwithstanding the clear direction from Congress in §1326(a)(2), the division presents three arguments in support of its position. None have merit.

As the bankruptcy and district courts found, the plain language of §1326(a)(2) resolves this case and requires the trustee return the post-petition payments to Webb. Once the trustee returns the funds to Webb, the division, or any other creditor, is free to levy upon Webb or others who possess his property. Section 1326(a)(2) simply prevents the division from levying upon the trustee when he is in possession of the post-petition payments.

Affirmed.

Commonwealth of Virginia, Department of Social Services, Division of Child Support Enforcement v. Webb (Lawyers Weekly No. 001-164-18, 14 pp.) (Agee, G. Steven, J.) Case No. 17-2328, Nov. 19, 2018, from W.D. Va. at Charlottesville (Moon, Norman, J.). Matthew R. McGuire for Appellant, Angela M. Scolforo for Appellees.

 

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