Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_06-cv-00473/USCOURTS-almd-2_06-cv-00473-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BA

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

IN RE: )

)

CLEVELAND D. BOLER, III, ) CASE NO. 06-30049

EVELYN D. BOLER, )

) CHAPTER 13

Debtors. )

 

STATE OF ALABAMA DEPARTMENT OF )

HUMAN RESOURCES, )

)

Appellant, )

)

v. ) CIVIL ACTION NO.

)

CLEVELAND D. BOLER, III, ) 2:06-CV-473

EVELYN D. BOLER, AND )

CURTIS C. REDDING, CHAPTER 13 )

TRUSTEE, )

)

Appellees. )

MEMORANDUM OPINION AND ORDER

Appellant State of Alabama Department of Human Resources (“DHR”) appeals the

decision of the Bankruptcy Court of the Middle District of Alabama, which overruled two of

DHR’s objections to the confirmation of the Chapter 13 bankruptcy plan for debtors

Cleveland D. Boler, III, and Evelyn D. Boler and did not rule on DHR’s objection that it had

to consent to being paid outside of the plan. Specifically, the bankruptcy court determined

that the Chapter 13 plan did not have to provide for domestic support obligation claims to be

paid in full before disbursements were made to other priority claimants or before secured

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 1 of 10
 DHR does not dispute that the Trustee and Bankruptcy Court for the Middle District of Alabama 1

have required Chapter 13 plans to pay child support arrearages in full whether the arrearages are paid through

or outside of the plan: 

In the Middle District of Alabama, prior to the implementation of BAPCPA, and following

its implementation, the Trustee would not recommend and the Court would not confirm, a

chapter 13 plan that did not provide for the full payment treatment of child support arrearage

claims as priority claims pursuant to 11 U.S.C. §[§] 1322 and 507. In chapter 13 plans

where the plan was confirmed with the payment of child support claims through the plan,

claims filed by DHR, or any other holder of a priority child support claims [sic], were paid

in full through the plan with payments made by the debtor to the chapter 13 Trustee. These

priority child support claims were not and are not treated as general unsecured claims, but

were and are treated as priority claims which must be paid in full during the term of the

debtors’ chapter 13 plan. Even if the debtor’s plan provides for the payment of the child

2

creditors received payments for more than adequate protection. For the reasons set forth

below, the decision of the bankruptcy court will be AFFIRMED, and the matter will be

REMANDED to the bankruptcy court for further proceedings. 

I. FACTS AND PROCEDURAL HISTORY

The facts of this appeal are not in dispute. The debtors, Cleveland D. Boler, III, and

his wife Evelyn Boler, filed a joint Chapter 13 bankruptcy petition and a proposed Chapter

13 confirmation plan on January 18, 2006. DHR filed a priority claim for pre-petition child

support arrears totaling $9,110.41. The plan proposed for the debtors to pay DHR through

the bankruptcy plan. On February 24, 2006, DHR filed an objection to the confirmation

because administrative claims and secured claims were paid before DHR’s claim was paid in

full. On March 7, 2006, the debtors filed a response to DHR’s objection, and on March 8,

2006, they filed a pre-confirmation amendment to their plan proposing that DHR be paid

directly instead of through the Trustee. On March 15, 2006, DHR amended their objection

to contest being paid outside of the plan.1

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 2 of 10
support arrearage direct[ly], the claims have always been, and continue to be, treated as

priority claims pursuant to §[§] 507 and 1322. However, if the plan provides for the direct

payment of those child support claims, then they are not paid through the debtor’s payments

to the chapter 13 Trustee.

(Trustee’s Br. 8-9.)

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On April 28, 2006, the bankruptcy court entered a Memorandum Opinion and Order,

overruling DHR’s objection that domestic support obligations must be paid prior to other

priority claimants and secured creditors receiving disbursements. The bankruptcy court

determined that, if the domestic support obligation claim would be paid in full outside the plan

within the term of the plan, DHR’s consent was unnecessary. However, based on the record

before it, the bankruptcy court could not verify that the claim would be paid in full during the

plan period and reset the confirmation hearing so that it could determine this issue. DHR filed

this appeal before the bankruptcy court held the hearing. 

II. JURISDICTION

Jurisdiction is properly exercised over this bankruptcy appeal: “The district courts of

the United States shall have jurisdiction to hear appeals (1) from final judgments, orders, and

decrees . . . of bankruptcy judges entered in cases and proceedings referred to the bankruptcy

judges under section 157 of this title.” 28 U.S.C. § 158(a) (footnote omitted). Furthermore,

an appeal “shall be taken only to the district court for the judicial district in which the

bankruptcy judge is serving.” Id.

III. STANDARD OF REVIEW

“Factual findings by the bankruptcy court are reviewed under the limited and

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deferential clearly erroneous standard.” Club Assocs. v. Consol. Capital Realty Investors (In

re Club Assocs.), 951 F.2d 1223, 1228 (11th Cir. 1992) (citations omitted). “In contrast to the

deference given to factual findings, [the district] court examines the bankruptcy court’s legal

conclusions de novo.” Alexander v. Bonifay Mfg., Inc. (In re Terry Mfg. Co.), 332 B.R. 630,

632 (M.D. Ala. 2005) (citing Club Assocs., 951 F.2d at 1228-29). The district court must

“independently examine the law and draw its own conclusions after applying the law to the

facts.” Ky. Higher Educ. Assistance Auth. v. Norris (In re Norris), 239 B.R. 247, 249 (M.D.

Ala. 1999) (internal quotation marks and citations omitted).

IV. DISCUSSION

This appeal presents three issues: (1) whether domestic support obligation claims must

be paid in full before payments are made on other priority claims; (2) whether claims for

domestic support obligation claims must be paid in full before secured creditors receive

payments beyond those required for adequate protection; and (3) whether DHR can be paid

outside the plan without its consent. These issues arise under the Bankruptcy Code as

amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

(“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23 (codified in scattered sections of 11 U.S.C.).

A. Priority Claims

DHR argues that because domestic support obligations are listed as first priority under

§ 507(a), its claims here must be paid before payments are made to any other priority

claimants. Section 507(a) sets out ten categories of claims afforded priority status with

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 4 of 10
 A priority claim is an “unsecured claim that, under bankruptcy law, must be paid before other 2

unsecured claims.” Black’s Law Dictionary 265 (8th ed. 2004).

5

domestic support obligations listed as having first priority. 11 U.S.C. § 507(a). With the 2

passage of BAPCPA, domestic support obligations were moved from seventh priority to first

priority: “The following expenses and claims have priority in the following order: (1) First:

(A) Allowed unsecured claims for domestic support obligations.” Id.

Sections 1322(a)(2) and (b)(4) govern the sequence of payments to secured and

unsecured creditors, including unsecured creditors with priority claims under § 507. Reading

these provisions together, the court concludes that under a Chapter 13 plan distribution to

priority creditors need not be made in the order that they are listed in § 507(a). A Chapter 13

plan is required to “provide for the full payment, in deferred cash payments, of all claims

entitled to priority under section 507 of this title, unless the holder of a particular claim agrees

to a different treatment of such claim.” Id. § 1322(a)(2) (emphasis added). Moreover,

§ 1322(b)(4) reinforces the notion that there is no hierarchy of payments because it specifies

that: “[s]ubject to subsections (a) and (c) of this section, the plan may . . . provide for

payments on any unsecured claim to be made concurrently with payments on any secured

claim or any other unsecured claim.” Id. § 1322(b)(4). Priority claims are a type of unsecured

claims, and § 1322(b)(4) allows for unsecured claims to be paid concurrently. Thus, a

Chapter 13 plan must provide for full payment of priority claims, but there is no provision that

requires higher-ranked priority claims to be paid before lower-ranked priority claims. 

Moreover, if the court required domestic support obligations to be paid prior to other

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Before the passage of BAPCPA, § 1326(b)(1) required that claims under § 507(a)(1), which were

3

at that time claims for administrative expenses, be paid before or concurrently with other claims. 11 U.S.C.

§ 1326(b)(1) (2004), amended by 11 U.S.C. 1326(b)(1). However, when BAPCPA was enacted

administrative expenses were moved to § 507(a)(2), the reference in § 1326(b)(1) was also changed to §

507(a)(2). 11 U.S.C. § 1326(b)(1). These changes bolster the conclusion that Congress intended priority

claims for administrative expenses to be paid before or contemporaneously with other priority claims. These

changes do not support DHR’s argument that claims for domestic support obligations must be paid first.

Moreover, there is a policy rationale for allowing the fees of the debtor’s attorney to be paid first: “[w]ere

it otherwise, that is if the argument DHR advances here were to prevail, debtors with large child support

arrearages would most likely be denied access to the Bankruptcy Courts because their lawyers could not be

paid until late in the case.” In re Vinnie, 345 B.R. 386, 389 n.2 (Bankr. M.D. Ala. 2006).

6

priority claims, then it would have to ignore § 1326(b)(1), which clearly provides that priority

claims for administrative expenses, including the debtor’s attorney’s fees, are to be paid first:

“Before or at the time of each payment to creditors under the plan, there shall be paid – (1)

any unpaid claim of the kind specified in section 507(a)(2) of this title.” Id. § 1326(b)(1).

Section 507(a)(2) claims are those for “administrative expenses allowed under section 503(b)

of this title, and any fees and charges assessed against the estate under chapter 123 of title 28.”

Id. § 507(a)(2). While domestic support obligations are listed before administrative expenses

in § 507, the plain language of § 1326 requires that administrative expenses be paid first.3

In contrast, a Chapter 7 plan must pay priority claims in the order specified in § 507:

“Property of the estate shall be distributed . . . first, in payment of claims of the kind

specified in, and in the order specified in, section 507 of this title.” Id. § 726 (emphasis

added). There is no parallel provision for Chapter 13 plans. If Congress had intended

priority claims to be paid in the order provided in § 507, it could have included a similar

requirement for Chapter 13 plans. This court agrees with the bankruptcy court in Vinnie that

[i]t appears that DHR has confused the notion of priority, in the context of a

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 “When a trustee uses, sells, or leases property of the estate, the court on request of an entity that 4

has an interest in [the] property . . . shall prohibit or condition such use, sale, or lease, as is necessary to

provide adequate protection of such interest.” 11 U.S.C. § 363(e). A trustee can furnish adequate protection

to a secured creditor via “a cash payment or periodic cash payments.” Id. § 361(1).

7

case under Chapter 7, with priority in the context of a case under Chapter

13. . . . The chief flaw in the argument of DHR is that it fails to distinguish

cases under Chapter 13 from cases under Chapter 7. 

Vinnie, 345 B.R. at 390.

Additionally, other courts that have evaluated this same issue have concluded

domestic support obligation claims do not need to be paid before other priority claims. See

In re Sanders, 347 B.R. 776, 780 (N.D. Ala. 2006) (concluding that “had Congress intended

domestic support obligations to be paid before all other § 507 claims in a Chapter 13 [p]lan,

it would not have included the language found in § 1326(b)(1)”); Vinnie 345 B.R. at 388

(finding that under § 1322 “all of the subsections in Section 507 are treated alike”).

Accordingly, the court determines that domestic support obligations are not required to be

paid in full prior to disbursements to other priority claimants. The holding of the bankruptcy

court as to this issue is due to be affirmed.

B. Secured Creditors

Relying on In re DeSardi, 340 B.R. 790 (Bankr. S.D. Tex. 2006), DHR also argues

that post-confirmation payments to secured creditors must be limited to only adequate

protection payments until domestic support obligations are paid in full. The court in 4

DeSardi determined that secured creditors were not entitled to equal payments each month

during the plan period. DeSardi, 340 B.R. at 806. This analysis does not support – or even

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 7 of 10
 A secured creditor is not automatically entitled to relief from an automatic stay to reclaim 5

collateral. See 11 U.S.C. §§ 362(d), 362(h) (delineating when a party qualifies for relief from a stay).

8

relate to – the contention that domestic support obligations must be paid in full before

secured creditors receive payments exceeding those required for adequate protection.

Unsecured priority claims were not at issue in DeSardi.

DHR offers no other authority for this argument. Instead it asserts that a “secured

creditor is not be [sic] prejudiced by waiting over time for the bulk of its claim to be paid”

in part because “the secured creditor has the right to seek relief from the automatic stay to

reclaim its collateral.” (DHR’s Br. 18.) This contention rings hollow for two reasons. First,

the right to seek relief from the automatic stay remains toothless as long as the debtor

complies with the requirements of the court-confirmed plan. More fundamentally, this 5

argument ignores the very nature of secured claims: “Because a secured claim represents the

holder’s rights in specific property . . . the holder of an allowed secured claim has not just

a general claim but property which it is entitled to receive. In that sense, secured claims are

first priority claims in bankruptcy cases.” In re Sanders, 341 B.R. 47, 51 (Bankr. N.D. Ala.)

(internal quotation marks and citation omitted), aff’d, 347 B.R. 776 (N.D. Ala. 2006).

Finally, this argument ignores the plain language of § 1322, which permits Chapter 13 plans

to “provide for payments on any unsecured claim to be made concurrently with payments on

any secured claim or any other unsecured claim.” 11 U.S.C. § 1322(b)(4). 

DHR argues as a matter of policy that disbursements to secured creditors should be

limited until domestic support obligations are paid in full. DHR asserts that if secured

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 8 of 10
 DHR raised a similar objection to the bankruptcy court in Sanders. In that case, DHR objected 6

because the obligation to DHR would be paid outside the plan through a garnishment order and it would take

ten years for the claim to be paid in full. 341 B.R. at 49 n.1. The bankruptcy court sustained the objection

because the priority claim would not be paid in full and DHR did not consent to payment outside of the plan.

Id. Here, unlike Sanders, it is unknown whether the debtors’ payments would satisfy DHR’s claims during

the plan period because the record before the bankruptcy court is incomplete. 

9

creditors are paid first they “will have no incentive to be more selective in determining to

whom they sell and finance property.” (DHR’s Br. 17.) This argument turns the

fundamentals of secured transactions and the separation of powers upside down. As the

Sanders court explained, “[p]erhaps DHR should lobby Congress for creditors to have

incentives to not sell property to people with children (as they are most likely to have

domestic support obligations), but that is not within the province of this court.” Sanders, 347

B.R. at 781. This court is not at liberty to change the policy established by Congress in

BAPCPA. 

The bankruptcy court did not err in holding that the plan is not required to pay

domestic support obligations in full before making distributions to secured creditors. 

C. Payments Outside the Plan

DHR argues that as a priority claimant it must consent to being paid outside the plan.

The bankruptcy court noted that under § 1322 a priority claimant must consent only if its

claims will not be paid in full during the plan period. However, the bankruptcy court was

unable to verify from the record if DHR’s claim would be paid in full during the plan period

and reset the confirmation hearing so that it could resolve this issue. Before the date of that

hearing, DHR appealed.6

Case 2:06-cv-00473-WKW Document 16 Filed 01/24/08 Page 9 of 10
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When deciding appeals from bankruptcy courts, district courts lack the authority to

make independent findings of fact. See Fed. R. Bankr. P. 7052, 8013. A district court “must

remand a case ‘if the bankruptcy court’s factual findings are silent or ambiguous as to an

outcome determinative factual question.’” In re Taunton, 306 B.R. 1, 2 (M.D. Ala. 2004)

(quoting In re Sublett, 895 F.2d 1381, 1384 (11th Cir. 1990)). Here, DHR appealed the

bankruptcy court’s decision before the bankruptcy court made a factual determination about

whether the domestic support obligations would be paid in full during the plan period. The

proper course is to remand this case to the bankruptcy court for further proceedings on this

matter.

V. CONCLUSION

For the foregoing reasons, it is ORDERED and ADJUDGED that the decision of the

bankruptcy court – that a Chapter 13 plan is not required to provide for domestic support

obligations to be paid in full before disbursements are made to other priority claimants or to

secured creditors beyond payments for adequate protection – is AFFIRMED. This matter is

REMANDED to the bankruptcy court for further proceedings not inconsistent with this

opinion.

An appropriate judgment will be entered. 

DONE this 24th day of January, 2008.

 /s/ W. Keith Watkins 

UNITED STATES DISTRICT JUDGE

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