Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-5_06-cv-00953/USCOURTS-alnd-5_06-cv-00953-0/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 NORTHERN DISTRICT OF ALABAMA

NORTHEASTERN DIVISION

IN RE: 

GEORGE WILLIAM SANDERS

TIFFANY SANDERS,

DEBTORS, CASE NO.: CV-06-J-953-NE

BANKRUPTCY COURT CASE

 NO.:06-80071

___________________________________________________________________

THE STATE OF ALABAMA 

DEPARTMENT OF HUMAN RESOURCES,

APPELLANT,

v. 

GEORGE WILLIAM SANDERS

TIFFANY SANDERS

PHILIP GEDDES, CHAPTER 13 TRUSTEE,

APPELLEES. 

MEMORANDUM OPINION

This matter is before the court as an appeal from the Bankruptcy Court,

pursuant to 28 U.S.C. § 158(a). The parties have filed appellate briefs, which the

court has reviewed. The court specifically finds that oral argument would only delay

entry of a ruling on appeal. This court finds, in accordance in Fed.R.Bankr.P. 8012,

FILED

 2006 Jul-17 PM 03:13

U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 5:06-cv-00953-IPJ Document 10 Filed 07/17/06 Page 1 of 11
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that the facts and legal arguments are adequately presented in the briefs and record

and the decisional process will not be significantly aided by oral argument. 

Factual Background

The facts of this appeal are not in dispute. The debtors, George William

Sanders and wife Danielle Sanders, field a joint Chapter 13 bankruptcy petition on

January 16, 2006. Appellant, the Alabama Department of Human Resources (DHR),

filed two proofs of claim. One proof of claim concerned $102.18 for Tiffany D.

Holden, who is the same person as debtor Tiffany Danielle Sanders. The other proof

of claim was for $2,569.90 for child support arrears owed to Laquita D. Tipler. This

arrearage was being paid through payroll deduction from debtor George Sanders at

the time the bankruptcy petition was filed and the Debtors’ Chapter 13 Plan proposed

that this arrangement be continued. DHR objected to confirmation of the Plan, stating

that the amount in arrears should be paid through the Debtors’ Plan and not through

continued payroll deduction. Furthermore, DHR argued that it should be paid ahead

of all other creditors, including attorney fees to Debtors’ counsel. After conducting

a hearing on DHR’s arguments, the Bankruptcy Court entered an Order on April 18,

2006, which included the arrears within the Chapter 13 Plan, but overruled DHR’s

Objection to Confirmation concerning DHR’s argument that the “order of priorities”

Case 5:06-cv-00953-IPJ Document 10 Filed 07/17/06 Page 2 of 11
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in 11 U.S.C. § 507 should apply in this plan under Chapter 13. DHR appealed to this

court from this Order. 

The sole dispute before the court is whether, under the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005 (BAPCPA), the Chapter 13 Plan

must provide for payment in full of domestic support obligations pursuant to 11

U.S.C. § 507(a)(1) before disbursements are made on other § 507(a) claims, including

attorney’s fees. 

Standard of Review

This court functions as an appellate court for the decisions of the United States

Bankruptcy Courts. In re Sublett, 895 F.2d 1381, 1383 (11 Cir.1990). This Court th

reviews the Bankruptcy Court’s findings of fact under the clearly erroneous standard

of review and conclusions of law under the de novo standard of review. WhitingTurner Contracting Co. v. Electric Machinery Enterprises, Inc., 2006 WL 1679357,

*1 (M.D.Fla.2006). De novo review requires the court to make a judgment

“independent of the bankruptcy court’s, without deference to that court’s analysis and

conclusions.” In re Sternberg, 229 B.R. 238, 244 (S.D.Fla.1998); citing Moody v.

Amoco Oil Co., 734 F.2d 1200, 1210 (7 Cir.1984). The proper construction of the th

Bankruptcy Code by the bankruptcy court or by the district court is a matter of law;

accordingly, such interpretations are subject to de novo review. In re Colortex

Case 5:06-cv-00953-IPJ Document 10 Filed 07/17/06 Page 3 of 11
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Industries, Inc., 19 F.3d 1371, 1374 (11 Cir.1994); In re Taylor, 3 F.3d 1512, 1514

th

(11 Cir.1993). th

Legal Analysis 

As stated above, the sole issue before this court is whether the Plan, as

confirmed, must conform to the priority requirements set forth in 11 U.S.C. § 507(a).

If the priorities have been properly applied in the Plan as it stands, this court must

affirm the determination of the Bankruptcy Court to confirm the Plan. The parties

agree that the following provisions of the Bankruptcy Code, as amended by

BAPCPA, are relevant. Section 507(a) states in part:

a) The following expenses and claims have priority in the following

order:

(1) First:

(A) Allowed unsecured claims for domestic support obligations that, as

of the date of the filing of the petition in a case under this title, are owed

to or recoverable by a spouse, former spouse, or child of the debtor, or

such child's parent, legal guardian, or responsible relative, without

regard to whether the claim is filed by such person or is filed by a

governmental unit on behalf of such person, on the condition that funds

received under this paragraph by a governmental unit under this title

after the date of the filing of the petition shall be applied and distributed

in accordance with applicable nonbankruptcy law.

(B) Subject to claims under subparagraph (A), allowed unsecured claims

for domestic support obligations that, as of the date of the filing of the

petition, are assigned by a spouse, former spouse, child of the debtor, or

such child's parent, legal guardian, or responsible relative to a

governmental unit (unless such obligation is assigned voluntarily by the

spouse, former spouse, child, parent, legal guardian, or responsible

Case 5:06-cv-00953-IPJ Document 10 Filed 07/17/06 Page 4 of 11
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relative of the child for the purpose of collecting the debt) or are owed

directly to or recoverable by a governmental unit under applicable

nonbankruptcy law, on the condition that funds received under this

paragraph by a governmental unit under this title after the date of the

filing of the petition be applied and distributed in accordance with

applicable nonbankruptcy law.

(C) If a trustee is appointed or elected under section 701, 702, 703,

1104, 1202, or 1302, the administrative expenses of the trustee allowed

under paragraphs (1)(A), (2), and (6) of section 503(b) shall be paid

before payment of claims under subparagraphs (A) and (B), to the extent

that the trustee administers assets that are otherwise available for the

payment of such claims.

(2) Second, 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.

11 U.S.C. § 507(a). Section 1322 sets forth requirements for what a Chapter 13 Plan

shall contain and what it may contain. That section states in relevant part:

(a) The plan shall--

(1) provide for the submission of all or such portion of future earnings

or other future income of the debtor to the supervision and control of the

trustee as is necessary for the execution of the plan;

(2) 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;

(3) if the plan classifies claims, provide the same treatment for each

claim within a particular class; and.

(4) notwithstanding any other provision of this section, a plan may

provide for less than full payment of all amounts owed for a claim

entitled to priority under section 507(a)(1)(B) only if the plan provides

that all of the debtor's projected disposable income for a 5-year period

beginning on the date that the first payment is due under the plan will be

applied to make payments under the plan.

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(b) Subject to subsections (a) and (c) of this section, the plan may ...

(4) 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.A. § 1322. Section 1326 concerns the order of payments in a Chapter 13

Plan. That section contains language that:

(b) 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;

11 U.S.C.A. § 1326 (b).

DHR asserts that through combination of these provisions, it is entitled to

payment in full prior to any other distribution under § 507(a). Section 507(a)(1)(C)

states that if a trustee is appointed under any of a variety of sections, including 1302,

the administrative expenses of the trustee shall be paid before domestic support

claims. DHR asserts that Congress did not include payment for attorney fees in §

507(a)(1)(C), but instead gave them a priority immediately behind domestic support

obligations. It argues that any interpretation beyond specific application of § 507

priorities in the order set forth by statute renders its first place priority meaningless

in the context of petitions under Chapter 13. 

Case 5:06-cv-00953-IPJ Document 10 Filed 07/17/06 Page 6 of 11
Section 503 provides for payment of attorney fees approved under § 330(a)(1)(A). 

1

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For support, DHR points out that under § 1325(a)(8) a court cannot confirm a

Chapter 13 Plan if the debtor has not paid all amounts required to be paid under a

domestic support obligation. Similarly, under § 1307(c)(11), a court may convert a

case “under this chapter to a case under chapter 7 of this title, or may dismiss a case

under this chapter, whichever is in the best interests of creditors and the estate, for

cause, including ... failure of the debtor to pay any domestic support obligation that

first becomes payable after the date of the filing of the petition.” From these

provisions, DHR concludes that Congress intended to domestic support obligations

are to be paid first. 

The trustee and the debtors respond that specific order of § 507 priorities do

not apply in a Chapter 13 Plan. As cited above, § 1326 concerns payments under a

Chapter 13 Plan. The only mention of § 507 is in § 1326 (b) (1), which mandates that

“at the time of each payment to creditors under the plan, there shall be paid ... any

unpaid claim of the kind specified in section 507(a)(2) of this title...” Section

507(a)(2) concerns “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.” 11 U.S.C. § 507(a)(2). 

1

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Indeed, should this court adopt the logic of DHR, § 726 would be rendered meaningless, 2

as there would by no need to state that in cases filed under Chapter 7 [as opposed to Chapter13]

that “... property of the estate shall be distributed– (1) first, in payment of claims of the kind

specified in, and in the order specified in, section 507 of this title ....” 11 U.S.C.A. § 726(a)(1).

 

8

The Bankruptcy Court disagreed with DHR’s reasoning, and found that DHR

does not have the same priority under § 507(a) in a case under Chapter 13 case as it

does in a case under Chapter 7. That court found, and the debtors and trustee argue

here, that § 726(a) of the Bankruptcy Code, which requires that property of the estate

in a Chapter 7 case be distributed in the order specified in § 507, does not have a

parallel provision for Chapter 13 cases. Rather, § 1326 specifically applies to 2

Chapter 13 plans, and specifically requires administrative costs to be paid “at the time

of each payment to creditors under the plan.” § 1326 (b)(1). 

The Memorandum Opinion entered by the Bankruptcy Court held as follows:

Congress amended § 1326(b)(1) by replacing the reference to §

507(a)(1) with § 507(a)(2) so that any unpaid administrative expenses

must continue to be paid in Chapter 13 cases “[b]efore or at the time of

each payment to creditors under the plan” as required prior to the

BAPCPA amendments. By striking the reference to § 507(a)(1) in §

1326(b)(1) and adding § 507(a)(2), Congress clearly intended to require

the continued payment of administrative expenses before or

contemporaneously with payments to other claimholders, even §

507(a)(1) claimholders. Had Congress intended to afford this special

payment treatment to § 507(a)(1) support obligations, it could have

expressly done so. Congress provided domestic support obligations

other special protections under the BAPCPA amendments: (1) postpetition support obligations must now be paid in full prior to

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That Court found a reasonable argument could be made that § 1326(b)(1) actually allows 3

an attorney to be paid before DHR, notwithstanding the fact that it would have a higher priority

in a case under Chapter 7. In re Vinnie, 2006 WL 1731150, at 3. 

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confirmation pursuant to § 1325(a)(8); and (2) Chapter 13 debtors may

not obtain a discharge until they certify that all domestic support

obligations have been paid pursuant to § 1328(a). Congress did not,

however, see fit to also require § 507(a)(1) claims be paid before or at

the time of each payment to creditors under the plan.

In re Sanders, 341 B.R. 47, 51 (Bkrtcy.N.D.Ala.2006). In a strikingly similar case,

the Bankruptcy Court for the Middle District of Alabama reached the same

conclusion. In that case, “DHR contend[ed] that its claims should be paid in full,

before any other claim is paid, including the claim of the Debtor’s attorney for his

fees.” In re Vinnie, __ B.R. __, 2006 WL 1731150 (Bkrtcy.M.D.Ala.2006). That

Court considered the § 507 rules of priority and the Chapter 13 rules of distribution.

It concluded that a plain reading of § 1322(a)(2) treated all of the subsections of §

507 alike. Id., at 2. It also concluded that under the plain language of § 1322(a),

concurrent, rather than sequential payment of claims listed in § 507 was envisioned

by Congress. Id. That Court further found that § 1326(b)(1) actually bars the relief

sought by DHR, as this section requires that the debtor’s attorney be paid

contemporaneously with other creditors. Id., at 3. 3

The court finds that had Congress intended domestic support obligations to be

paid before all other § 507 claims in a Chapter 13 Plan, it would not have included

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the language found in § 1326(b)(1). As such, the Court is of the opinion that DHR’s

position is untenable. 

DHR also argues that the Chapter 13 plan in question should limit distribution

to secured creditors until the domestic support obligation is paid in full. The court

finds this argument wholly without merit. Section 1322(b)(4) states that a plan “may

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

payments on any secured claim...” DHR’s argument otherwise is based on an

assertion that because secured claims are secured by collateral, those creditors are not

harmed by waiting for their money. Even more creatively, DHR argues that “[i]f

secured creditors are allowed ‘first payment’ against the best interest of a domestic

support obligation, secured creditors will have no incentive to be more selective in

determining to whom they sell and finance property.” Brief of appellant, at 18.

Perhaps 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. 

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CONCLUSION

Having considered the arguments of the parties, the court finds that the

interpretation of BAPCPA set forth by DHR is unsupportable by the plain language

of the Bankruptcy Act. In consideration of the foregoing, the court ORDERS that

the Order of the Bankruptcy Court will be AFFIRMED by separate Order.

DONE and ORDERED this the 17 day of July, 2006. th

 

INGE PRYTZ JOHNSON

U.S. DISTRICT JUDGE 

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