Court Opinion

ID: 4412169
Source: CourtListenerOpinion
Date Created: 2019-06-28 07:00:27.920355+00
Date Added: 2024-06-11T14:52:30.337955
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
Nos. 18‐2899 & 18‐2952

IN RE: DEVAN DENNIS and
TYEANE HALBERT,
                                                Debtors‐Appellees,

APPEALS OF: ILLINOIS DEPARTMENT
OF HUMAN SERVICES and
JAMES T. DIMAS,

      Appeals from the United States Bankruptcy Court for the
          Northern District of Illinois, Eastern Division‐BK.
      Nos. 18‐02067 & 16‐ap‐00479 — A. Benjamin Goldgar and
               Deborah Lee Thorne, Bankruptcy Judges.

      ARGUED APRIL 15, 2019 — DECIDED JUNE 27, 2019

   Before WOOD, Chief Judge, and BAUER and ST. EVE, Circuit
Judges.
    BAUER, Circuit Judge. Devan Dennis and Tyeane Halbert
(collectively, Debtors) each owed debts to the Illinois Depart‐
2                                      Nos. 18‐2899 & 18‐2952

ment of Human Services (DHS). Dennis owed for over‐
payments made to her under the Illinois Child Care Assistance
Program; Halbert owed for overpayments made to her under
the Supplemental Nutrition Assistance Program. The Debtors
each filed for bankruptcy. DHS now appeals from orders
entered by the bankruptcy court in each case holding that the
overpayment debts were not domestic support obligations. For
the reasons that follow, we affirm the orders of the bankruptcy
court.
                     I. BACKGROUND
    A. Devan Dennis
    Dennis applied for and received benefits under the Illinois
Child Care Assistance Program to help pay her daughter’s
daycare tuition. In April 2009, DHS determined it had overpaid
benefits to her daycare provider because Dennis failed to
provide accurate information on her application about her
employment. The total amount of the overpayment was
$7,962.25.
    In 2018, Dennis filed a Chapter 13 bankruptcy petition.
DHS filed a proof of claim, arguing that the $7,962.25 overpay‐
ment debt was a priority domestic support obligation under
§ 507(a)(1)(B). Dennis objected, arguing the overpayment was
a general unsecured dischargeable debt. The bankruptcy court
agreed with Dennis, holding that her overpayment debt to
DHS was not a domestic support obligation.
Nos. 18‐2899 & 18‐2952                                           3

   B. Tyeane Halbert
    Halbert applied for and received Supplemental Nutrition
Assistance Program benefits from DHS for herself and her two
minor children. From October to December 2009, Halbert
received payments totaling $1,008. From August 2010 through
January 2011, she received payments totaling $2,386. DHS
then determined that she had failed to disclose income which
resulted in a $3,394 overpayment of benefits. Halbert paid
$1,473 and in 2015 DHS intercepted the remaining balance of
$1,921 from her income tax refund.
     Halbert filed a Chapter 7 bankruptcy petition in 2016, and
claimed the intercepted funds as an exempt asset. On July 21,
2016, she filed an adversary complaint to recover the inter‐
cepted payment as an “avoidable preference” under 11 U.S.C.
§ 547(b). DHS argued that avoidance was barred by 11 U.S.C.
§ 547(c)(7) because the overpayment was a “domestic support
obligation.” Upon cross motions for summary judgment, the
bankruptcy court ruled in favor of Halbert, holding that “such
a debt is simply a debt owed for the return of benefits that
should never have been paid at all. The payment made on the
debt, therefore, is avoidable by the Debtor as a preference.”
Halbert v. Dimas (In re Halbert), 576 B.R. 586, 589 (Bankr. N.D.
Ill. 2017).
                         II. ANALYSIS
    We review a bankruptcy court’s legal conclusions de novo.
In re Doctors Hosp. of Hyde Park, Inc., 474 F.3d 421, 426 (7th Cir.
2007). In each case in this consolidated appeal, the bankruptcy
court concluded that a debt owed to the government for the
overpayment of benefits is not in the nature of a domestic
4                                       Nos. 18‐2899 & 18‐2952

support obligation. The courts characterized the overpayment
as “a debt for the return of a benefit paid to the debtor that
should not have been paid in the first place.” In re Halbert, 576
B.R. at 595, citing In re Hickey, 473 B.R. 361, 364 (Bankr. D. Or.
2012). We agree.
    For a debt to be a domestic support obligation it must be
“in the nature of alimony, maintenance, or support (including
assistance provided by a governmental unit) [to a] spouse,
former spouse, or child of the debtor or such childʹs parent,
without regard to whether such debt is expressly so desig‐
nated.” 11 U.S.C. § 101(14A)(B). DHS argues that the debts
owed are in the nature of support because the payments were
intended to be used to support the Debtors’ children; that they
automatically retain their characterization as a domestic
support obligation.
    DHS’s position, however, would expand the definition of
domestic support obligation far beyond what is intended by
the bankruptcy code. “[A]s 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.’ Is a debt owed to the government based on an
incorrect tax refund, or a debt owed to a public housing
authority on a judgment for rent, to be considered ‘in the
nature of support’?” In re Halbert, 576 B.R. at 595, citing 2
Collier on Bankruptcy ¶ 101.14A, at 96.1. See also In re Taylor,
737 F.3d 670, 679 (10th Cir. 2013) (overpayment to a spouse not
a “domestic support obligation” under Section 101(14A)(A)
because it is owed to the creditor, not the supported spouse).
Nos. 18‐2899 & 18‐2952                                         5

    In re Vanhook, 426 B.R. 296, 301 (Bankr. N.D. Ill. 2010), is
instructive. There, a creditor obtained a money judgment
against a debtor for the return of child support payments after
it was determined that the creditor was not the biological
father of debtor’s child. Id. at 298. When the debtor filed a
Chapter 13 Bankruptcy petition, the creditor filed a proof of
claim in the amount of $55,000, claiming priority as a domestic
support obligation. Id. at 287. The bankruptcy court held that
the creditor’s money judgment was not a domestic support
obligation. Id. at 302. The court concluded the creditor “should
never have been assessed child support payments” and held
that the fact that the creditor was “erroneously charged with
and paid that support does not transform his claim for a refund
into a priority classification to which it does not properly
belong.” Id.
    DHS’s status is similar to the creditor in In re Vanhook. The
Debtors do not owe DHS money for support payments; they
owe DHS because they received money they were not statuto‐
rily entitled to. Because such a payment is not in the nature of
alimony, maintenance, or support, we agree with the bank‐
ruptcy court decision that this is merely an overpayment of
benefits and not a domestic support obligation.
                     III. CONCLUSION
   The orders of the bankruptcy court are AFFIRMED.