Texas Bankruptcy Court Rules Must Pay 6% Interest on Child Support

Posted on Nov 25, 2013

In a Memorandum Opinion signed on November 20, 2013, U.S. Bankruptcy Judge Richard Schmidt of the Southern District of Texas sitting in Brownsville, determined that chapter 13 debtors must pay the statutory interest provided by Texas law in their chapter 13 plans on delinquent child support claims. In re Resendiz, Case No. 12-10603.

The debtor had proposed his plan to pay the interest, apparently so that he would be entirely current when he completed his plan. Otherwise, non-dischargeable debts like child support claims (or "domestic support obligations" or DSO's under the 2005 BAPCPA law), still accrue interest during chapter 13 plans, and it can be collected from the debtor after the discharge is issued to the debtor after the completion of the case. The chapter 13 trustee had objected to the payment of interest on the DSO claim.

Judge Schmidt analyzed the definition of "domestic support obligation" in 11 USC Sec. 101(14A) and found that it contained the term "including interest." He also correctly held that BAPCPA had elevated DSO claims to first priority, subject only to certain expenses of a trustee in administering assets that might otherwise be used to pay DSO claims.

The Court found that the DSO claim is entitled to first priority status, and should be paid with interest. Otherwise, the debtor could be subject to post-discharge enforcement actions by the custodial parent. He also cited the relevant Texas state law, Sec. 157.265 of the Texas Family Code, which provides that interest accrues on delinquent child support at the rate of 6% per year.

The Court also found that because all claims entitled to priority under 11 USC Sec. 507 must be paid in full pursuant to 11 USC Sec. 1322(a)(2), the Court had to deny confirmation of any plan that does not provide for such post-petition interest that accrues on a claim for DSO. So plans must provide for interest on such claims, in order to be confirmed.

 

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