In a court decision dated 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 6% Texas statutory interest in their chapter 13 plans on delinquent child support claims. In re Resendiz, Case No. 12-10603.
The debtor had proposed a chapter 13 plan to pay the interest, so that he would be entirely current when he completed his plan. If he did not, 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. 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 terms "including interest." He also held that BAPCPA had made DSO claims a first priority claim, subject only to certain expenses of a trustee in administering assets that might be used to pay DSO claims.
The Court found that the DSO claim 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.
Do you agree with this decision? Should someone that is in bankruptcy, and by definition having severe debt troubles, be required to pay 6% interest? Why can't they pay it after the case is over? If you have a comment, please leave it below. We want to hear from you!