Houston Bankruptcy Court: Child support arrears must be paid 6% interest in chapter 13 plans

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Jun 13, 2015

A chapter 13 debtor filed a motion to modify plan, to pay 6% interest on their delinquent child support that was being paid through the plan, even though they were not paying 100% to their other debts. The chapter 13 trustee objected, on the grounds that Sec. 1322(b)(10) requires that debtors pay 100% of their debts before they can pay interest to non-dischargeable claims like child support or "DSO" (domestic support obligation) claims.

U.S. Bankruptcy Judge Jeff Bohm ruled on June 10, 2015 that the trustee's position was incorrect, and that the modified plan should be confirmed. The Court ruled that the debtors are not only allowed, but required to provide in the plan that they will pay 6% interest in addition to the full amount of the DSO claim, pursuant to Texas Family Code Sec. 157.265. Section 1322(a)(2) of the Bankruptcy Code requires a plan to provide for payment of all priority claims in full, and Sec. 507 gives priority to DSO's that are "owed to or recoverable" on the petition date.

The Court went on to say that the Bankruptcy Code's prohibitions on unmatured interest and unmatured child support (11 USC Sections 502(b)(2) & (5)) do not apply to DSO interest provided by the Texas Family Code because the definition of DSO includes post-petition interest under state law "notwithstanding any other provision of this title." 11 USC Sec. 101(14A)

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