Burnett v. Burnett (In re Burnett)

Summarized by Kevin Baum , Windels Marx Lane & Mittendorf, LLP
14 years 7 months ago

Citation:

No. 09-2871 (8th Cir. July 20, 2011)

Tag(s):

8th Circuit

Ruling:

In a decision that affirmed in part and reversed in part the BAP’s order, the Eight Circuit held that Clarence Burnett’s (“Mr. Burnett”) completed chapter 13 plan (the "Plan”) prevented his ex-wife, Nancy Jo Burnett (“Ms. Burnett”), and the West Virginia Bureau of Child Support Enforcement (the “BCSE”) from seeking interest on spousal support arrearages despite the fact that an earlier agreement provided that Ms. Burnett reserved the right to do so. The Eighth Circuit further held the Plan neither (1) prevented Ms. Burnett and the BCSE from seeking interest on post-petition spousal support arrearages nor (2) prevented Ms. Burnett and the BCSE garnishing Mr. Burnett’s income for amount greater than that provided by the plan in order to satisfy those post-petition arrearages. First, the Eighth Circuit found that §1327(a) afforded the confirmed Plan’s provisions res judicata effect that barred Ms. Burnett from pursuing interest on the pre-petition spousal support arrearages. Although (1) Ms. Burnett had not consented to waive the right to seek interest and (2) the Plan’s provisions violated the Code, the Court reasoned that §1327(a) binds creditors to the terms of a confirmed plan. Because Ms. Burnett had notice of the Plan, she needed to object at confirmation in order to preserve her pre-petition interest claims. Second, the Eight Circuit found that Ms. Burnett’s post-petition support claims, and any interest thereon, were “beyond the purview of [the Plan], and the Bankruptcy Court’s jurisdiction.” Specifically, the Eighth Circuit opined that since the Code does not allow a domestic support creditor, such as Ms. Burnett, to insist that post-petition support claims be included in a chapter 13 plan, the fact that Plan did not address those claims meant that Ms. Burnett was not pursuing interest on them. Similarly, the Eighth Circuit reasoned that that a domestic support creditor could pursue post-petition claims because the Code neither prohibits such collection nor provides the ability to file a claim for those amounts. Therefore, because Ms. Burnett could seek interest on the post-petition spousal support claim, the Eighth Circuit found that BSCE could seek a garnishment order that exceeded the monthly payments provided for by the Plan so long as the money being garnished was used to satisfy the post-petition support obligations.

Procedural context:

On January 15, 2009, the Bankruptcy Court held that the Plan barred Ms. Burnett and the BCSE from (1) pursuing any interest on the spousal support arrearages and (2) from garnishing Mr. Burnett’s income for amount that exceeded the $300 per month provided for by the Plan. Accordingly, the Bankruptcy Court ordered that (a) any amounts withheld in excess of the $300 monthly payment and (b) Mr. Burnett must continue making the $300 per month payment under the Plan. On July 7, 2009, the BAP reversed, and held that (1) Ms. Burnett and the BCSE could pursue interest on both the pre- and post-petition spousal support claims. The BAP also concluded that the Plan did prevent the BSCE from garnishing Mr. Burnett’s income for an amount exceeding the plan payment. Mr. Burnett timely appealed the BAP’s ruling.

Facts:

In 1982, as part of their divorce, Mr. Burnett and Ms. Burnett executed a separate support agreement (the “Support Agreement”), which Mr. Burnett to pay Ms. Burnett $750 per month (the “Support Obligation”) for child support and alimony until their child reached the age of majority. The Support Agreement, however, did not state what percent of the payment served as child support and what percent served as alimony. Mr. Burnett quickly fell behind on the Support Obligation. In August 2011, a West Virginia State Court found that Mr. Burnett was arrears for the principle sum of $57,402.70, and left the issue of interest for a later hearing. However, before the State Court could hold that later hearing, Mr. Burnett and his current spouse filed for chapter 13 protection in December 2001. After three years of bankruptcy litigation, the parties entered into an agreed order (the “Agreed Order”), which provided that Mr. Burnett would modify his plan to pay $300 per month towards his arrearages under the Plan, and after he completed the Plan, he would continue paying $300 per month until he had satisfied the support debt in full. Under the Agreed Order, Mr. Burnett would also modify his plan to reflect that Ms. Burnett reserved the right to litigate the interest owed support arrears in State Court. The Agreed Order did not distinguish between child support and alimony. The Plan, which Ms. Burnett did not object to and was ultimately confirmed, incorporated the Agreed Order nearly verbatim. The Plan, however, stated that Ms. Burnett reserved the right to litigate the interest owed on the child support arrears. When Mr. Burnett completed the Plan in 2007, the Bankruptcy Court had determined that he had paid $20,100 towards the arrearage. In December 2007, the BCSE, acting on behalf of Ms. Burnett and as her subrogee, moved the State Court to (1) determine the amount of the interest owed, (2) enter a judgment for the amount of the arrears, plus interest, and (3) order collection from Mr. Burnett. After he failed to appear, the State Court determined that Mr. Burnett owed Ms. Burnett (a) $11,348.45 for child support, plus $76,956.53 in interest, and (b) $52,215.13 for spousal support, plus $55,452.50 in interest. The State Court also issued an income withholding order. After the BCSE began withholding $703.45 per month from his military pension, Mr. Burnett successfully reopen his bankruptcy case, and then filed a contempt motion against Ms. Burnett and the BSCE. Mr. Burnett, however, did not appeal the State Court order.

Judge(s):

Smith, Beam, Benton

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