Galaz v. Galaz (In re Galaz)

Summarized by Lyndel Vargas , Cavazos Hendricks Poirot, PC
13 years 7 months ago

Citation:

5th Cir. Tex. W.D. No. 5;20-CV-1031 UNPUBLISHED

Tag(s):

Ruling:

Bankruptcy Court did not abuse its discretion in waiting to determine whether setoff was warranted before ordering payments from the bankruptcy estate for child support as it reasonably believed that there would be no undue delay in waiting to see whether money really needed to be paid out of the bankruptcy estate. The fact that 362(b) exempts child support obligations from the automatic stay, does not mean that the holder of such claims are guaranteed immediate payment. The Bankruptcy Court can still consider the overall administration of the estate, and wait on payment if justice requires it in a particular case. Exempting child support obligations from the automatic stay means that usually these claims should not be delayed, but it does not mean there are no exceptional circumstances in which such delay is warranted. The expected ruling in the Debtor's adversary was sufficient reason for the delay. The Appellant had also waived the argument of lack of mutuality with regard to the asserted setoff as he had not argued that point plainly enough for the Bankruptcy Court to recognize and rule on it. The 5th Circuit judges noted that you need to clearly press an argument at the trial court level, it can't merely be intimated. If the argument was note raised to such a degree that the trial court may rule on it, you have not preserved the argument for appeal. Since the Debtor was the one seeking setoff, Section 558 applied, not 553. Of interest is also the clarification in Footnote 3 that, despite the argument that had been given, based on the case of In re Circuit City Stores, Inc., 2009 WL 4755253 at *3(Bankr. E.D. Va. Dec. 3, 2009) that the prepetition/postpetition disctinction is ignored in Section 558 Cases, that distinction is relevant in the 5th Circuit.

Procedural context:

District Court had affirmed Bankruptcy Court's ruling that Chapter 13 Debtor was entitled, due to setoff defense, to deduct past due child support from money non-debtor owed her. The Debtor and Raul Galza had gone to arbitration over their respective claims of child support and the Raul was awarded a claim for $9,727; however, the Debtor had also removed her lawsuit against Raul to the Bankruptcy Court for which she eventually was awarded a $500,000. judgment. Raul filed two motions asking the Bankruptcy Court to direct the Debtor to pay him the $9,727, but the Court waited for the trial on the adversary to be completed. The Fifth Circuit reviewed on an abuse of discretion standard and found no abuse for deferring ruling on the renewed motion to direct payment of a child support award to the non-debtor.It also agreed with the District Court that, eventhough the debts were not mutual, the lack of mutuality argument was not to be reviewed on appeal as it had been waived my not being clearly raised at the trial court.

Facts:

Lisa Galaz filed bankruptcy and owed child support to Raul. He, in turn, owed her money in the nature of support. The sums due Debtor had another claim against Raul and removed her lawsuit seeking $500,000 to the Bankruptcy Court. After arbitration awarded Raul $9727 in support, he filed a motion to direct payment. He argued that, because child support is a priority claim, the defense of setoff does not apply. The Bankruptcy Court held a hearing and found that the defense of setoff did apply, explaining that a specific amount would be decided soon in Debtor's pending adversary proceeding. At the District Court Raul argued for the first time that the Debtor could not setoff against her child support obligation as the obligations were not mutual. Although he had not expressly argued that in the Bankruptcy Court, he maintained that "the bankruptcy court revealed it recognized he was arguing lack of mutuality" when he argued the setoff was improper. What he had argued was that is was improper because child support is a priority debt. That was not a plain enough argument and thus he had not preserved the issue for appeal.

Judge(s):

Davis, Smith and Dennis

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