In re Michelle Dougherty-Kelsay

Case Type:
Case Status:
19-8013, 2022 WL 830907 (6th Circuit, Mar 21,2022) Published
Creditor did not violate stay by seeking state court award of child support but did violate stay by asking state court to order Debtor to pay without limiting source of payment to post-petition income that was not property of the estate. State Court Order that increased amount of wage withholding was within exception to stay under Section 362(b)(2)(C). Intercepts of Debtor's State and Federal Tax refunds by State Child Support Division and subsequent payment to Creditor within exception to stay under Section 362(b)(2)(F),
Procedural context:
Bankruptcy Court held that most Creditor actions fit within exceptions to stay but that certain actions constituted willful violations and awarded sanctions against Creditor. Debtor appealed. Sixth Circuit Court affirmed all findings of the Bankruptcy Court.
This case is an ongoing battle between ex-spouses over payment of child support. The parties were divorced and Creditor was awarded primary custody of children. In 2017, Creditor filed a Motion in the State Court to establish child support and hold ex-spouse (soon-to-be Debtor) in contempt. That hearing resulted in an award of monthly support an also required Debtor to reimburse a percentage of medical care and extra-curricular activities. Creditor sent Debtor an itemized list of expenses but Debtor did not respond. Creditor filed another Motion for Contempt. In response, Debtor filed for relief under Chapter 7. Approximately 2 weeks later, and at a time when Creditor was fully aware of the bankruptcy filing, Creditor proceeded with the State Court contempt hearing. The State Court ordered Debtor to pay $1260 for Debtor's share of the medical and extra-curricular expenses; ordered Debtor to pay $50 immediately; and directed that the previously issued wage garnishment be increased by $50 per pay until the balance of the expenses were paid. Debtor did not pay the $50 directly as required and Creditor sent multiple letters and demands and finally filed another Motion for Contempt. At the same time the State Child Support Department issued intercept Orders for Debtor's State and Federal Tax Refunds and when the State received those refunds paid them to Creditor to apply against support arrearages. Debtor filed a Motion for Contempt for Creditor's alleged violations of the stay. The Bankruptcy Court held: 1. The first contempt hearing that liquidated the amount of support for the unreimbursed expenses was within Section 362(b)(2)(A)(ii) as the hearing established the amount of support. 2. Amending the Wage Withholding Order did not violate the stay as Section 362(b)(2)(C) specifically allows for entry of that Order. 3. State's intercept and payment to Creditor of the tax refunds di d not violate the stay because Section 362(b)(2)(F) allows for interception of tax refunds to collect support obligations. 4. Creditor's attempts to recover the initial $50 ordered by the State Court to be paid to Creditor violated stay as Creditor's efforts were not limited to non-estate assets. 5. State Court overstepped bounds when in addition to awarding the extra $50 payment, the Court used its contempt powers to enforce that award without limiting the source of prepayment to non-estate assets. 6. Debtor's repeated efforts to collect the $50 constituted willful violations of the stay as Creditor continued efforts to collect and filed additional contempt proceeding in effort to coerce payment but did not limit payment to non-estate assets. 7. Debtor not entitled to actual damages as efforts to establish support amount, increase wage withholding, and tax intercepts were not stay violations, but Court awarded $4,313,75 in attorney fees plus $1,000 punitive damages based on Creditor's continued efforts to collect the $50 including pursuit of contempt actions, efforts thatceased only after Debtor filed Sanctions Motion.
Dales, Mashburn and Price Smith

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!

About us in numbers

3509 in the system

3390 Summarized

5 Being Processed