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Kimberly L. Hernandez v. Nebraska Department of Health & Human Services (In re Hernandez)

Hernandez v. Nebraska Department of Health & Human Services, Case No. 13-6010 (BAP 8th Cir., August 8, 2013)
The debt owed by the debtor to the Nebraska Department of Health & Human Services' ("DHHS") was in the nature of support for the debtor's child and, therefore, was a priority domestic support obligation and must be provided for in the debtor's chapter 13 plan.
Procedural context:
The debtor appealed from the bankruptcy court's ruling allowing a claim filed by the DHHS as a priority debt in the nature of a domestic support obligation.
The debtor had two children. The debtor was separated from the children's father. In 1997, a state court order required the father to pay $422 per month in child support to the debtor. Income withholding from the father's pay was authorized to enforce the order and payments were directed to the debtor. The father later died in 2005. In June 2007, one of the debtor's children was committed to the custody and control of the DHHS which paid for all costs of care through December 2008. Shortly thereafter, the DHHS informed the debtor that the child support payments pursuant to the state court order had recommenced, presumably as a result of someone stealing the identify of the deceased father and working under his social security number. The DHHS paid the debtor $1,898.94 through September 2011. The DHHS' claim is approximately 50% of this total, which represents the amount that the DHHS should have retained for its support of the one child in its care. The remaining 50% is attributed to the care of the one child who remained in the debtor's home. During the four months the debtor received these payments, the state spent over $6,000 caring for her child's out-of-home foster care. In January 2008, the DHHS sent the debtor notice of an administrative determination that the child support payments attributable to the state's ward care should have remained with the DHHS. The debtor failed to timely appeal the notice. The debtor filed a chapter 13 petition in April 2012. The bankruptcy court sustained the DHHS' objection to the debtor's plan because the plan failed to identify her debt to the DHHS as a priority domestic support obligation and failure to provide for full payment of the debt as required by Sec. 1322(a)(2) of the Bankruptcy Code. The bankruptcy court held that the source of the child support payments is not relevant to an analysis under Sec. 101(14A) and that the debt is owed to or recoverable by a governmental unit, is in the nature of support of the debtor's child, was a determination made by the DHHS under applicable non-bankruptcy law, and had not been assigned to a non-governmental entity - meeting all of the requirements under Sec. 101(14A). On appeal, the debtor argued that it is a slippery slope to include payments from an undocumented worker who stole the identify of the father as a domestic support obligation assigned to a governmental unit. The debtor also accused the DHHS of knowing the payments were fraudulently collected, not taking any action to stop the payments, and contended that the only proper claim the DHHS could make is under Sec. 523(a)(2) - but because the debtor did not commit any fraud, the debt was dischargeable. In addition, the debtor argued that the bankruptcy court should not have deferred to the DHHS' determination that the nature of the debt was for child support. The DHHS argued that under state law it had right to all of the proceeds for the state ward's support, and pointed to Eighth Circuit authority noting that the standard for determining whether a debt is in the nature of support is the function the award was intended to serve, without regard to the source of payment, and that a determination of the debt's nature is a finding of fact subject to the clearly erroneously standard. The BAP noted the elements under Sec. 101(14A) for determining that a debt is a domestic support obligation and that the only element at issue was whether the debt the debtor owed DHHS is in the nature of support for her child. The debtor argued that it was improper for the bankruptcy court to hold that the DHHS' determination of the debt carried the day. Noting that the debtor's argument was misplaced, the BAP stated that during the confirmation hearing, the bankruptcy court had made an independent determination that the nature of the debt was that of a domestic support obligation - meeting all of the required elements under Sec. 101(14A). The BAP agreed with the bankruptcy court. The BAP further noted that the fact the DHHS sought only 50% of the total paid to the debtor implied that both of the debtor's children been residing at home, the DHHS would not have sought to recoup any of the funds. Finally, the BAP held that the debtor's remaining arguments lacked merit.
Kressel, Schermer, and Shodeen

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