In re Bruce

610 B.R. 603

IN RE: Jeffrey B. BRUCE, Debtor.

Case No. 18-21283-beh

United States Bankruptcy Court, E.D. Wisconsin.

Signed September 27, 2019

Chad L. Schomburg, Milwaukee, WI, David Pietrek, Debt Advisors, S.C., for Debtor.

Rebecca R. Garcia, Chapter 13 Trustee, Oshkosh, WI, for Trustee.

DECISION AND ORDER

Beth E. Hanan, United States Bankruptcy Judge

A confirmed Chapter 13 plan defines, and may alter, obligations between the debtor and creditors. In this case, where a priority creditor did not receive notice of the Chapter 13 plan confirmation order for several months and so continued deducting contrary to plan terms, there is no basis to find the priority creditor in contempt of an order of which it lacked actual knowledge.

JURISDICTION

The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 151, and the standing order of reference in this district. The matter is core, pursuant to 28 U.S.C. § 157(b)(2)(L). This decision constitutes findings of fact and conclusions of law, pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014.

FACTS

Before filing for bankruptcy, debtor Jeffrey Bruce was subject to two orders of the Shawano County Circuit Court requiring him to pay child support: an order in Case No. 2003 FA 208 (creditor/mother Stacy Erdmann) for payment of $460 per month for current support and $50 per month for accrued arrears, ECF Doc. No. 34-1, Exhibit 1, and an order in Case No. 17 PA 19 (creditor/mother Stephanie Williams) for payment of $507 per month for current child support and $80 per month for accrued arrears. ECF Doc. No. 34-1, ¶ 6, and Exhibit 2. The Williams case order also included certain costs related to the state's paternity determination. Id. , ¶ 29 and Exhibit 2.

The Shawano County Child Support Agency (the "Agency") is an agent of the State of Wisconsin, the purpose of which is to collect court-ordered child support and related costs. Id. , 34-1, ¶ 3. The Agency employs four staff members who handle approximately 2400 cases each year. Id. , ¶ 5, ECF Doc. No. 39-1, ¶ 7. During the relevant time period, the Agency lacked PACER access.¹ Id. The Agency was responsible for establishing the child support orders on behalf of Ms. Erdmann and Ms. Williams, and collected support for the benefit of the mothers in both cases. ECF Doc. No. 34-1, ¶ 6. The Agency collected the funds on behalf of the State of Wisconsin, and the funds were paid to the mothers pursuant to the child support orders. Id. , ¶ 33. The debtor made these payments through payroll deduction.

On February 16, 2018, the debtor filed his Chapter 13 bankruptcy petition. ECF Doc. No. 1. He listed both child support arrears claims in his Schedule E/F, Lines 2.2 and 2.3, and in Part 3, "Others to Be Notified About a Debt That You Already Listed," he listed the Bureau of Child Support, Division of Economic Support. On Schedule I, he listed on-going monthly domestic support payments of $1,118.00. On Schedule J, the debtor disclosed two dependents: a one-year-old daughter and a fifteen-year-old daughter.²

The debtor also filed a proposed plan listing the support arrears as priority unsecured claims to be paid through the plan: Ms. Erdmann $515 and Ms. Williams $2,994. ECF Doc. No. 2. The Bankruptcy Noticing Center ("BNC") served his proposed plan on February 18, 2018. ECF Doc. No. 8. The Agency was not listed as a recipient of the BNC notice, but recipients included:

Bureau of Child Support, 201 E. Washington Ave, E200, PO Box 7935, Division of Economic Support, Madison, WI 53707-7935

Stacey Erdmann, 509 W Oicnic Street, Shawano, WI 54166-2821³

Stephanie Williams, 619 Center Street, Shawano, WI 54166-2601

Two weeks later, on March 8, 2018, the Agency received notice of the debtor's bankruptcy case when it received copies of letters sent by the Chapter 13 trustee to the State's Bureau of Child Support/DES, which the State had forwarded to the Agency. ECF Doc. No. 39-1, ¶ 3. The Agency received no other letters from the State or trustee regarding the bankruptcy. Id. at ¶ 8. The Agency's counsel sent the debtor's counsel two proofs of claim dated March 19, 2018, which the debtor then filed.⁴ Each proof of claim bore the following address for sending notices and payments to the creditor:

Shawano County Child Support

311 N. Main St.

Shawano County WI 54166

Id. at ¶¶ 4-5. The proofs of claim were completed and signed by

Tony Kordus, Attorney for the State of WI,

Shawano County

311 N Main St,

Green Bay, WI 54166

Claim Nos. 4-1 and 5-1.⁵ The claim forms list as "current creditor" Ms. Erdmann (Claim No. 4) and Ms. Williams (Claim No. 5). Attorney Kordus did not file a Notice of Appearance.

After mailing the two proofs of claim, the Agency continued to collect both prepetition arrears and current child support payments from the debtor via payroll deductions.

On April 17, 2018, the debtor filed a notice and request to amend his plan to increase plan payments to $430.15 bi-weekly. ECF Doc. No. 23. The attached certificate of service, ECF Doc. No. 23-1, verifies that the debtor's counsel mailed the notice and request to amend to the creditors on the label matrix for local noticing, including:

  Shawano County Child Support      Shawano County Child Support
  Stacy Erdmann                     Stephanie Williams
  311 N Main St                     311 N Main St
  Shawano County, WI 54166-2145     Shawano County, WI 54166-2145
  Stacey Erdmann                    Stephanie Williams
  509 W Oicnic Street               619 Center Street
  Shawano WI 54166-2821             Shawano, WI 54166-2601
  Bureau of Child Support
  201 E. Washington Ave, E200
  PO Box 7935
  Division of Economic Support
  Madison, WI 53201-3019

No one filed an objection to the debtor's amended plan, and an order confirming the Chapter 13 plan was entered on June 1, 2018, without a hearing. ECF Doc. No. 31. The BNC Certificate of Mailing shows that the BNC sent the debtor notice of the plan confirmation order via first class mail, and three persons were sent notice through the Court's ECF electronic mail system: the debtor's attorney, the U.S. Trustee, and the Chapter 13 trustee. ECF Doc. No. 32. There is no evidence that the BNC sent the confirmation order to any other entity or individual.

Notwithstanding plan confirmation in June, the Agency continued until mid-October, 2018 to deduct prepetition child support arrears from the debtor's wages, in addition to the ongoing monthly support payments. The debtor's elder daughter turned 18 in late May, several days before the debtor's plan was confirmed. ECF Doc. No. 34-1, ¶ 18.

The debtor's counsel's office contacted the Agency, via phone calls or emails, on September 21 and 27, 2018, and October, 2, 17 and 20, 2018, to request that the Agency cease withholding the debtor's wages. ECF Doc. No. 33, Debtor's Motion for Violation of Stay and for Contempt, Exhibit 2⁶ ; Doc. No. 40, ¶¶ 10-11. Ms. Amy Vannieuwenhoven, director and administrator of the Shawano County Child Support Agency, testified via two affidavits. She testified that the debtor's counsel did not advise the Agency specifically that a plan had been confirmed until October 17, 2018. ECF Doc. No. 34-1, ¶¶ 11-12; Exhibit 6; ECF Doc. No. 39-1, ¶¶ 9-10.

Once the Agency learned of the plan confirmation, it reviewed both support cases. As of October 19, 2018, the debtor's obligations in Ms. Erdmann's case were satisfied. That case had a zero arrears balance because the elder daughter had emancipated by turning 18 on May 26, 2018 and by graduating from high school. ECF Doc. No. 34-1, ¶ 18. Accordingly, the Agency submitted a termination of the Income Withholding order ("IWO"). ECF Doc. No. 33, at 32; ECF Doc. No. 39-1, Exhibit F. The only order in effect regarding Ms. Williams was the income-withholding order for the current support amount, as the arrears had been collected. ECF Doc. No. 34-1, ¶¶ 19-20. The Agency submitted an amended IWO for $572/month, comprising $507 current child support, and $65 for "other multiple obligations" (presumably the paternity costs described in the October 18, 2017 support order). ECF Doc. No. 33, at 34; ECF Doc. No. 34-1, Exhibit 2. The amended IWO reflected that the debtor's pay would be deducted $264.00 per bi-weekly pay period. Id.

Days after the Agency learned the debtor's plan had been confirmed, the debtor's October 26, 2018 paycheck showed three amounts deducted, apparently relating to the child support orders. His paystub showed $222.96 withheld for Support Order 1 (presumably, Williams), $157.30 withheld for Support Order 2 (presumably, Erdmann) and $48.16 withheld for Support Order 6 (undescribed). ECF Doc. No. 40, at 23. It appears that the debtor's employer later refunded the $157.30 erroneously deducted for the satisfied Erdmann order. ECF Doc. No. 34-1, ¶ 27; Exhibit 10.

A. Debtor Files his First Motion.

On November 2, 2018, the debtor filed a motion for sanctions for violation of the stay, and for contempt (of the plan confirmation order), ECF Doc. No. 33, and the Agency soon objected. ECF Doc. No. 34. Later the debtor reconsidered his legal position, conceding at a hearing that there was no violation of the stay because 11 U.S.C. § 362(B)(2)(C) excepts collection of domestic support payments from the automatic stay. See, e.g. , In re Ojiegbe , 512 B.R. 513, 524 (Bankr. D. Md. 2014), explaining that by enacting section 362(b)(2)(C), Congress expanded the exception to the stay for domestic support creditors to permit collection from debtors whose post-confirmation wages are property of the estate. By expanding this exception to withholding support payments from a debtor's wages, support payments are easier to collect, while at the same time protecting the spouses and children that depend on this means of support. Id. , citing In re Gellington , 363 B.R. 497, 501 (Bankr. N.D. Tex. 2007). The Court continued the matter as to the contempt issue and ordered the parties to file additional authority.

B. Debtor Amends his Motion.

The debtor filed an ...