A contempt action brought against a debtor personally in a state matrimonial court to compel payment of a domestic support obligation violates the automatic stay despite Section 362(b)(2)(B). That section contains an exception from the automatic stay for “the collection of a domestic support obligation from property that is not property of the estate.” [Emphasis added.]
In her opinion on March 20, District Judge Elizabeth K. Dillon of Harrisonburg, Va., took sides on an issue where the courts are split and affirmed Bankruptcy Judge Rebecca B. Connelly.
As it is with any matrimonial action that spills over into bankruptcy court, the facts were complex. For our purposes, a few are critical.
The Unpaid ‘DSO’
The debtor-former husband filed a chapter 13 petition and confirmed a 60-month plan to which the former wife consented.
Under the marital distribution agreement signed before bankruptcy, the debtor owed his former wife $212,500. Before bankruptcy, he was to make a lump sum payment of $135,000 plus $1,000 a month until the entire $212,500 was paid.
On filing, the debtor was allegedly current on the $1,000 monthly payments but was about $35,000 behind on the $135,000 lump sum payment that he should have made to his former wife before filing.
As part of the matrimonial award, the debtor was required to have the former wife removed from liability to a bank resulting from a deficiency judgment arising from the foreclosure of their home.
The plan provided that the debtor would pay the former wife $1,000 a month and that anything still owing at the end of the plan would survive discharge. Running the numbers, the debtor still would have owed the former wife about $17,000 when the plan was over.
Nine days after confirmation of the plan, the wife moved in the matrimonial court to hold the debtor in contempt and put him in jail unless he could show the court that he had made certain payments and that the former wife was no longer liable to the bank for the deficiency.
The state court entered an order to show cause why the debtor should not be held in contempt. The state court saw no violation of the stay because the wife intended for the debtor to make payments from a retirement account that was an exempt asset.
In response, the debtor evidently complied with the order to show cause except for proving that he had removed his former wife from liability to the bank.
Although he should have acted sooner, the debtor went to bankruptcy court seeking to hold the former wife in contempt. Contending that she was only attempting to “collect” a domestic support obligation from non-estate property, the former wife argued that there was no stay violation in view of Section 362(b)(2)(B).
Bankruptcy Judge Connelly disagreed and held the former wife in contempt for a willful violation of the automatic stay. Imposing actual but not punitive damages, she ruled that the action in state court did not fall under Section 362(b(2)(B). The former wife appealed, to no avail.
The Split on Section 362(b)(2)(B)
Finding a split of authority, District Judge Dillon said there is no Fourth Circuit authority to govern the outcome.
Judge Dillon focused on the language in Section 362(b)(2)(B) and its exception from the automatic stay for the “collection” of a domestic support obligation from non-estate property. He noted, however, that several other exceptions to the stay use broader language and exempt “any act to enforce” or the “commencement or continuation” of a civil action.
Citing Russello v. United States, 464 U.S. 16, 23 (1983), Judge Dillon said that the omission of words in another section of a statute is “generally presumed” to be intentional and purposeful.
Although the former wife said she was only commencing a “collection” action, Judge Dillon said the contempt proceeding “could be more accurately described as the ‘commencement . . . of a civil action or proceeding’ — namely, contempt — for the ‘enforcement’ of the” matrimonial agreement.
Judge Dillon went on to say “that Congress was purposeful in its word choice and thus that there is no exception to the automatic stay for the commencement of civil contempt enforcement litigation with respect to a domestic support obligation.”
Judge Dillon acknowledged that there is “an alternative line of persuasive authority” where “collection” includes the act of collecting and not a merely passive undertaking.
Even if it were true that a collection action is exempt from the stay, Judge Dillon said “it does not follow that the term ‘collection’ must then embrace any act one could conceivably take.” Quoting Bankruptcy Judge Louis Scarcella of Central Islip, N.Y., she said it “‘strain[s] the text of § 362(b)(2)(B)’ to suggest that commencing a civil contempt action against another with the threat of jail time may pass as ‘collection.’” In re Grinspan, 597 B.R. 725, 743 (Bankr. E.D.N.Y. 2019).
Concluding her opinion, Judge Dillon said that the contempt proceeding was not an attempted collection “from property,” nor was it against property at all. Rather, she said it “was an action against [the debtor] himself — seeking an order that he be compelled to take certain action in compliance or face jail time.”
Holding that the contempt proceeding “did not fit within” Section 362(b)(2)(B), Judge Dillon affirmed Judge Connelly.
A contempt action brought against a debtor personally in a state matrimonial court to compel payment of a domestic support obligation violates the automatic stay despite Section 362(b)(2)(B). That section contains an exception from the automatic stay for “the collection of a domestic support obligation from property that is not property of the estate.” [Emphasis added.]
In her opinion on March 20, District Judge Elizabeth K. Dillon of Harrisonburg, Va., took sides on an issue where the courts are split and affirmed Bankruptcy Judge Rebecca B. Connelly.
As it is with any matrimonial action that spills over into bankruptcy court, the facts were complex. For our purposes, a few are critical.