473 B.R. 361
Bankr. D. Or.2012Background
- Oregon seeks to except from discharge the Debtors' obligation to refund overpayments of public benefits due to unlawful failure to report income.
- State pursues recovery of unlawfully obtained public assistance under ORS 411.620; administrative proceeding issued a distraint warrant.
- Complaint asserts two grounds for discharge exception: (i) fraud under §523(a)(2) and (ii) a domestic support obligation under §523(a)(5).
- Debtors failed toappear; default entered; State tendered a proposed judgment relying on both theories.
- Court advised it did not believe the repayment duty was a domestic support obligation and would issue a written opinion; opinion follows.
- Conclusion: the debt is not a DSO under §523(a)(5) but is excepted from discharge under §523(a)(2); default judgments to be entered consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the overpayment debt is a domestic support obligation under §523(a)(5). | State contends the debt is in the nature of support since it is owed to a governmental unit. | Debtors argue it is not in the nature of alimony or support. | Not a DSO; debt does not qualify under §523(a)(5). |
| Whether the overpayment debt falls under §523(a)(2) for fraud. | State alleges false reporting and reliance leading to benefits; prima facie case shown. | Default; no contrary argument presented. | Debt is excepted from discharge under §523(a)(2) based on alleged fraud. |
Key Cases Cited
- In re Phegley, 443 B.R. 154 (8th Cir. BAP 2011) (analysis of whether obligation is in the nature of support)
- In re Sternberg, 85 F.3d 1400 (9th Cir. 1996) (federal standard for determining if an obligation is in the nature of support)
- In re Nelson, 451 B.R. 918 (Bankr.D. Or. 2011) (discusses the nature of domestic support obligations under amended §523(a)(5))
- In re Lutzke, 223 B.R. 552 (Bankr.D. Or. 1998) (overpayment of child support and dischargeability)
- In re Taylor, 455 B.R. 799 (Bankr.D. New Mexico 2011) (debt must be in the nature of support for §523(a)(5) analysis)
- Wisc. Dept. of Workforce Development v. Radliff, (E.D. Wis. 2008) () (history cited on §523(a)(5) interpretation)
- In re Anderson, 439 B.R. 206 (Bankr.M.D. Ala. 2010) (considerations on DSOs under §523(a)(5))
- In re Wheeler, 2010 WL 503112 (Bankr.N.D. Ala. 2010) (DSO analysis under amended§523(a)(5))
- Friedkin v. Sternberg, (In re Sternberg) () (principle that whether obligation is in the nature of support is federal law)