In a case of first impression in the Northern District of Georgia, and perhaps the Eleventh Circuit, the Court held that a claim for the overpayment of a domestic support obligation was entitled to priority status under 11 USC § 507(a)(1)(A)

In In re Knott, Ch. 7 Case No. 09-90822, 2012 Bankr. LEXIS 5063 (Bankr. N.D. Ga. October 23, 2012) (J. Murphy) (click here for .pdf of Order), the material facts were undisputed.  Debtor and her former spouse ("Claimant") were divorced in 1998, and Claimant was required to pay child support to Debtor.  From 2003 forward Claimant overpaid his support obligation to Debtor, even though for a portion of that time period the Claimant had full custody of the child.  Although the Debtor disputed the overpayment in Florida state court, a final order was entered by the state court concluding that Claimant overpaid Debtor in the amount of $41,581.79.  Claimant filed a proof of claim in the Chapter 7 case in the amount of $41,581.79, alleging the claim was entitled to priority status pursuant to § 507(a)(1)(A) as a domestic support obligation. 

Because the Claim for the overpayment of child support did not fall squarely within the definition of "domestic support order" ("DSO") as set forth in 11 USC § 101(14A), and because there was a split of authority in other jurisdictions and no authority in the Northern District of Georgia and Eleventh Circuit, the Trustee filed an objection to the Claim so that the Court could decide the legal issue of whether a claim for overpayment of a DSO was entitled to priority. 

Judge Murphy noted that no Court in the Eleventh Circuit, including the Court of Appeals, had addressed the legal issue presented.  Courts in other jurisdictions were split, with some courts holding that the overpayment of a DSO was not entitled to priority status. See, e.g. In re Lutzke, 223 B.R. 552 (Bankr. D. Or. 1998); Lankford v. Drinkard, 245 B.R. 91 (Bankr. N.D. Tex. 2000); In re Vanhook, 426 B.R. 296 (Bankr. N.D. Ill. 2010); Vaughn v. Reid-Haden, 2011 Bankr. LEXIS (N.D. Ind. March 22, 2011). Taylor v. Taylor (In re Taylor), 2011 WL 1748617 (Bankr. D.N.M. 2011)

Other courts reached a different result, holding that an overpayment claim was entitled to priority status.  See, e.g. In re Baker, 294 B.R. 281 (Bankr. N.D. Ohio 2002) (overpayment was a nondischargeable DSO under § 523(a)(5); In re Norbut, 387 B.R. 199 (Bankr. N.D. Ohio 2008) (nondischargeable DSO under § 523(a)(5));

The Court concluded that the claim for overpayment was entitled to priority status:

The instant case presents a somewhat unusual set of facts in which the repayment obligation arises from excess child support paid at a time when [Claimant] was, in addition to paying child support to Debtor, providing at least half the child’s support while she (the child) was in his custody; and from child support improperly withheld via the [automatic deduction order] at a time when Claimant had full custody of the child. Therefore, the repayment obligation to [Claimant] may properly be characterized as intended for and in the nature of support for the child. The repayment obligation otherwise satisfies the elements of §101(14A) of a DSO and is, therefore, entitled to priority under §507(a)(l)(A).

Although the issue was not before the Court, presumably the same reasoning and outcome would apply in an action under § 523(a)(5).


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