Bankruptcy Bulletin: 8th Circuit BAP Holds the Pre-Conversion Claim for Unpaid Child Support Should Receive Special Treatment Under Section 348(d) Despite Multiple Conversions in the Case
BANKRUPTCY BULLETIN
Contributing Editor: Andrew Page, Maslon LLP
In LaMonda v. Harder (In re Lamonda), 656 B.R. 494 (B.A.P. 8th Cir. 2024), the United States Bankruptcy Appellate Panel for the Eighth Circuit held the claim for unpaid child support was within the plain meaning of 11 U.S.C. § 348(d) despite multiple conversions in the bankruptcy case.
In the case, Justin Gary LaMonda (“Debtor”) filed bankruptcy under Chapter 7 of the Bankruptcy Code on August 23, 2019. At that time, he was married to Natalia LaMonda (“Natalia”). Three months later, on November 27, 2019, the couple divorced, and a Missouri state court entered a Judgement on Dissolution, ordering Debtor to pay $2,000 per month to Natalia in child support. Three weeks later, on December 30, 2019, Debtor filed a motion to convert the Chapter 7 case to a Chapter 13 case, and the bankruptcy court granted the motion on January 23, 2020. Two-and-a-half years later, the Chapter 13 Trustee moved to convert the case back to a Chapter 7 in July 2022, and, after initial opposition, Debtor agreed to the conversion and the bankruptcy court entered its order on February 15, 2023.
On May 23, 2023, Natalia filed an $80,000 unsecured priority claim for unpaid child support. The Chapter 7 Trustee Janice Harder (the “Trustee”) objected to the claim, arguing that it was a postpetition domestic support claim which is disallowed under 11 U.S.C. § 502(b)(5). Natalia countered that her claim should be treated as a prepetition claim under § 348(d) because it arose after the order for relief but before conversion under 11 U.S.C. § 1307. The Trustee replied that § 348(d) did not apply to the child support judgment because it was entered during the Chapter 7 case before it was converted to a Chapter 13 case. The bankruptcy court sustained the Trustee’s objection and disallowed Natalia’s claim. Natalia then filed a timely appeal to the United States Bankruptcy Appellate Panel for the Eighth Circuit (“BAP”).
The BAP reversed, holding that Natalia’s claim qualified as a prepetition claim under § 348(d). The BAP distinguished the present case from the two main cases cited by the Trustee for her argument that § 348(d) applies only to claims that arise during a Chapter 11, 12, or 13 case before it is converted to a Chapter 7 case. The BAP noted that the cases cited (both out-of-circuit bankruptcy court decisions) were not analogous to the present case and, furthermore, one had unnecessarily considered legislative history when § 348(d) was not ambiguous. The plain language of § 348(d) states it applies to a claim “that arises after the order for relief but before conversion in a case that is converted under section . . . 1307 . . . .” It does not state that it only applies to a claim arising during a case under Chapter 11, 12, or 13. It does not state that it only applies to one-conversion cases. It simply states that it applies to claims arising after the order for relief and before a conversion under the reorganization chapters. Natalia’s claim arose after the order for relief (the Chapter 7 petition) and before conversion under § 1307. The claim also arose before the first conversion under § 706 but that does not change the fact it arose before the second conversion which was under § 1307.
In its decision, the BAP acknowledged the House and Senate Reports state § 348(d) “provides for special treatment of claims that arise during chapter 11 or 13 cases.” Nevertheless, the Court insisted that consideration of legislative history was not necessary based on the clear statutory language.
The BAP’s decision provides simple and firm advice to practitioners: don’t read exceptions into sections that aren’t there. Did the claim arise after the order for relief? Yes. Did the claim arise before conversion under § 1307? Yes. The analysis ends there. With the BAP’s decision, the clear nature of § 348 now also has clear precedent in the Eighth Circuit.
To read the BAP’s full decision, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.