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Bankruptcy court orders state agency to give back woman’s tax refund

A federal bankruptcy court has ruled that the Wisconsin Department of Children and Families must give back more than $3,000 to a woman in Madison.

The woman, Maryam Muhammad, had taken part in Wisconsin’s food-stamp program on behalf of her grandson from 2012 to 2014. DCF sent her notices in 2014 saying she had provided inaccurate information that resulted in the agency paying her $5,520 more in food stamps than she should have gotten and that she had to pay DCF back. She did not make an appeal of the determination, and in March, the DCF took part of her tax refund.

The only trouble was that, in May 2017, Muhammad and her spouse had filed for Chapter 7 bankruptcy in the Western District of Wisconsin. A court had discharged their debts in November.

Muhammad filed a contempt motion in April this year against DCF, contending the money she owed had been discharged by her bankruptcy and asking the court to order DCF to give back the rest of her tax refund. She also asked for compensation for attorneys’ fees and punitive damages.

DCF, on the other hand, contended that because the more than $5,520 was a “domestic support obligation,” it could not be discharged by bankruptcy.

U.S. Bankruptcy Court Judge Catherine Furay handed down a memorandum decision on June 1 finding that the $5,520 had been discharged by the bankruptcy and ordering DCF to return Muhammad’s tax refund.

Furay noted that there is a split among courts over whether government overpayments can count as “domestic support” that is not dischargeable in bankruptcy.

In the end, Furay reasoned that because Muhammad had incurred the debt to DCF by supporting someone who was her grandson, rather than her child, the $5,520 she owed to DCF was dischargeable.

However, Furay did not order DCF to pay for Muhammad’s attorney’s fees because Muhammad was representing herself. Furay also did not award Muhammad punitive damages because federal bankruptcy statutes give government agencies immunity from those sorts of damages.

About Erika Strebel, erika.strebel@wislawjournal.com

Erika Strebel is the law beat reporter for the Wisconsin Law Journal and a law school student at UW-Madison. She can be reached at 414-225-1825.

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